HR Restructuring: The Coca Cola & Dabur Way

THE LEADER HUMBLED

It all began with Coca Cola India's (Coca-Cola) realization that something was surely amiss. Four CEOs within 7 years, arch-rival Pepsi surging ahead, heavy employee exodus and negative media reports indicated that the leader had gone wrong big time. The problems eventually led to Coca-Cola reporting a huge loss of US $ 52 million in 1999, attributed largely to the heavy investments in India and Japan. Coca-Cola had spent Rs 1500 crore for acquiring bottlers, who were paid Rs 8 per case as against the normal Rs 3. The losses were also attributed to management extravagance such as accommodation in farmhouses for executives and foreign trips for bottlers. Following the loss, Coca-Cola had to write off its assets in India worth US $ 405 million in 2000. Apart from the mounting losses, the write-off was necessitated by Coca-Cola's over-estimation of volumes in the Indian market. This assumption was based on the expected reduction in excise duties, which eventually did not happen, which further delayed the company's break-even targets by some more years. Changes were required to be put in place soon. With a renewed focus and energy, Coca-Cola took various measures to come out of the mess it had landed itself in.

THE SLEEPING GIANT AWAKES

In 1998, the 114 year old ayurvedic and pharmaceutical products major Dabur found itself at the crossroads. In the fiscal 1998, 75% of Dabur's turnover had come from fast moving consumer goods (FMCGs). Buoyed by this, the Burman family (promoters and owners of a majority stake in Dabur) formulated a new vision in 1999 with an aim to make Dabur India's best FMCG company by 2004. In the same year, Dabur revealed plans to increase the group turnover to Rs 20 billion by the year 2003-04. To achieve the goal, Dabur benchmarked itself against other FMCG majors viz., Nestle, ColgatePalmolive and P&G. Dabur found itself significantly lacking in some critical areas. While Dabur's price-to-earnings (P/E) ratio1 was less than 24, for most of the others it was more than 40. The net working capital of Dabur was a whopping Rs 2.2 billion whereas it was less than half of this figure for the others. There were other indicators of an inherently inefficient organization including Dabur's operating profit margins of 12% as compared to Colgate's 16% and P&G's 18%. Even the return on net worth was around 24% for Dabur as against HLL's 52% and Colgate's 34%. The Burmans realized that major changes were needed on all organizational fronts. However, media reports questioned the company's capability to shake-off its family-oriented work culture.

THE COCA COLA WAY

In 1999, following the merger of Coca-Cola's four bottling operations (Hindustan Coca-Cola Bottling North West, Hindustan Bottling Coca-Cola Bottling South West, Bharat Coca-Cola North East, and Bharat Coca-Cola South East), human resources issues gained significance at the company. Two new companies, Coca-Cola India, the corporate and marketing office, and Coca-

Cola Beverages were the result of the merger. The merger brought with it over 10,000 employees to Coca-Cola, doubling the number of employees it had in 1998. Coca-Cola had to go in for a massive restructuring exercise focusing on the company's human resources to ensure a smooth acceptance of the merger. The first task was to put in place a new organizational structure that vested profit and loss accounting at the area level, by renaming each plant-in-charge as a profit center head. The country was divided into six regions as against the initial three, based on consumer preferences. Each region had a separate head (Regional General Manager), who had the regional functional managers reporting to him. All the Regional General Managers reported to VP (Operations), Sanjiv Gupta, who reported directly to CEO Alexander Von Bohr (Bohr). The 37 bottling plants of Coca-Cola, on an average six in each region, had an Area General Manager as the head, vested with profit-center responsibility. All the functional heads reported to the Area General Manager. Coca-Cola also declared VRS at the bottling plants, which was used by about 1100 employees. The merger carried forward employees from different work cultures and different value systems. This move towards regionalization caused dilution of several central jobs, with as many as 1500 employees retiring at the bottling plants. The new line of control strengthened entry and middle-level jobs at the regions and downgraded many at the center. This led to unrest among the employees and about 40 junior and middle-level managers and some senior personnel including Ravi Deoi, Head (Capability Services) and Sunil Sawhney, Head (Northern Operations), left the company. As part of the restructuring plan, Coca-Cola took a strategy level decision to turn itself into a people-driven company. The company introduced a detailed career planning system for over 530 managers in the new setup. The system included talent development meetings at regional and functional levels, following which recommendations were made to the HR Council. The council then approved and implemented the process through a central HR team. Coca-Cola also decided that the regional general managers would meet the top management twice a year to identify fast-track people and train them for more responsible positions. Efficient management trainees were to be sent to the overseas office for a three-week internship. To inculcate a feeling of belonging, the company gave flowers and cards on the birthdays of the employees and major festivals. Coca-Cola also undertook a cost-reduction drive on the human resources front. Many executives who were provided accommodation in farm-houses were asked to shift to less expensive apartments. The company also decided not to buy or hire new cars, as it felt that the existing fleet of cars was not being used efficiently. In the drive for 'optimum utilization of existing resources,' Coca-Cola decided against buying a Rs 50 crore property in Gurgaon and it also surrendered a substantial part of its rented office space in Gurgaon, near Delhi. Company officials felt that this was justified because a lot of officials had moved out of the Delhi headquarters due to the localization. Moreover, this was necessitated by the resignations and sackings. Salaries were also restructured as part of this cost-reduction drive. Coca-Cola began benchmarking itself with other major Indian companies, whereas it was offering pay packages in line with international

