° I> io im oo HINDUSTAN LEVER LIMITED: LEVERS FOR CHANGE For Hindustan Lever Limited (HLL), the Indian subsidiary of Unilever and one w A ae - of the largest private sector companies in the country, 1991 was an excellent year ~ (see Appendix 1). Revenues had increased by 22 per cent to Rs 17.75 bn while 7 profit belore tax had grown by 24 percent to Rs 1.38 bn (in 1991 $ 1 million was Y . roughly equal co Rs 30 mn). In the vear-ending meeting of the management oO committee, therefore, the mood was one of quiet celebration. As $.M: Datta, the chairman of HLL, pointed out, there was enough cheer to pass around for ail the divisions had performed well, For part cular mention, however, he singled ‘out the detergents group which had achieved record growth in volum » fern, year. He formally recorded his satisfaction with theic periormdnce, acknowledged the high scare of alertness and motivation that he perceived 5 This cave was weitten by Charlotte Rutler, Researeh Associate, ander the supervision and aundance 6! Supances Ghoshal, Robert P. Baumann Professor of Strategic Leadership at the Lnndon Business Schoot, The section on India’s fabric wash market draws on the wirk of Professor Sushit ¥ reported in his book Multinationals in India, Oxford and 18H Pablishing Company, New Delhi, 1994, The authors are grateful to Hindustan Lever Ltd for thor heljyand support an weiting the ease, The cave was bist registered by the London Business School an 2090, . vy Sarasa FO 90 LEAS 64“4 World Class in beta ithe managers, and thanked everyone for their efforts, He then gestured to an empty chair. Sitting in chat chair and deserving, a special vate of thanks for helping the company develop its agility and competitiveness, he said, sould he Karsanbhai Patel, the owner-director of Nirma chemical works, HLL's arch rival in the detergents business. Everyone present knew exactly what he meant. None more so than S. Sen, excmarkering director of HLL. Sen’s thoughts drifted back to 1977, when he had stood in front of a small store in a remore village near Ghaziabad in North India and watched the shopkeeper serve a small boy with 2 plastic bag of Nirma detergert powder from a large gunny sack that was almost empty. It was the culmination of an official rour of the state, during which he had been haunted by the ubicuitous presence of this yellow detergent. In growing disbelief, he had calculated the Nicma sales figures he was gradually accumulating. Suddenly the sharp reali even know they were fighting. During the 1980s Nirma had gone on ro become the biggest detergent brand in India and then one of the biggest in the world, swamping Surf and threatening HILL’s dominance in other sectors of the fabric wash market, By the time HLL fully recognized the danger Nirma represented and began to fight back, it had almost become too late.“ Nirma’s dramatic rise was the'major lever for change within HLL. To create an adequate response, HLL had been forced to jettison some iong cherished assumptions about both the detergent industry and the company’s conventional business practices and, instead, ‘adopt an entirely new way of operating, HLL rose to the-challenge, revolutionising its processes and systems to eer the low cost segments of she detergent market and arrest the growth of Nira. This new-fornd ile vicinity and changed mindset had subsequently enabled HLL to ‘overcome a threat from P&G in the concentrate detergent market. Bur though the battles with Nirma and P&G had been temporarily won, it was at best only a-triice. As Datta went on to exhort his assembled troops, HLL could not afford to rest on its laurels. In 1991, che derergent marker was growing fast at about 20 per cent a year, With a push, HLL reckoned it could double its volume by 1995, However, that push would rake place ina new, unknown environment created by government moves to deregulate fndia’s markets. This new situation, Promising not only increased competition but also unprecedented growth tion had hit him. His company was fast losing a war they did not - 616% 6% wet » BHDIIWAIIIIVOVOUN aI Cre CFC FCO ID IONS Bwe ar aw Fw see yw ww Hindustan Lever Lintited opportuniies, represented yet another lever for change at HLL, The issue for the management committee was how best to prepare the company for the very titferent conditions it would face in the 1990s. What should be the next stage in the company’s evolution co ensure its future as a major player ou, the Indian industrial scene? Hindustan Lever Limited (HLL) was founded in 1956 by the merger of three companies—Hindustan Vanaspati Manufacturing Company (HVM), Lever Brothers India Limited and United Traders Limited. Established in 1931, HVM was Unilever's first Indian subsidiary, producing vanaspati, 4 granular edible vil. Lever Brothers, founded in 1933, manufactured soaps and a range of toilet Preparations. 