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-ri!al "e#si surging ahead hea!y em#loyee e$odus and negati!e media re#orts indicated that the leader had gone wrong big time. %he #roblems e!entually led to Coca-Cola re#orting a huge loss o& '( ) *+ million in ,--- attributed largely to the hea!y in!estments in India and .a#an. Coca-Cola had s#ent /s ,*00 crore &or ac1uiring bottlers who were #aid /s 2 #er case as against the normal /s 3. %he losses were also attributed to management e$tra!agance such as accommodation in &armhouses &or e$ecuti!es and &oreign tri#s &or bottlers. Following the loss Coca-Cola had to write o&& its assets in India worth '( ) 40* million in +000. 5#art &rom the mounting losses the write-o&& was necessitated by CocaCola's o!er-estimation o& !olumes in the Indian mar6et. %his assum#tion was based on the e$#ected reduction in e$cise duties which e!entually did not ha##en which &urther delayed the com#any's brea6-e!en targets by some more years. Changes were re1uired to be #ut in #lace soon. 7ith a renewed &ocus and energy Coca-Cola too6 !arious measures to come out o& the mess it had landed itsel& in.

The Sleeping Giant !a"es

In ,--2 the ,,4 year old ayur!edic and #harmaceutical #roducts ma8or 9abur &ound itsel& at the crossroads. In the &iscal ,--2 7*: o& 9abur's turno!er had come &rom &ast mo!ing consumer goods (F;C<s). =uoyed by this the =urman &amily (#romoters and owners o& a ma8ority sta6e in 9abur) &ormulated a new !ision in ,--- with an aim to ma6e 9abur India's best F;C< com#any by +004. In the same year 9abur re!ealed #lans to increase the grou# turno!er to /s +0 billion by the year +003-04. %o achie!e the goal 9abur benchmar6ed itsel& against other F;C< ma8ors !iz. >estle? Colgate-"almoli!e and "@<. 9abur &ound itsel& signi&icantly lac6ing in some critical areas. 7hile 9abur's #rice-to-earnings ("AE) ratio, was less than +4 &or most o& the others it was more than 40. %he net wor6ing ca#ital o& 9abur was a who##ing /s +.+ billion whereas it was less than hal& o& this &igure &or the others. %here were other indicators o& an inherently ine&&icient organization including 9abur's o#erating #ro&it margins o& ,+: as com#ared to Colgate's ,B: and "@<'s ,2:. E!en the return on net worth was around +4: &or 9abur as against CDD's *+:

and Colgate's 34:. %he =urmans realized that ma8or changes were needed on all organizational &ronts. Cowe!er media re#orts 1uestioned the com#any's ca#ability to sha6e-o&& its &amily-oriented wor6 culture. The Coca-Cola Way In ,--- &ollowing the merger o& Coca-Cola's &our bottling o#erations (Cindustan Coca-Cola =ottling >orth 7est Cindustan =ottling Coca-Cola =ottling (outh 7est =harat Coca-Cola >orth East and =harat CocaCola (outh East) human resources issues gained signi&icance at the com#any. %wo new com#anies CocaCola India the cor#orate and mar6eting o&&ice and CocaCola =e!erages were the result o& the merger. %he merger brought with it o!er ,0 000 em#loyees to Coca-Cola doubling the number o& em#loyees it had in ,--2. Coca-Cola had to go in &or a massi!e restructuring e$ercise &ocusing on the com#any's human resources to ensure a smooth acce#tance o& the merger. %he &irst tas6 was to #ut in #lace a new organizational structure that !ested #ro&it and loss accounting at the area le!el by renaming each #lant-in-charge as a #ro&it center head. %he country was di!ided into si$ regions as against the initial three based on consumer #re&erences. Each region had a se#arate head (/egional <eneral ;anager) who had the regional &unctional managers re#orting to him. 5ll the /egional <eneral ;anagers re#orted to E" (O#erations) (an8i! <u#ta who re#orted directly to CEO 5le$ander Eon =ohr (=ohr). %he 37 bottling #lants o& Coca-Cola on an a!erage si$ in each region had an 5rea <eneral ;anager as the head !ested with #ro&it-center res#onsibility. 5ll the &unctional heads re#orted to the 5rea <eneral ;anager. Coca-Cola also declared E/( at the bottling #lants which was used by about ,,00 em#loyees. %he merger carried &orward em#loyees &rom di&&erent wor6 cultures and di&&erent !alue systems. %his mo!e towards regionalization caused dilution o& se!eral central 8obs with as many as ,*00 em#loyees retiring at the bottling #lants. %he new line o& control strengthened entry and middlele!el 8obs at the regions and downgraded many at the center. %his led to unrest among the em#loyees and about 40 8unior and middle-le!el managers and some senior #ersonnel including /a!i 9eoi Cead (Ca#ability (er!ices) and (unil (awhney Cead (>orthen O#erations) le&t the com#any. 5s #art o& the restructuring #lan Coca-Cola too6 a strategy le!el decision to turn itsel& into a #eo#le-dri!en com#any. %he com#any introduced a detailed career #lanning system &or o!er *30 managers in the new setu#. %he system included talent de!elo#ment meetings at regional and &unctional le!els &ollowing which recommendations were made to the C/ Council. %he council

