HR Restructuring - The Coca Cola & Dabur Way

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"We had grown but we hadn't structured our growth."

- Dabur sources in 1998.

 

"Three major strands have emerged in Coke's mistakes. It never managed its infrastructure, it never managed its crate of 10 brands, and it never managed its people."

- Business World in 2000.

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¢, Colgate-Palmolive 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.

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1] The P/E ratio is calculated by dividing the market price of a share by the earnings per share (EPS). In other words, if a company is reporting a EPS of Rs 2, and the stock is selling for Rs 20 per share, the P/E ratio is 10 - because the buyer would be paying ten-times the earnings. [Rs 20 per share divided by Rs 2 per share earnings = 10 P/E].