Shankar: In a family business with pedigree and heritage, your desire to do something different carries the weight of family expectations on your shoulders. It can be a dampener. You have managed to come out of it and build your business. Can you explain how that happened?
Harsh: There is no one right answer. It all depends on the family itself. How complex the family is; whether it is the first generation, the next generation or the third generation; and the kind of business one is in. Different families have managed internal issues differently.
You have to manage it proactively and build consensus within the family. It is very important because if you don’t do it, it could lead to conflict. People would be frustrated if they’re not allowed to express their opinion. I think the starting point is a family council. Ideally, it can be with an outsider who is trusted by all the family members and who can play a neutral role.
The objective of the family council is to address all the issues which the family is facing. Questions like: If a youngster wants to start a business, should he be given the freedom? Should it be a part of the family business? What kind of capital should he or she get? – these can be threshed out in the family council.
It can also address the entry of family members into the business and exit from the business. It can bring in openness by getting feedback. There is hesitation to give feedback to the elder generation as they are not willing to accept feedback.
Normally, small issues lead to big conflicts–for example, who will get to appear in the media or what kind of car each person should have? All these issues must be proactively handled. Else, it can lead to a long-winded battle.
It is not just the family members who are in the thick of the business but those who are sitting at home too matter. If my spouse feels that I’m not treated fairly by the family or some family members misuse whatever they get, then it becomes a hotbed of differences. A neutral person can bring in clarity and some degree of objectivity. The family council can have a constitution and it can meet once a month or once in 3 months.
You stressed the importance of setting value systems in stone. You decided to put Human Resources as a function to be professionalised and emphasised in the early stages of the company. This is important not only to people who are in a joint family business but to any entrepreneur. Can you talk about that?
It is unfortunate that many CEOs don’t regard HR as a key source of competitive advantage. The war for talent is as important as the war for financial resources or market share. Because, ultimately, talent is going to drive marketing and financials. So it is very important to create an atmosphere where the company has a good image in the marketplace. What is the unique thing that you offer to your potential employees which will make them join you? What kind of culture do you have, which will make them stay with you? Joining an organisation is just one part. If the employees do not enjoy their journey in your organization, they will leave very quickly. They need to get empowerment. They need to have a challenge. They require job rotation, openness and trust.
We located our factory in Kerala in spite of advice given to me by my friends and relatives. I decided to back my HR team.
Good professionals do not want to be part of an organisation that has a lot of backbiting and gossiping. To retain talent, you must be fair and meritocracy based. Without any investment in capital assets, I was able to turn the whole business from unbranded to branded, only because of good quality talent. In my formative years, I got a very good experience in dealing with good talent and leadership style and that reinforced a belief in me that talent and culture are very important for any CEO.
My first recruit was Head of HR. I feel HR has to be on the same level as any CXO. HR is a very strategic area and can add a lot to the financial profitability of the company. We located our factory in Kerala in spite of advice given to me by my friends and relatives. I decided to back my HR team. Thanks to the HR, we dealt with the issues proactively and reaped huge financial benefits.
Any business talent has to be nurtured. You have to create an employee value proposition to attract talent and you need to have a right culture so that that talent is engaged and highly motivated to perform.
In the initial stages, you have a countable number of senior professionals. But when the company reaches a stage of rapid growth and you have many lateral hires, how do you keep the value systems unchanged and propagated?
Maintaining a culture over a longer period of time is a challenge. We have done that in Marico for over 30 years, since 1990. First of all, we have to have a defined set of values. As soon as a person joins, as part of the induction, we spend one full day explaining our values and culture and why they are important.
Even before recruitment, we take them through some tests to assess their leadership style. If the style does not fit into our way of doing things, we may not select that person. A person with a highly autocratic leadership style will never be able to exist in Marico because we want our leaders to be participative, open and listen to dissent.
After recruitment, we send them to a six-day leadership program teaching them about the leadership style that we want them to exhibit. If the leaders don’t take values and culture seriously, then people down the line also will take it lightly.
We also do a value study within the organization every year. It has about 30 to 40 questions. We segment it based on different grades, levels, functions, locations and so on. If we find that in a certain location, the value scores are low, then HR steps in and works on improving it.
When HLL entered the segment, their objective was not just to gain market share but there was a hidden agenda of acquisition of Parachute brand. I evaluated internally with my own team and also discussed with Professor Ram Charan.
The ability to let go by leader is a very important part of professionalisation. You have to give the people coming in the adequate space to operate it. Tell us how that was achieved and what advice you would give to people.
In a start-up, when you start, you are doing things on your own, which is fine because you want to have a good grip. You are capable. You are the founder, so you are doing it on your own. But as business expands, you start recruiting talent as there is a limit to which you can work and you have limited hours to work. If you are ambitious and you want to grow, you will have to recruit a team. Then there is a big shift from doing things to getting things done. You are looking at issues like selecting the right talent, team building and inter functional coordination.