1c dominated India's soap and detergent industry from its inception and played a major role in popularising the use of these products throughout the country. The third subsidiary, United Traders Limited, was formed in 1935 to look after Unilever's petsonal products business which ranged {rom tnothpastes co hai oils - Since the 1960s, HILL'had diversified into chemicals to participate in what government industrial policy designated as the core sector. This was ow a strong and growing part of the business. HLL produced industrial phosphates, fertiliser, fluid cracking catalysts (for oil refineries) and functionalised bio-polymer: (for paper, textile and food processing industries}. It also developed a host of hybrid seeds, high yielding virus-free crop varieties and a chemical to improve photosynthetic efficiency in plants. The Hindustan Lever Research Centre, founded in 1967, was the biggest in India’s private sector. In 1991; the company’s businesses were divisionalised into Chemicals, Detergents, Agriproducts, Personal Products and Exports. These were supported by central services such as R&D, Finance, Personnel and Legal and Secretarial (see Appendix 2). - Until the 1992 policy changes, HLL’s 51 per cont foreign shareholding meant thacunder the 1973 Foreign Exchange Regulation Act (FERA) it was required to export at Ieast 10 percent of sales, and over the years HLL had become one of India’s biggest foreign exchange earners. By 1991, its exports had risen to a record Rs 2.02 bn, contrasting with the Rs 80 mn earned in 1972, More than two-thirds of these exports were value-added consumer products such as footwear, carpets and leather goods, as well as its brand of basmati rice and vanaspati. In 1991, TILL had thiety manufacturing units in nine at and one union 3536 World Class in Indic: territory. Fifteen of these factories were in what the government designated as backward areas. Through its country-wide manufacturing and distribution activities, HILL dicectly employed over 10,000 people and through linkage with humerous ancillaries generated, indirect employment for about 230,000 others. HLL and Unilever HLL formed part of Unilever’s group of seven companies in India, the others being the food and tea companies Lipton and Brooke Bond, the personal products companies Pond’s and Qsest, and tea estates in Assam and South India. Unilever had a long and highly respected presence in the country—the first crates of Sunlight soap were unloaded in Calcutta in 1888—anid the next four decades saw the introduction of its international brands offsoaps, detergents and Personal products as well as expansion into foods and beverages, The group had always been one of the top ten private sector companies in India, In 1990, the combined turnover of Unilever’s Indian operations exceéded Rs 29 bn. In 1991, aimed for Rs 35 bn, which would make it the third largest business group in the country . The Anglo-Dutch muitiuational, Unilever, was one of the world’s largest Produce . of ianded consumer goods. Its products were manufactured in seventy five countries and sold through subsidiaries operating in Europe, North America, Asia, Africa and Latin America. Consistently profitable since its foundation in the nineteenth century, Unilever's main strengths were size and geographical spread. Despite the continued recession in its two most important markets—Europe and the US—in 1991 it had a turnover of £23,163 million, a2 Pet cent increase over the previous year (see Appendix 3). It8 major worldwide businesses were food and drinks (50 per cent of eurnover in 1991), detergents, toilet preparations and orher household products..In each country, Unilever’s products usually comprised a mix of internationally known brands and a number of local brands. Until the late 1980s, HLL's product profile was somewhat different from that of its parent company. In 1981, 39 per cent of tts sales came from soaps ard 24 per cent from detergents. In'1983, HLL sold irs foods busmess to Lipton India, a fellow Unilever subsidiary HLL’s chairman and senior managers were appointed by Unilever and annual budgets, including, sales and marketing plans, had to be approvec’ by the head AIAMAOOHMOOHOOO OEE CK @@B qa TOR CIC OR UCDO UD Db AP fm ea bae, O85 aa! 4.6.6.6 6 6, GO ° wy wn ~~ wr Hindustan Lever Linsited gitice. Unilever contributed cuntrally-held “marketing expertise to help subsidiaries adaps and faanch its ip ernational brands. Itshaced information and understanding of international marketing developments and provided multinacional linSages. The substdiaries also benefited from access to Unilever R&D and technology. Unitever has always operated on the principle of ‘think globally, act locaily' and ns decentralised approach to managing subsidiaries gave therm a great deal of autonny in taking decisions on 2 local level. In HLL’s case, this tendency was reinforced by the company’s reputation for successful innovation and effective tocal management, HLL's R&D centre in Bombay specialised in