Is bigger always better when it comes to organizational size? Does largeness alone promote success and profitability? Does size serve as a guarantee against organizational decline and failure? The answer is illustrated by the story of Hindustan Unilever Ltd (HUL) a company that has been continuously and successfully adapting itself to the changing requirements of the Indian business environment in the last fifty years and more.
Throughout the 1960s and 1970s, HUL adapted its business model to suit the industrial policies of the times, and managed to remain one of the top corporate performers in India. In the days of restricted capacities and the now infamous licensing era, it had diversified into many “non-core” business areas in order to retain growth rates. It built a reputation of professionalism and ethical management, and attracted top talent from the leading institutes in India. HUL invested in building a strong performance oriented culture, and was the undisputed leader in the fast moving consumer goods (FMCG) industry.
Then, in the 1980s, Nirma posed a serious challenge to HUL by changing the rules of the game in the detergent market, and forcing HUL to do some serious introspection. Traditionally a premium products company, HUL had to wake up to the reality of a huge and growing mass market for detergent, and design its response accordingly. The success of Wheel detergent and HUL’s comeback success is now history, but it was not an easy time for HUL. Used to being the undisputed market leader, and being focused on quality, it took a long time for HUL to even acknowledge that upstart Nirma could be a serious threat to them.
At the turn of the century, HUL was facing a crisis again. Markets were showing a sharp downturn driven by indifferent monsoons, stagnating growth rates, and sharply reduced consumer spending in the nondurable categories. Moreover, Procter and Gamble (P&G) was becoming a force to reckon with. It was under these circumstances that M S “Vindi” Banga took over HUL’s chairmanship in 2000. In his first year as chairman, HUL lost 7.5 percent of its Rs 2015 crore soaps business sales, 13 percent of its Rs 2,078 crore packaged tea business, and even faced a slowdown in the growth of its Rs 2,000 personal products division, which had been growing 30 percent every year. Banga realized that some tough decisions had to be taken in order to retain growth rates, and improve the bottom line.
Banga started by rationalizing business lines and moving out of all non-core, non-branded businesses. HUL’s portfolio of 110 brands, many of which were weak, undifferentiated, and unprofitable, was consolidated into 30 top brands, under the “Power Brands” strategy. The organization was restructured into two major divisions, the Home and Personal care (HPC) division and the Foods division. This created economies of scale and, scope by helping to pool resources like centralized functions and sales and distribution networks, and allowing for faster decision making. Improved IT and Supply Chain Management capabilities were adopted to reduce inventory. The sales distribution system was re-hauled, with increasing focus on channel, segmentation.
Along with sweeping operational and financial restructuring, Banga realized that the mindset of people had to be changed. Banga realized that employees at HUL were so used to success that they had become slow to respond to changes. He concentrated on making HUL less hierarchical by de-layering the organization and creating a culture that was more open, nimble, and team oriented. With concentrated efforts by the senior management team, intensive leadership development, and team building efforts, the culture at HUL became more open and transparent. Managers at HUL became more comfortable with acknowledging and discussing problems. More importantly, they learnt to question the status quo, and became more accepting of the need to change.
One of Banga’s major achievements at HUL was the increased confidence of the people in their own ability to adapt and change. HUL became more flexible, less sedate, and much more open to change than it had ever been this maws reflected in the performance of the company.