then a##ro!ed and im#lemented the #rocess through a central C/ team. Coca-Cola also decided that the regional general managers would meet the to# management twice a year to identi&y &asttrac6 #eo#le and train them &or more res#onsible #ositions. E&&icient management trainees were to be sent to the o!erseas o&&ice &or a three-wee6 internshi#. %o inculcate a &eeling o& belonging the com#any ga!e &lowers and cards on the birthdays o& the em#loyees and ma8or &esti!als. Coca-Cola also undertoo6 a cost-reduction dri!e on the human resources &ront. ;any e$ecuti!es who were #ro!ided accommodation in &arm-houses were as6ed to shi&t to less e$#ensi!e a#artments. %he com#any also decided not to buy or hire new cars as it &elt that the e$isting &leet o& cars was not being used e&&iciently. In the dri!e &or 'o#timum utilization o& e$isting resources ' Coca-Cola decided against buying a /s *0 crore #ro#erty in <urgaon and it also surrendered a substantial #art o& its rented o&&ice s#ace in <urgaon near 9elhi. Com#any o&&icials &elt that this was 8usti&ied because a lot o& o&&icials had mo!ed out o& the 9elhi head1uarters due to the localization. ;oreo!er this was necessitated by the resignations and sac6ings. (alaries were also restructured as #art o& this cost-reduction dri!e. Coca-Cola began benchmar6ing itsel& with other ma8or Indian com#anies whereas it was o&&ering #ay #ac6ages in line with international standards. Coca-Cola also realigned some 8obs based on the em#loyee's talent and #otential. Cowe!er the com#any's #roblems were &ar &rom o!er. In ;arch +000 Coca-Cola recei!ed re#orts o& wrong doings in its >orth India o#erations. %he com#any decided to ta6e action a&ter the summer season.+ In .uly +000 Coca-Cola a##ointed 5rthur 5nderson to ins#ect the accounts o& the >orth India o#erations &or a &ee o& /s , crore. %he team ins#ected all o&&ices godowns bottling #lants and de#ots o& .ammu Fan#ur >a8ibabbad Earanasi and .ai#ur. %he &indings re!ealed that the >orth Indian team had !iolated discounting terms and the credit #olicy a#art &rom being un&air in cash dealings. %he team was gi!ing discounts that were &i!e times higher than those gi!en in the other regions o& the country. %here were also une$#lained cancellations and re-a##ointments o& dealershi#s. In light o& the abo!e &indings by 5rthur 5nderson's team Coca-Cola carried out a #er&ormance a##raisal e$ercise &or *B0 managers. %his led to resignations en masse. 5round 40 managers resigned between .uly and >o!ember +000. Coca-Cola also sac6ed some em#loyees in its dri!e to o!erhaul the C/ &unctioning. =y .anuary +00, the com#any had shed 70 managers accounting &or ,+: o& the management. =ohr said GI had to ta6e tough decisions because the buc6 sto#s here. 7e needed to weed out certain #ractices. %hat's an im#ortant message sent out that we'll ta6e action i& we can't wor6 on #rinci#les o& integrity. %he in!estigation was the right thing. %he business is healthier now.G

