The Hindu Business Line : The restructuring game

The change in HLL's top management structure has less to do with the individual but is more a recognition of the growing importance of the Indian arm to Unilever in the years to come. Thus the shape of the reorganisation at the top, which makes it a replica of the top management organisation in the headquarters, signals this realisation.

Unilever products

WHEN in doubt play back foot!" is the old school advice to batsmen unsure about the length or direction of a turning delivery. On similar lines, a management joke goes that restructuring is what consultants advise when all else seems impossible. The reason why this is a joke is not hard to see, but it does hide a profound and disturbing truth: most cases of redoing the organisational chart, full of boxes and arrows, result only in re-arranging the furniture. And that is exactly what some people were still doing on the Titanic after it had hit an iceberg!

Despite the Doubting Thomases of the stock market, there is no gainsaying the fact that Hindustan Lever, which announced major changes in top management, both as regards people and positions, still has a lot of potential for long-term growth as a company, in an economy that seems to be on the verge of a consumerism-led take off. True, there has been a period of readjustment of priorities and cleaning up the messy accumulation of disparate companies and brands over the roaring Nineties. The irony of the outgoing Chairman, M. S. Banga's record, is that no one gets kudos for cleaning up and trimming down the needless accretions and the most likely beneficiaries will be his successors. The heroes are always the ones who show dramatic growth in numbers. A close look at the record would reveal that the previous chairmen had been feasting like long-starving men returned from the front, when a flood of companies were acquired and gradually folded into what has indeed turned out to be a large company by global standards.

Structure forms one of the three cornerstones of the classical triangle of managerial thought, strategy and style being the other two. Alfred Chandler, the doyen of thinkers on strategy in the 20th century, formulated the axiom "structure follows strategy," clearly indicating the derivative nature of the former. The leader's role in a company is, among other things, to ensure the synergy between the two in a way that brings people together and combines their energies effectively. An article in The Economist last year had highlighted the new understanding of the leader's task thus: a company CEO is rather like a driver of a bus. He can either decide where he is going and how, and then persuade the passengers to go along with him, or motivate them, or he can get together like-minded people who wish to travel with him, knowing that it might well be a voyage of discovery into uncharted territory. And then decide what the most acceptable destination for all would be - as well as the best route to get there.

It turns out that (according to research by Collins and Porras) the people who follow the latter approach have by far the better record of success than the flamboyant, hero-like figures about whom stories abound in airport bookstall literature. The key point to note is the seating arrangement inside the bus is far less relevant in either of the above approaches. In other words, to make sure that the direction in which the company is pointed is right (and the majority feel good about it) is the primary task of the CEO.

It would appear that in the case of HLL in the past three or four years, a very careful course correction including focusing the company's efforts behind power brands and doing away with the distractions, has already taken place. The trouble is that headlines have too little space to carry detail and the highlight seems to be on the sudden flattening of the growth curve of a generally buoyant organisation. So it is top management changes that make the juiciest news copy in any season, with the added spice of speculation about the real and stated reasons behind the various moves. This is more so when it has to do with Hindustan Lever, which remains the best known home for top flight professional talent in the country.

The fact is that contrary to what may have appeared at first glance, the change in structure by itself is of historic importance, and greater than the individual career changes. The introduction of the Business Presidents concept will turn out in retrospect to have a far more long lasting impact, in terms of the strategic as well as operational control exercised by the parent, Unilever. Among the three variables of geography, business type, and function, the dimension that is most valuable and a powerful tool for a consumer product company is the product itself. Everything succeeds or fails with the health and prosperity of its brands, or the categories and broad interest areas. Everything Unilever has done in the recent past points to their rediscovering their original strengths as serving the millions of ordinary homes, essentially making products for the home, more precisely the kitchen and the bathroom - and turn them into household names if not icons. Therefore, it is natural that the axis of direction will be along this dimension; and hence, a position that combines the geography and the business group as in, say, Home and Personal Care division, Asia to which the current executive Chairman will move.

Cynical wags will see in this the familiar cliché of a kick upstairs but that would be a gross error. The change has less to do with the individual but is more a recognition of the growing importance of the Indian arm to Unilever in the years to come. Thus the shape of the reorganisation at the top of HLL, which makes it a replica of the top management organisation in the headquarters, signals this realisation.

As a corporate sector leader in a young and vibrant economy, the Indian company can only grow in contribution to the overall profitability. It will also grow in value to a European multinational accustomed to shrinking margins and flattening volumes all over the West with the greying populations. India will now be more closely watched over now by the two people in London who share the entire global leadership as a pair of divisional directors. According to the official Unilever Web site, it is the business presidents who are responsible for delivering business results and report to either the director of the Foods or the Home and Personal Care division. They play an important role in shaping divisional strategy.

The subtext in all this is also the worldwide decline of the country manager, to be replaced by multi-level direction from the parent office. When a country grows in size and potential, as we have seen only too often in recent past, the multinational typically reacts slowly at first but strikes with a sharp and telling effect soon. The rush of investment into the secondary markets and investment in BPO is but one indicator of this trend. With the crumbling of the barriers to movement of capital and other resources, it should become a far easier option for more and more global companies to run country operations in much the same way a large Indian company runs its four regional operations — through an almost daily contact and feedback, and not just month end or quarterly numbers. Even where a company is listed it can be run for all intents and purposes as a subsidiary in strategic terms. Yet another manifestation of the same tendency will be that expatriate top managers coming in to India will become a more common occurrence. The difference between today and what obtained 60 years ago is that now top managers move along a two-way street — as Unilever itself has shown so clearly in the past decade and more.

To Indian analysts and journalists perhaps the cycle of consolidation and growth is more of a new phenomenon, but even the global giants such as GE and GM have had their periods of stress and stumbling, when wrong bets came home to roost. The American model of capitalism is one of short-term successes, sharp highs and lows of reputations and swift and final retribution when financial results do not satisfy the punters and fund managers. It would be a pity if we too were to go the same mindless way in India, instead of taking a slightly longer term view of fortunes of companies — reflecting the mood and traditions of careful scrutiny, thrift and conservatism that is inherent in the Indian culture.

(The writer is Director, Institute

for Financial Management

and Research, Chennai.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
HLL's new avatar

The restructuring game

Revving up

Creativity unlimited

For more pester power

The right recipe

Best wishes

Looking ahead