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The traditional Godrej philosophy of achieving end results has in recent years started being replaced by the emerging philosophy of laying emphasis on the processes leading to these end results. Breakthroughs and innovations in competitive strategy contribute to value creation. Authority and responsibility have shifted from the individual to the team to foster a team spirit.
On Adding Value
In the previous issue we wrote about Values and Value. While upholding the Values of the Company’s founders, Godrej management today must continue to add Value if it is to survive against global competition. This was the note on which our editorial essay in the previous issue ended.
So, what is the Value the incumbent management is adding to the Godrej enterprise?
In his recently released book, Managing Radical Change, management guru Sumantra Ghoshal (assisted by Gita Piramal and Christopher A. Bartlett) claims that Indian companies today need to think about strategy and competition at three very different levels: “They have to win the battle for markets. They will have to win the battle for competencies. And, they will have to win the battle for dreams.?/font>
This is exactly what the third and fourth generations of Godrej have been trying to do, adopting a differently worded methodology perhaps, though the approach and the end remain the same.
The traditional Godrej philosophy of achieving end results has in recent years started being replaced by the emerging philosophy of laying emphasis on the processes leading to these end results. Breakthroughs and innovations in competitive strategy contribute to value creation. Authority and responsibility have shifted from the individual to the team to foster a team spirit. The management style has changed from delegating work to participative management. Social needs are added to safety norms. Financial incentives have to an extent been superseded by incentives in kind...
And as for dreams, Jamshyd Godrej too has a dream. Asked during Godrej’s Centenary year about his vision for the 21st century, Jamshyd replied: “We have to remain market leaders in our product lines and extend these lines. All our products have an enormous potential for the future. We have the basic strengths ?manufacturing expertise, brand image, an efficient sales and distribution organisation. Our constant concern is how we can become better so as to remain always on the top. There is greater focusing in all our activities.
“I look forward to the day when diversification will lead to each Division becoming separate companies, treading their own difficult and divergent paths, with Godrej becoming the financial holding Company. Eight or nine per cent GDP growth is quite possible in the next decade, provided the liberalisation tempo is kept up.?His dream is to make Godrej a world-class company. Coincidentally, this concurs with the subtitle of Sumantra Ghoshal’s book, What Indian Companies Must Do To Become World Class.
But the dream is still far from being realised.
The Deming philosophy
According to Executive Director P.D. Lam, in an interview published in the inaugural issue of this magazine: “I believe that ANAAR has succeeded in changing the way we work, by putting an emphasis on Process-Orientation Thinking, whereby we have substantially reduced, if not done away with, the fear of being wrong. No more do we blame people per se, but look at the process which has not performed effectively. The philosophy is so simple to understand that it can easily be percolated down to all levels.?/font>
The starting point is identifying what your problems are, and making a Pareto chart to highlight, in descending order, the impact of each incident which affects that particular problem or line of business. This is followed by making a Cause and Effect Diagram (CED) to ascertain the probable causes which result in the particular shortfall or failure. Next, brainstorming sessions determine the two or three root causes from among the probable causes as the principal contributory factors. Thereafter, data is collected and one moves into the Solution Mode. Once the solution is arrived at, it is implemented and data collected afresh. If the desired results are obtained, then the process has stabilised, and it is documented and institutionalised. If not, the process is repeated and revised for further action. In this manner, moving down the list of priorities on the Pareto chart, one is able to attack each and every problem facing a particular business or product.
“I have had the opportunity,?Lam went on to say, “to discuss with various people in the erstwhile O.E. Division practising TQM, right down to the workers, and I have found that it has fostered team work and a tremendous feeling of satisfaction when success is achieved. To share one such success story, we made a couple of our workers make a presentation in a Workshop held outside our Company, where CEOs of other Companies were also present. This was a revolutionary exposure and the audience was charmed at the simplicity and enthusiasm of the workers who took it as a tremendous motivating factor to talk of the success they had achieved.?/font>
In the early stages of BaaN implementation, there were complaints that booking of orders took very long, incorrect figures of stocks and outstandings were sometimes given and there were delays in issuing cheques ?“initial hiccups,?Lam called them. The point is that BaaN insists upon tremendous self-discipline, which is not easy to achieve, and it is a universal law that if implementation does not follow the right rules and proper guidelines, the expected results too will not follow. The Enterprise Resource Planning package needs to be implemented in full and given a sporting chance. People are called upon to change their way of thinking and working, a complete change of mindset, in fact, working in a totally different way from what they have been accustomed to so far.