While making that happen, it is very important that you select the right talent. If you delegate and the quality of the talent is poor, then they may not be able to perform and it may reflect negatively on the performance of the organization. Then the normal tendency is to say that delegation didn’t work and to go back to centralised working. But that’s not right because you made a wrong decision of selecting wrong talent. Delegation is not abdication. When you delegate, you are accountable. The key thing is to have a good quality talent and allow it to go.
When you have recruited and groomed a talent that is better than what you are, that person may be able to deliver results that will be far better. Sometimes you may go wrong but that’s okay. As your options and time are limited, you have to delegate and empower people. Many entrepreneurs are getting caught into a kind of a track where they are not able to delegate. They’re not able to attract talent and then they don’t grow.
Kavitha: Tell us how you took on the big bully, HUL. and eventually bought out their coconut oil business. Also, can you tell us about the war room that you set up to tackle this challenge?
‘Parachute coconut oil’ is our resource generating engine. It’s our star business and the most important product that contributes to the turnover as well as profits. It was much higher in 1996 when we went public. Now it has come down because other brands have grown but it is very important to us. This is one brand which I built from bottom up as brand new and which I am very passionate about.
In 1993, Hindustan Lever (now HUL) had acquired TATA Oil Mills Company. (TOMCO) and as part of the acquisition, they got TATA Nihar oil brand. They also acquired one more brand–Cococare. At that time, they were doing extremely well in the oral care segment, taking on Colgate and Signal brands of toothpaste and they felt that if they were able to impact a very strong brand such as Colgate, they would definitely be able to impact Parachute.
When HLL entered the segment, their objective was not just to gain market share but there was a hidden agenda of acquisition of Parachute brand. I evaluated internally with my own team and also discussed with Professor Ram Charan. His viewpoint was that we had to protect our resource generating engine. I also met Karsanbhai Patel, the founder of Nirma, because he had halted Hindustan’s Lever’s attempt at taking over Nirma brand. After a lot of research, I came to the conclusion that we would be strong enough to take HLL on. I was convinced that we had a very good quality product which they may not be able to beat. Our brand was strong and had been there for many years. There was also a very strong, emotional connect with the brand by the users.
One area we were weak was in distribution. Hindustan Lever was much deeper in distribution, especially in rural areas. We appointed super distributors, went into rural areas and tried to match them. The last aspect was boosting the morale of our team when we take on a big giant. We had to look at the morale of our own distributors and field force. We had regular conferences and set up a war room through which we gave our team a lot of ammunition, viz. empowerment. We focussed on marketing and came up with a new advertising campaign. We improved the quality of the product further.
We knew that for one or two years, we might not be able to show growth in profits. HLL made overtures to me, for buying the brand from us, through merchant bankers as well as direct phone calls but I was quite clear that we would not sell it. It went on for four or five years. They invested a lot into the brand and gained market share. At one stage, they had almost 12% market share.
Then they started losing interest as the company had leadership change at the top. It was getting more and more integrated with Unilever in UK. They started taking it lightly and the market share started falling. At some stage, we were able to convince them that they sell off this brand. They decided to do that and put the brand up for auction. Many players participated in that auction. We were very keen to acquire it. So we were very aggressive in our offer and we got the brand. We acquired the brand which we were fighting with. It was a great feeling within the organization.
Looking back, that has been one of our best acquisitions because that brand is relatively strong in the east. It complemented our range.
Looking back, that has been one of our best acquisitions because that brand is relatively strong in the east. It complemented our range. The strategy worked out extremely well and the gains from our strategy were much more than what we had imagined.
Shankar: Your story gives me a sense of deja vu. We had a similar story in the history of my own company. In Marico, you have started brands and acquired brands. You also decided to sell a brand. What was the driving force in deciding that you were not the best custodian of that brand?
It was a rational decision and had nothing to do with custodianship. We sold a brand called ‘Sweekar.’ It was not growing either in top line or bottom line. At that time, it had a turnover of 100 crores but the gross margins were very low and it was diluting our overall gross margin. It was a non-FMCG segment and was not fitting into our growth plans. We didn’t have any differentiator and by design, we want to be market leaders in whatever we do. But we didn’t see ourselves becoming market leader in that segment. Because, if we had to become market leader, then we had to be more aggressive in pricing. With already low margins, it didn’t make sense for us to have that brand in our portfolio.
Tell us about your overseas business and how you got into it. What are your future plans?
In the early days, coconut oil was being smuggled to the Middle East markets. When liberalisation started happening, we got a lot of inquiries from traders. Coconut oil export had been banned by the government. With liberalisation, we were able to convince them to allow us to export coconut oil in small packs. Once that happened, it opened a window of opportunity for us to start our international business. We started off with the Middle East.