standards. Coca-Cola also realigned some jobs based on the employee's talent and potential. However, the company's problems were far from over. In March 2000, Coca-Cola received reports of wrong doings in its North India operations. The company decided to take action after the summer season. In July 2000, Coca-Cola appointed Arthur Anderson to inspect the accounts of the North India operations for a fee of Rs 1 crore. The team inspected all offices, godowns, bottling plants and depots of Jammu, Kanpur, Najibabbad, Varanasi and Jaipur. The findings revealed that the North Indian team had violated discounting terms and the credit policy, apart from being unfair in cash dealings. The team was giving discounts that were five times higher than those given in the other regions of the country. There were also unexplained cancellations and re-appointments of dealerships. In light of the above findings by Arthur Anderson's team, Coca-Cola carried out a performance appraisal exercise for 560 managers. This led to resignations en masse. Around 40 managers resigned between July and November 2000. Coca-Cola also sacked some employees in its drive to overhaul the HR functioning. By January 2001, the company had shed 70 managers, accounting for 12% of the management. Bohr said, "I had to take tough decisions because the buck stops here. We needed to weed out certain practices. That's an important message sent out - that we'll take action if we can't work on principles of integrity. The investigation was the right thing. The business is healthier now." However, media reports revealed a different side of the picture altogether. The managers who had quit voiced their thoughts vociferously against Coca-Cola, claiming that the whole performance appraisal exercise was farcical and that the management had already decided on the people to get rid of. They termed the issue as Coca-Cola's 'witch-hunt' in India. Reacting to the management's comments regarding discount norm violations, one former employee commented, "All discounts were cleared by the top management. They always pushed for higher volumes and said profitability is not your problem. So, we got volumes at whatever costs. Nobody told us this was an unacceptable practice." This seemed to be substantiated by the fact that in the Delhi region, which consumed only 6000-8000 cases per day, the sales team received a target of pushing 25,000 cases a day. It was commented that this was done so as to 'make things look good' when the company sent its financials to the global headquarters. It was also reported that the performance appraisals and the subsequent dismissals were carried out in a very 'inhuman' and 'blunt' manner. Worried by such adverse comments about the company, Alexander decided to take steps to ensure a smooth relationship with the new people in the company. He personally met the finance heads in every territory and made the company's credit policy clear to them. Coca-Cola also standardized the discounting limits and best practices irrespective of market compulsions. The company launched a major IT initiative as well, to make the functioning of the entire organization transparent at the touch of a button. Things seemed to have stabilized to some extent after this. Justifying the decision to let go off certain personnel, Alexander said, "We don't mind those quitting who were just okay. We told them where they could hope to be, based on their performance. Some who have left may not have had a good career with Coke