detergents for vleveloping couniries and its products were shared with other Unilever subsidiaries, HLU's managers assisted with the faunch «detergents in Indonesia and Colombia, lis beef in local autonomy made Unilever an early exponent af training, and promoting local management to succeed Europeans. Unilever’s Indian subsidiaries were far ahead: of other foreign companies in this, the first indian managers being appointed in the 1930s. Unilever later set ip a Management Trainee Scheme in India to select ‘young, bright locals’ from the un versities and attract them into the Unilever fold. For ambitious young Indians joining HLL was a guaranteed start to a successful career as a professional manager, By 1955, 65 per cent of HLL’s managerial cadze were ovtians. The first Indian director was appointed in 1951 and the first Indian chairman a decade later. By then, 93 per cent of HLL’s managers were indians. Withia Unitever, all nationalities had equal opportunity and Indian managers contributed signiticantly to the running of Unilever business worldwide, In 1991, forty Indian’ managers were serving in Unilever headquarters, research establishments or companies abroad, half in senior positions. An ex-HLL chairman, T. Thomas, was on the main Unilever board between 1978 and 1989 and in 1991, his successor, Ashok Ganguly, was also made a member of the board as director for cesearch and engineering in Unilever. HLL was very proud of its contribution to Unilever’s acknowledged management strength HLL's managers were also very proud of their contribution to India development. Unilever's reputation for moulding highly trained managers put HLL at the vanguard of the professional management movement in India. This brought itto the attention of the government, with whom ie built up a strong8 Worla Class in india relationship. ‘The high standing enjoyed by HILL managers could he measured bv the way the company regulacly supplied people to lead private and public sector companies anc government bodies in India. Unilever took pains to teansmit irs cultuse theonghout is global reach, aiming to butid common values and ways of thinking among all its managers, This cake Pas tansmitted via training programmes ane, for promising managers, through tine spent at the head office in London. There, they made useful concacts and learned the special language in which Unilever managers from all over the world communicated with each other. Unilever attributes, according to Dr Ganguly, inchided honesty and integrity, and ‘a strong regard for meritocracy that valued talent and a respect for managers who displayed a genuine concern for orhecs” cheb ee er ec wialare/e The Unilever culture was readily absorbed atid implemented by the strong cadce of managers created at HLL. - q Ganguly observed, '| could never describe the culture except to state * that HLL was able to attract a group of ordinary people arid enable a them to perform extraordinarily. Each HLL employee was, he said, . “IR product of a scrupulous meritocracy that sought excellence, “ calibre and potential.” a es Consequently, in HLL, generations served Unilever with pride, secure in the Knowledge that the company’s reputation for producing effective managers Automatically conferred respect from outsiders, To have the right to wear the Aha ob HILL tie spoke for itself—they were an elite, a 4 4 he Fabric Wash Market in India - - lee og With a population of over 800 million peopte, India represented one of the & largest fabric wash markets in the world. Traditionaity, clothes were washed by ¢ hand, tsing hard, yellow bars of laundry soap which accounted for over 95 per * cent of the market up to the early 1970s. In the swo decades since then, the safes c of non-soap detergent (NSD) had soared, largely through expansion of the c market bur also through substiturion for soap bars which, though cheaper, also = tended to be jess ‘effective, The government, too, had encouraged the growth of cg the NSD market to curb the use of edible oif used in the manufacture of soap. c ‘ NS basePU 2 J Wt we o 2 ~ 3 er a A mm OPP UAP 2 vou O ‘wo a) 7 Hindustan Lever Limited Large firms, for example, were not allowed to use edible oil for soap manufacture and, therefore, had an incentive to switch to producing detergents. Thus, to the original washing soap market, two new segments wereaddert NSD powders and NSD hars (see Appendix 4), Laundry Soap The highly fragmented laundry soap market was dominated by low-priced Products made by small-scale local manufacturers in different parts. of the country. In 1991, the ten largest competitors in this segment collectively drcounted for less chan S per cent of the national demand. HILL's flag cacti: this segment was the primrose yellow Sunlight soap, manufactared see 1934 ar the company's Sewri factory near Bombay. At a quartes of the price of toilet Soaps like Lux, Sunlight was sold for both personal and clothes-washing use. The