HR Restructuring The Coca Cola &

Dabur Way: The Leader Humbled

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 achieveS 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.

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 (Northen 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 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.

Dabut 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.

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 marketshare 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.