THE DABUR WAY

Dabur's restructuring efforts began in April 1997, when the company hired consultants McKinsey & Co. at a cost of Rs 80 million. McKinsey's three-fold recommendations were: to concentrate on a few businesses; to improve the supply chain and procurement processes and to reorganize the appraisal and compensation systems. Following these recommendations, many radical changes were introduced. The most important was the Burmans' decision to take a back seat. The day to day management was handed over to a group of professional managers for the first time in Dabur's history, while the promoters confined themselves to strategic decision making. Dabur decided to revamp the organizational structure and appoint a CEO to head the management. All business unit heads and functional heads were to report directly to the CEO. In November 1998, Dabur appointed Ninu Khanna as the CEO. The appointment was the first incident of an outside professional being appointed after the restructuring was put in place. Ninu Khanna, who had previously worked with Procter & Gamble and Colgate-Palmolive, was roped in to give Dabur the much-needed FMCG focus. Dabur had also appointed Cadbury India's Deepak Sethi as Vice President - Sales and Marketing - Health Care Products division; Godrej Pilsbury's Ravi Sivaraman as Vice President - Finance and ABB's Yogi Sriram as Vice President HRD. Dabur made performance appraisals more objective by including many more measureable criteria. Concepts such as customer satisfaction, increased sales and reduced costs, cycle-time efficiency, return on investment and shareholder value were all introduced as yardsticks for performance appraisals. Harish Tandon, general manager, HR, Dabur remarked, "Now Dabur is working towards making compensation more performance-oriented, and the performance evaluation system is being worked on. Today, performance in terms of target achievement is the main factor followed by other criteria such as sincerity and longevity of service." The focus of appraisals thus shifted to what a person had achieved, as much as on what he was capable of. Dabur's employee friendly initiatives included annual sales conferences at places like Mauritius and Kathmandu. These conferences, attended by over a hundred sales executives of the company, combined both 'work-and-play' aspects for better employee morale and performance. Dabur also gave cash incentives to junior level sales officers and representatives upon successful achievement of targets. Employees were also allowed to club their leaves and enjoy a vacation. To increase employee satisfaction levels, Dabur identified certain key performance areas (KPAs) for each employee. Performance appraisal and compensation planning were now based on KPAs. Employee training was also given a renewed focus. To help employees communicate effectively with each other and for better dissemination of news and information, Dabur brought out a quarterly newsletter 'Contact.' The interactive newsletter worked as a two-way communication channel between the employees. Dabur also commissioned consultants Noble & Hewitt to formulate an Employee Stock Option Plan (ESOP). The scheme, effective from the fiscal 2000 was initially reserved for very senior personnel. Dabur planned to extend the scheme throughout the organization in the future.

In July 2000, Coca-Cola appointed Arthur Anderson to inspect the accounts of the North India operations for a fee of Rs 1 crore. The team inspected all offices, godowns, bottling plants and depots of Jammu, Kanpur, Najibabbad, Varanasi and Jaipur. The findings revealed that the North Indian team had violated discounting terms and the credit policy, apart from being unfair in cash dealings. The team was giving discounts that were five times higher than those given in the other regions of the country. There were also unexplained cancellations and re-appointments of dealerships. In light of the above findings by Arthur Anderson's team, Coca-Cola carried out a performance appraisal exercise for 560 managers. This led to resignations en masse. Around 40 managers resigned between July and November 2000. Coca-Cola also sacked some employees in its drive to overhaul the HR functioning. By January 2001, the company had shed 70 managers, accounting for 12% of the management. Bohr said, "I had to take tough decisions because the buck stops here. We needed to weed out certain practices. That's an important message sent out - that we'll take action if we can't work on principles of integrity. The investigation was the right thing. The business is healthier now." However, media reports revealed a different side of the picture altogether. The managers who had quit voiced their thoughts vociferously against Coca-Cola, claiming that the whole performance appraisal exercise was farcical and that the management had already decided on the people to get rid of. They termed the issue as Coca-Cola's 'witch-hunt' in India. Reacting to the management's comments regarding discount norm violations, one former employee commented, "All discounts were cleared by the top management. They always pushed for higher volumes and said profitability is not your problem. So, we got volumes at whatever costs. Nobody told us this was an unacceptable practice." This seemed to be substantiated by the fact that in the Delhi region, which consumed only 6000-8000 cases per day, the sales team received a target of pushing 25,000 cases a day. It was commented that this was done so as to 'make things look good' when the company sent its financials to the global head quarters. It was also reported that the performance appraisals and the subsequent dismissals were carried out in a very 'inhuman' and 'blunt' manner. Worried by such adverse comments about the company, Alexander decided to take steps to ensure a smooth relationship with the new people in the company. He personally met the finance heads in every territory and made the company's credit policy clear to them. Coca-Cola also standardized the discounting limits and best practices irrespective of market compulsions. The company launched a major IT initiative as well, to make the functioning of the entire organization transparent at the touch of a button. Things seemed to have stabilized to some extent after this. Justifying the decision to let go off certain personnel, Alexander said, "We don't mind those quitting who were just okay. We told them where they could hope to be, based on their performance. Some who have left may not have had a good career with Coke." Dabur's restructuring efforts began in April 1997, when the company hired consultants McKinsey & Co. at a cost of Rs 80 million. McKinsey's three-fold recommendations were: to concentrate on a few businesses; to improve the supply chain and procurement processes and to reorganize the appraisal and compensation systems. Following these recommendations, many radical changes were introduced. The most important was the Burmans' decision to take a back seat. The day to day management was handed over to a group of professional managers for the first time in Dabur's history, while the promoters confined themselves to strategic decision making.