enly other branded product of any significance was the Tan Oi Mills Company’s (TOMCO) Tata S01. ln the detergents business, there were neither any special regulatory constromes for beak CegRasie technology difficult to come by. The manuiacturing prosesecs for both NSD. powders and NSD bars were common up to the poine where the Detergent Powder : The first companies to begin manufacturing detergent in India were a local Culled Dacha ry SWastik, and HLL. In 1956-57, Swastik produced a powder called Det while HLL test marketed Sucf,a blue powder, between 1950 and 1958 ing it in 1959. Det, a white"powdni, was successful in denim India while Surf quickly became the national market lenlos seine dominant positions in the Weét, North and South. = HLL worked hard to expand the detergent market by familiarising potential Wes smen toured the villages in vans and, ‘like high priests’, preached to villagers about the usefulness and importance of Stet i daily life and its Comparative aulvantages over other soaps: ‘Surf has more lather and ic vno‘e Soapy than any other soap’, HLL also ran advertisements showing how clothes “ould be washed by soa'ing thray in a bucket containing detergent dissolved in the water. 3940 _ Meanwhile, TOMCO and HLL had expanded the market further by introducing Wortd Class in Inti Between 1960 and 1965, the total volume of detergent manufactured in India grew from 1,600 to 8,000 tors. HLL held unchallenged sway over this market with a share of almost 70 per cent to Swastik’s 25 per cent. Then, in 1966, another manufacturer, the Tata Oil Mills Company (TOMCO) entered the market with irs -owder, Magic, That year, the total manufacture of derergent, all of whic was powder, was around 11,000 tons and these three were established asthe main playecs, with HLL far out in front with a market share of 67 pet cent against Swastik’s 20 per cent and TOMCO’s 7 per cent. In 1973, TOMCO introduced a low-price detergent called Tata’s Te} and in 1976-77, an economy detergent powder called OK. ‘That same year saw the world-wide rise in the price of crude oil. This increased the raw material cost of detergent and, consequently, the selling price shot up. HLL's Surf, for example, doubled in price between 1974 and 1975. This created an uppartunity for local producers of crude detergents—low-price, low-quality products based on cheap raw materials—to increase their market share. Aiter 1974, therelore, a host of new competitors diversified from laundry soaps into detergent powders co -challenge the hegemony of HLL, Swastik and TOMCO, MSIL/Karnataka Soaps, a state-owned enterprise that had produced soap since the First World War, launched a powder called Point in 1975. Godrej, a local private sector company that had produced soap for a number of years, launched a powder called Key in 1977 and Detergents India Limited (DIL}, another state-owned enterprise, launched a powder, Sixer, in 1978. Surf, however, continued to.lead in both volume and value, commanding a premium of almost 40 per cént over the medium priced powders such as Key, Te) and Detergent Bars @eergent cakes and bars into India. In 1968, TOMCO converted one of its washing soaps, Bonus, into a detergent cake and in reply HLL launched Rin a yer later. Ip 1971, Swastik introduced 'a cake called Det. By 1975, the < segmeart had caught up with the powder segment in terms of volume and by 1 was slightly ahead of ir. Again. the three main players were followed hy smaller competitors. MSH. and Gedre} both launched detergent bars in 19/9 and DIL, which had entered the maiket with a detergent cake called Repal in 1977, launched a new brand cated ‘oe me 1@ 1@ 00) 6d vd le ay AAO: LO RIO IR IA ISSA AR ee AISi eB Be a GEES ae ow wo ov %G file wou yap ew iT SOG weoug = Hyrdustan Lever Limited Chek in the form of both power and cake in 1980, Meanwhile, the bigger players had also produced new offerings. TOMCO’s blue detergent bar, appeared in 1976-77 and in 1981-8 1 it launched a higher quality de‘ergent called Dubble. Swastik, in the meantime, had been enjoying success with a lerergent bar, Super “77, forcing HILL to reply with its Wheel bar in 1977. By 1979, Wheel had significantly reduced Super 77's share. Price categories in the quality bars and cakes segment wer. comparable to those of the powder segment, Rin and Det-were priced about 10 per cent below the highest priced’ powders like Surf, in the medium price category, brands like HLL’s Wheel, Swastik’s Super 777 and TOMCO’s Bonus were almost 50 per cent cheaper than the price of the premiam bars and 20 per cent lower than the price of the medium priced powders. Some small-scale local producers manufactured small quantities of detergent bars using very crude methods and these were priced substantially lower that the quality products from the established companies. . : Despite ali these efforts, penetration of the market was slow. One estimate put the size of, the Indian