We saw a big opportunity in Bangladesh: it is a big coconut oil market. We set up our office and factory in Bangladesh. We have done extremely well in that market. Then, we went to emerging markets where there is a distribution similar to India. We acquired a company each in Egypt, Vietnam and South Africa respectively. Bangladesh and Vietnam are large markets for us. 23% of our turnover comes from international markets. We also entered some newer categories through acquisition–like male grooming and ethnic hair care in South Africa.
There aren’t that many Indian brands which are sold in all markets of the world. What are the things that we need to do to make that happen?
The key thing is that you must have a differentiator. If you offer a me-too product in an existing category, your chance of becoming a global brand will be very low. You must leverage innovation or technology to make you stand out or you need to leverage something which is Indian like Indian tea, Ayurveda, and Yoga.
Some Korean brands have done well in global markets making use of raw materials and R&D. We face big challenges in the area of distribution. In many developed markets, distribution is very different. You must have a very strong brand which will cut ice with consumers. Then you must manage distribution and create a brand with a high cost for advertising. Now things are changing because of the fact that you can create a brand today through D2C, which is Direct to Consumer. You can do social media marketing. Some of the Indian brands in Ayurveda and a few other categories are going global. Yet, it is a long way to being global brands. A global brand would mean generating a turnover of at least one billion plus dollars for that particular brand. As of now, I don’t see any brand. This is a big challenge. We should try and do it.
A global brand would mean generating a turnover of at least one billion plus dollars for that particular brand. As of now, I don’t see any brand. This is a big challenge. We should try and do it.
CK Ranganathan: You stepped into a family business and the family allowed you to become a professional one. You have built Marico to last, in Jim Collins’ parlance. You have created a beautiful system and process. From here, you are spending some time to ensure that the engine is running continuously well and better. How will the succession happen in your company, post-Harsh Mariwala?
I am just a Commerce graduate. I have not studied anything further. It was a family managed organization. Nobody guided me. I have done everything on my own and in my initial years, I started working with talent and recruited people and convinced the family the value of talent. At that time, people were regarded as costs. For example, when I converted the whole market from unbranded to branded, we had to recruit people in the sales and marketing function. I had to take one small step and prove that worked out well.
Once that person showed results, I could take one larger step. I was taking a risk and had to go a little cautiously. In distribution expansion, I went to one state and after seeing the results, went to the next state. So, basically, it was a trial-and-error approach with taking one step, waiting and watching through, and then expanding.
As the business grew over 15 to 20 years, I was fully convinced that recruiting talent is the only way forward and it paid dividends for the organization. It took me, almost two to three years to convince my family to start Marico. It was not a financial separation but a management separation.
Regarding succession, I have stepped down and we now have a professional MD. Internal succession plan is very important. The Board’s management role is very critical. We have a defined strategy document which we discuss with the Board every year. The Board must work on three or four areas like:
- What is the purpose of the organisation?
- Are we working towards the purpose?
- Are we taking care of our stakeholders and not just shareholders and employees?
The role of the Board is to select the right CEO and make him/her perform better.
This has happened in companies like P&G, Cadbury’s and Hindustan Lever. I desire to create something like that, where the Board will play an important role. The talent selection will be purely based on merit.
Measuring performance is very important. How do you do that in Marico?
We have a Performance Management System (PMS) where each person has well defined goals–generally 4 goals, starting from the top and up to the CXO level. The goals are reviewed and approved by the Board. Each person writes his/her goal and discusses it with the boss. There are two types of goals – basic and stretch goals.
There is a high degree of clarity with the goal sheets. The performance is measured for each goal. The measurement criteria are also identified at the beginning. If the environment changes, the goal sheet gets revised. Who could have predicted something like the pandemic?
As the business grew over 15 to 20 years, I was fully convinced that recruiting talent is the only way forward and it paid dividends for the organization. It took me, almost two to three years to convince my family to start Marico.
Ravichandran Purushothaman: Culture is a very important part of Marico. When you make acquisitions, how do you integrate the different cultures?
Before we acquire a company, we do due diligence of the existing culture in that company. We do a leadership audit to assess the existing leadership talent. Culture building takes three to five years. We need to measure the culture and see how it compares with our culture. We should not be in a rush to change the culture. It has to be done gradually, with a clear roadmap.
Shankar: Companies in the past have taken many years to become highly successful. Entrepreneurs today think that they can become highly successful in 3 to 4 years. Can you address this dichotomy?
I always look at long term. Your success must be sustainable over the long term. You must have a growth mindset within the organisation and the growth mindset must be long-term focussed. If you try to do too many things too early, you may compromise in some of the processes or basic building blocks that are required. Speed is important but there should be no short cuts like, for example, in the area of governance, capability building and developing processes.