Cowe!er media re#orts re!ealed a di&&erent side o& the #icture altogether. %he managers who had 1uit !oiced their thoughts !oci&erously against Coca-Cola claiming that the whole #er&ormance a##raisal e$ercise was &arcical and that the management had already decided on the #eo#le to get rid o&. %hey termed the issue as Coca-Cola's 'witch-hunt' in India. /eacting to the management's comments regarding discount norm !iolations one &ormer em#loyee commented G5ll discounts were cleared by the to# management. %hey always #ushed &or higher !olumes and said #ro&itability is not your #roblem. (o we got !olumes at whate!er costs. >obody told us this was an unacce#table #ractice.G %his seemed to be substantiated by the &act that in the 9elhi region which consumed only B000-2000 cases #er day the sales team recei!ed a target o& #ushing +* 000 cases a day. It was commented that this was done so as to 'ma6e things loo6 good' when the com#any sent its &inancials to the global head 1uarters. It was also re#orted that the #er&ormance a##raisals and the subse1uent dismissals were carried out in a !ery 'inhuman' and 'blunt' manner. 7orried by such ad!erse comments about the com#any 5le$ander decided to ta6e ste#s to ensure a smooth relationshi# with the new #eo#le in the com#any. Ce #ersonally met the &inance heads in e!ery territory and made the com#any's credit #olicy clear to them. Coca-Cola also standardized the discounting limits and best #ractices irres#ecti!e o& mar6et com#ulsions. %he com#any launched a ma8or I% initiati!e as well to ma6e the &unctioning o& the entire organization trans#arent at the touch o& a button. %hings seemed to ha!e stabilized to some e$tent a&ter this. .usti&ying the decision to let go o&& certain #ersonnel 5le$ander said G7e don't mind those 1uitting who were 8ust o6ay. 7e told them where they could ho#e to be based on their #er&ormance. (ome who ha!e le&t may not ha!e had a good career with Co6e.G 9abur's restructuring e&&orts began in 5#ril ,--7 when the com#any hired consultants ;cFinsey @ Co. at a cost o& /s 20 million. ;cFinsey's three-&old recommendations wereH to concentrate on a &ew businessesI to im#ro!e the su##ly chain and #rocurement #rocesses and to reorganize the a##raisal and com#ensation systems. Following these recommendations many radical changes were introduced. %he most im#ortant was the =urmans' decision to ta6e a bac6 seat. %he day to day management was handed o!er to a grou# o& #ro&essional managers &or the &irst time in 9abur's history while the #romoters con&ined themsel!es to strategic decision ma6ing. 9abut decided to re!am# the organizational structure and a##oint a CEO to head the management. 5ll business unit heads and &unctional heads were to re#ort directly to the CEO. In >o!ember ,--2 9abur a##ointed >inu Fhanna as the CEO. %he a##ointment was the &irst incident o& an outside #ro&essional being a##ointed a&ter the restructuring was #ut in #lace. >inu