yellow soap market at over 800,000 tons while tora! detergent sales in 1981 were estimated to be around 200,000 tons. In developed countries, by comparison, detergent penetration at this time was 90 per cent. By 1989, the NSD (bars and powders) share had grown to 5S per cent as against 45 per cent for laundry soap. This then was the almost fewdal structure of the industry thar had developed by the 1970s. Competition there was, but it was not marked by the degree of aggression seen in western markets. At the top, HLL presided majestically over what was known as the organized sector—the premium detergent powder and bar markets. By this time, HLL knew its nearest rivals wel! and felt secuce in the knowledge that with the range of international brands in the repertoire of its parent company at its disposal it would largely be able to dictare thy “arket's future development. HLL's managers had made the ru'es »{ ihe game, they were its most professional players; it was a game they took for granted they would win, Just below the big three players, the middle-sized companies competed with each other in a similar familiar pattern. Way beneath the heights and the notice of HLL and the other sophisticated, high quality manufacturers scrambled a shoal of local, ‘cottage sector’ firms producing a few hundred tons of cheap, poor quality powder sold loose in plastic bags. This was referred to as the unorganised sector. at| Worid Class in India © However, in the mid-19706 the ert industry wich its packets of yellow hierarchy and, in particular, tion of one such smail ‘cottage’ firm into this powder shook the fabric of this well ordered altered the competitive destiny of HLL. The Nirma Assawht _ Selling Iaundry soaps Nima was the single- handed creation of an ambitious entrepreneur, Karsan K. Patel. An ex-lab assis tant, in 1969 he decided to set up a business making and and detergent powders. Right from the start, Patel was ‘orally committed to making his brand the biggest in the world. While in 1569 such an idea would undoubiedly have provoked helpless laughter among HLIs Panagets, the serious Patel would have temaincd unmoved and undeverred, Hic belief i his basic business principle—develop a good product and there will ke, market for it—was absolute. i Production of the brand which, within inst over a decade would indeed become ite of the largest in the world, began‘in December 1959-in a small shed in Saraspur, a suburb of Ahmedabad in the state of Gujarat. Ahmedabad vor ch a big séap market with bars, cubes and chips stocked in almoce detergent powder which Patel himself hand-mixed in batches and-packed inns polythene bags which he then stapled. This poduct he called Nine afer hie Younger daughter, Nira, To sell t,he loaded several gunny bags of the powder ‘chets on his bicycle and began a house-to-house rotind of the city. Working in this way, he produced 200 kg a day. His company was registered ac New Chemical Works. « During the next decade, Patel barely diverged fcom this simple approach to Production, packaging and promotion, pricing and distribution, Though refired and enlarged, the formala remained essentially the same. Patel did nor follow a fixed ser of business rules, but built an operation that was easily adapted to changing market circumstances. As a modus operandi, it defied all the existing business logic of the large producers. . to HLL’s carefully developed lore, ‘a well formulated detergent was a of several carefully selected i ingredients such as AD (Active PoBih cP ick Pf? DD DESPA AL AR AL BD ea a ar hes Nae a a!a EP PPP Pee PT Sm a PHU BGG eh ee By 5 Hindustan Lever Limited Detergent), builder, buffer, anti-redisposition agent, etg., each one performing a special function’, Not only were the types of ingredients used important, but the levels were also critical ‘to deliver good performance, and these levels must he fixed with a detailed knowledge of wash habits’. Nirma powder conformed to none of HLL's carefully developed formulae, {e contained no ingredient to improve the whiteness of the fabric and the ievel of AD was half that of Surf. Nirma had no perceptible perfume and clothes washed ia it were harsher to the couch. Tested on guinea pigs, ic proved to cause {Scaliness, crackling, leather skin and epidermal breakdown" and, according to HLL researchers, had the potential to cause blisters on the hands and skin irtitancy among those usinglit for long periods. Nirma was inferior to Surf and other premium powders on every single characteristic normally measured. And yet, despite the undeniable superiority of the HLL product, by 1977 Nirma was selling a little under a third the volume of Surf. Production Method From the early start of mixing the powder in his shed, Patel remained a small-scale producer. In Gujarat, soda ash and other raw materials were easily obtainable and Patel bought supplies locally using cash discounts. A key Process—the sulphonation of