True, the workforce has been reduced substantially, with further reductions likely. But the fact remains that workers per se do not provide productivity. Productivity depends upon other factors ?workers should work on processes that have been newly put in place; they should give the necessary touch time daily, for which they are paid; engineers should be innovative in new design concepts and continuously re-engineered product lines; our purchasing should take on a global sourcing perspective; our marketing people should look out for global trading opportunities: “There must be productivity of men, machines and of thought. If this is done, there is reason to believe that productivity will increase exponentially, irrespective of a lesser number of people.?/font>
“It is, however, a solution which cannot be lost sight of, and if each and every business of the Company drives itself to become profitable, I do not see any problem, in future, of having independent Companies instead of Divisions, which are self-supporting in most ways and which can function under an umbrella Company which provides direction and strategy, if necessary. Partnership 2000 helps indirectly in this process of making businesses independently viable.?/font>
Lam believed that export turnover could increase by 15 per cent of total production and a turnover of Rs. 11 crores could be achieved before the turn of the last century. He frankly admits that the Office Equipment Division has “grossly failed?in this. Originally, office furniture could only be manufactured by small-scale industries because of Government restrictions. Recently, however, various large furniture companies have set up 100 per cent subsidiaries and tied up with local companies for distribution. There is a large inflow of imported furniture today, which Godrej has to compete with.
Godrej products are priced higher than those of major competitors because of the tremendous infrastructure cost and the overheads foisted on product lines. But shifting of businesses from Vikhroli to outside centres has dramatically reduced costs. Again, there is need to improve our product quality, which, “though not dramatically below that of our competitors, cannot be said to be of global quality? But this, too, can be improved with greater focus on each business. In fact each business line has an action plan in place for both these critical aspects, improving quality and reducing price. There are plans to beef up our marketing. Motivation needs to be developed: it is when sales are down that motivation should be up. Appreciation of good work done always works wonders. A simple thank you, a note of appreciation, public acknowledgement of a good performance goes a long way in making people respect themselves and perform even better.
Time management, also a Value, needs to be improved. Senior managers appear to be so bogged down with an increasing number of meetings throughout the day as to be almost inaccessible! Lam was frank enough to admit this: “Time management is something that requires drastic improvement and all of us must learn to empower our subordinates more, so that top management is free for concentrating on planning, etc.?/font>
Partnership 2000 is planned to meet the diverse needs of the wide variety of businesses across the Godrej organisation in terms of motivating, mentoring, retaining and achieving talent while remaining focused on performance. Partnership 2000 is only the beginning of the long journey of forging partnerships with people who are the Company’s greatest asset.
Godrej was a household name that grew to become a strong brand name, occupying a pre-eminent position in the minds of the public, synonymous with a high value system. Lam regrets that “our strengths we have allowed to fritter away, and not leveraged in the manner that they should be. If we are genuinely successful in promoting this leadership culture within the organisation, we will have a strong, vibrant workforce, which shares a common vision, and which works towards a common goal. That is the only way in which we will revolutionise the potential which exists in the Company, and which is currently not being effectively used.?/font>
Value creation is a continuous process, leading to growth and profits.
Economic Value Added (EVA)
Godrej Consumer Products Limited (GCPL) has been successful in completing an EVA implementation programme during the year. EVA (Economic Value Added) is a measure of shareholder value and is the value added by the company for its investors by generating profits in excess of the cost of capital employed by the company.
The EVA Framework implementation at GCPL was facilitated by Stern Stewart & Company, the New York-based management consulting firm that pioneered the development of the EVA Framework.
Apart from being a company level performance measure, EVA has been adopted as a management process, as well as a motivation driver for employees. The former involves integrating value-based thinking into all management processes and developing relevant tools and frameworks to guide management in their strategic, operating and financing decisions to improve their businesses?EVA. The latter is achieved through the EVA-based performance linked variable remuneration (PLVR) scheme, which directly links remuneration of employees to the value added to shareholders?funds by the company.
GCPL has been able to create a positive EVA of Rs. 30.1 crores during the year 2001-2002.
Godrej is amongst the handful of leading Indian adopters of the EVA Framework. Other Indian companies who have adopted EVA are TCS and NIIT. Internationally such shareholder value-based management approaches have been adopted very widely, including by prominent MNCs such as Coca Cola, Bausch & Lomb, Cadbury, Diageo, Hershey Foods, Johnson & Johnson, Kao Corp, Quaker Oats, Siemens, Sony, Whirlpool and Unilever.
Many influential investors and independent experts have endorsed the EVA management system. A number of empirical studies have shown that companies that have successfully adopted the EVA Framework have significantly outperformed peers in creating superior returns to shareholders.