Dabur decided to revamp the organizational structure and appoint a CEO to head the management. All business unit heads and functional heads were to report directly to the CEO. In November 1998, Dabur appointed Ninu Khanna as the CEO. The appointment was the first incident of an outside professional being appointed after the restructuring was put in place. Ninu Khanna, who had previously worked with Procter & Gamble and Colgate-Palmolive was roped in to give Dabur the much-needed FMCG focus. Dabut had also appointed Cadbury India's Deepak Sethi as Vice President - Sales and Marketing - Health Care Products division; Godrej Pilsbury's Ravi Sivaraman as Vice President - Finance and ABB's Yogi Sriram as Vice President HRD. Dabur made performance appraisals more objective by including many more measureable criteria. Concepts such as customer satisfaction, increased sales and reduced costs, cycle-time efficiency, return on investment and shareholder value were all introduced as yardsticks for performance appraisals. Harish Tandon, general manager, HR, Dabur remarked, "Now Dabur is working towards making compensation more performance-oriented, and the performance evaluation system is being worked on. Today, performance in terms of target achievement is the main factor followed by other criteria such as sincerity and longevity of service." The focus of appraisals thus shifted to what a person had achieved, as much as on what he was capable of. Dabur's employee friendly initiatives included annual sales conferences at places like Mauritius and Kathmandu. These conferences, attended by over a hundred sales executives of the company, combined both 'work-and-play' aspects for better employee morale and performance. Dabur also gave cash incentives to junior level sales officers and representatives upon successful achievement of targets. Employees were also allowed to club their leaves and enjoy a vacation. To increase employee satisfaction levels, Dabur identified certain key performance areas (KPAs) for each employee. Performance appraisal and compensation planning were now based on KPAs. Employee training was also given a renewed focus. To help employees communicate effectively with each other and for better dissemination of news and information, Dabur brought out a quarterly newsletter 'Contact.' The interactive newsletter worked as a two-way communication channel between the employees. Dabur also commissioned consultants Noble & Hewitt to formulate an Employee Stock Option Plan (ESOP). The scheme, effective from the fiscal 2000 was initially reserved for very senior personnel. Dabur planned to extend the scheme throughout the organization in the future.

THE AFTER EFFECTS

Both Coca-Cola and Dabur had to accept the fact that a major change on the human resources front was inevitable, although the changes in the two were necessitated by radically different circumstances. More importantly, the restructuring seemed to have been extremely beneficial for them. Besides improved morale and reduced employee turnover figures, the strategic, structural and operational changes on the HR front led to an overall 'feel-good' sentiment in the companies.

In 1999, Coca-Cola reported an increase in case-volume by 9% after restructuring. Volumes increased by 14% and market share increased by 1% after the regionalization drive. The company's improving prospects were further reflected with the 18% rise in sales in the second quarter of 2000. However, in spite of all the moves, Coca-Cola's workforce was still large. Given the scale of its investments, the future was far from 'smooth sailing' for the company. With the new found focus and a streamlined human resources front, Coca-Cola hoped to break even by the end of fiscal 2001. Dabur, with the restructuring moves in place by the late 1990s, the company's future business prospects were termed excellent by analysts. The new structure, the performance-oriented compensation, and the new performance appraisal system increased employee efficiency and morale. The annual sales conferences and cash incentives to junior level sales officers helped in meeting higher sales targets. Dabur's sales increased to Rs 10.37 billion in 1999-00 from Rs 9.14 billion in 1998-99 - an increase of 13.5%. Dabur's profits also increased by 53% from 501 million to Rs 770 million. The year was a milestone in Dabur's history as the company crossed the Rs 10 billion mark in sales turnover for the first time. Even in early 2001, Dabur's efforts towards emerging as a competitive and professionally managed company were yet to be completely reflected in its financials. Analysts commented that given its track record and the restructuring initiatives, Dabur was all set to reach its target of becoming an FMCG major.