Fhanna who had #re!iously wor6ed with "rocter @ <amble and Colgate-"almoli!e was ro#ed in to gi!e 9abur the much-needed F;C< &ocus. 9abut had also a##ointed Cadbury India's 9ee#a6 (ethi as Eice "resident - (ales and ;ar6eting - Cealth Care "roducts di!isionI <odre8 "ilsbury's /a!i (i!araman as Eice "resident - Finance and 5=='s Jogi (riram as Eice "resident - C/9. 9abur made #er&ormance a##raisals more ob8ecti!e by including many more measureable criteria. Conce#ts such as customer satis&action increased sales and reduced costs cycle-time e&&iciency return on in!estment and shareholder !alue were all introduced as yardstic6s &or #er&ormance a##raisals. Carish %andon general manager C/ 9abur remar6ed G>ow 9abur is wor6ing towards ma6ing com#ensation more #er&ormance-oriented and the #er&ormance e!aluation system is being wor6ed on. %oday #er&ormance in terms o& target achie!ement is the main &actor &ollowed by other criteria such as sincerity and longe!ity o& ser!ice.G %he &ocus o& a##raisals thus shi&ted to what a #erson had achie!ed as much as on what he was ca#able o&. 9abur's em#loyee &riendly initiati!es included annual sales con&erences at #laces li6e ;auritius and Fathmandu. %hese con&erences attended by o!er a hundred sales e$ecuti!es o& the com#any combined both 'wor6-and-#lay' as#ects &or better em#loyee morale and #er&ormance. 9abur also ga!e cash incenti!es to 8unior le!el sales o&&icers and re#resentati!es u#on success&ul achie!ement o& targets. Em#loyees were also allowed to club their lea!es and en8oy a !acation. %o increase em#loyee satis&action le!els 9abur identi&ied certain 6ey #er&ormance areas (F"5s) &or each em#loyee. "er&ormance a##raisal and com#ensation #lanning were now based on F"5s. Em#loyee training was also gi!en a renewed &ocus. %o hel# em#loyees communicate e&&ecti!ely with each other and &or better dissemination o& news and in&ormation 9abur brought out a 1uarterly newsletter 'Contact.' %he interacti!e newsletter wor6ed as a two-way communication channel between the em#loyees. 9abur also commissioned consultants >oble @ Cewitt to &ormulate an Em#loyee (toc6 O#tion "lan (E(O"). %he scheme e&&ecti!e &rom the &iscal +000 was initially reser!ed &or !ery senior #ersonnel. 9abur #lanned to e$tend the scheme throughout the organization in the &uture =oth Coca-Cola and 9abur had to acce#t the &act that a ma8or change on the human resources &ront was ine!itable although the changes in the two were necessitated by radically di&&erent circumstances. ;ore im#ortantly the restructuring seemed to ha!e been e$tremely bene&icial &or them. =esides im#ro!ed morale and reduced em#loyee turno!er &igures the strategic structural and o#erational changes on the C/ &ront led to an o!erall '&eel-good' sentiment in the com#anies. In ,--- Coca-Cola re#orted an increase in case-!olume by -: a&ter restructuring. Eolumes increased by ,4: and mar6etshare increased by ,: a&ter the regionalization dri!e. %he com#any's im#ro!ing #ros#ects were &urther re&lected with the ,2: rise in sales in the second 1uarter

o& +000. Cowe!er in s#ite o& all the mo!es Coca-Cola's wor6&orce was still large. <i!en the scale o& its in!estments the &uture was &ar &rom 'smooth sailing' &or the com#any. 7ith the new &ound &ocus and a streamlined human resources &ront Coca-Cola ho#ed to brea6 e!en by the end o& &iscal +00,. 5t 9abur with the restructuring mo!es in #lace by the late ,--0s the com#any's &uture business #ros#ects were termed e$cellent by analysts. %he new structure the #er&ormance-oriented com#ensation and the new #er&ormance a##raisal system increased em#loyee e&&iciency and morale. %he annual sales con&erences and cash incenti!es to 8unior le!el sales o&&icers hel#ed in meeting higher sales targets. 9abur's sales increased to /s ,0.37 billion in ,----00 &rom /s -.,4 billion in ,--2--- - an increase o& ,3.*:. 9abur's #ro&its also increased by *3: &rom *0, million to /s 770 million. %he year was a milestone in 9abur's history as the com#any crossed the /s ,0 billion mar6 in sales turno!er &or the &irst time. E!en in early +00, 9abur's e&&orts towards emerging as a com#etiti!e and #ro&essionally managed com#any were yet to be com#letely re&lected in its &inancials. 5nalysts commented that gi!en its trac6 record and the restructuring initiati!es 9abur was all set to reach its target o& becoming an F;C< ma8or.