linear alkyl benzene (LAB)—was contracted out to another small-scale operator in Ahmedabad. The ingredients were then simply dumped on the floor and mixed by hand. Patel thus derived all the cost benefit of using no electricity and until 1985, Nirma enjoyed the 15 per cent excire benefit granted to small-scale producers not using any power. After 1985, when the change in rules removed this benefit, Patel began mechanised mixing for pact of his production. As sales increased, he began to employ people to do the mixing and opened up two further production facilities at Rakhial (1973) and Vatwa GIDC (1976), and chen added four further sheds at Ramol. The powder was manually packed into polythene bags and stapled together. To avoid chemical reactions, the workers were changed every three months, Production was continuous from 8 a.m. to 6 p.in, with no interruption for Sundays or holidays, > if 434 World Class in India" oot In India, minimum wage rules laid down, for urban and rural fabour dic not apply to small firms. “ ‘ baving hinher value for money than other brands. Unable to increase ice, HLL had to put a for of support below the line just t0 keep volume up. thercby eroding Surt’s profitability. SURF : NIRMA General Association by Paired Attributes i Good valua formoney | 499 *j . Nima! so Sut - 100 Whitens clothes well o ! 100 _ _ Ssut F o * : Nima “100 Whitens clothes well o+ bathers well . 0 ‘The coup de grice was delivered by the news in 1986 that Nirma was te detergens ‘a direct challenge to Rin, the market leader and HLL's Profitable brand. Whe Profits t9 hin’, the alarm bells throughout the HLL organis nt Sen had first heard in 1977 finall nkerous competicor was about, Rumeiirs that Patel w. soap spurred HLL into a stop-Nirma campaipn—codenamed STING. Po Inhib ct Niema Growel h. The company was determined to fight ha en the Nirma bar was launched and ‘we lost consumers and ation. Belatedly, the giant stirred and realiztd a as then set xo test 4 toilet ", . Yellee i. Lobatse She 4 wa) q AN a , ak i aly lhl ismeme OSA a) ap nn mn € " © se| Hindustan Lever Limited 53 HLL Fights Back HILL’s reaction to Nirma comprised several stages. ies first response was co begin selling Surf in polybags rather than the more expensive cartons. This move met with a lot of opposition at first as the carton fepresented the high ground of quality, which HLL was giving up. Bur the Change enabled HILL to reduce costs and offer better valu. In addition, Surf's formula was slightly improved, thereby reducing costs, and discounts were VOGT WVBGA | y offered to reduce the price. Le Another change was in the advertising approach. Surfs established errr maign Px ised the slogan ‘Surf washes whiter’ and the advertisements showea a small boy 2 teetting his clothes dirty and then the clothes being cleaned by Su. In 1985, "_ Advertisers created a character called Lalitajiy ‘a very sensible housewife acutely ia jiware that good value was a combination of quality and price’. The first 3 commercial, which showed Lalitaji buying a more expensive tomato because it was good value for money, was overlaid by the voice of God. His message was thar though Surf might be three times more expensive than Nirma, measured on Cost per wash, Sucf was only one-and-a-half times dearet. This was because, visedvis Nirma, the same washing load required only half the quantity of Surf. These measures proved effective in shoring up Surf. Between 1985 and 1991 it grew from 30,000 to 42,000 tons, adding both share and profitability. ‘Another action was to launch a powder called Sunlight. This was positioned to match Nitma directly on price and was white to appeal to the predilection in East a7. India for colour care. Launched first in Calcutta in 1985, Sunlight sold well in io: East and South India, areas where Nirma was weak, and by 1992, was as Yr profitable as Surf. 2 <7 HILL then turned to its most urgent concern—the severe competitive threat to > Rin posed by the Nirmia detergent bar, then being tested by Patel as a consumes yt promotion on purchase of two packs of Nima washing powder. Similar in pack ca Gesign to Rin, the blue Nitma bar got instant sampling in almost every household a using Nirma powder. The differences between tlie two bars were slight—the rate a fof wear of the Nirma bar was high but its surface was harder and dryer. Nirma’s 52 agressive advertising campaign played up the face that the quality of this bar Z was almost as good as Rin. [t was then put on sale at Rs 1.50Vfor a 150 g cake, a 32 third of the price of Rin. Within eighteen months, Nirma bar sales had reached 52 bouyWorld Class in India” 100,000 tons. By 1989. it h taken 10,000 tons directly indeed. ad a market share of almost 40 pe cent and had from Rin, This time, Patel was moving very fast 1988 was ‘a traumatic year’ for HLL. Th galvanised che company istto thinking abo took place in the conrext of the libecalisati Bovernment after 1984. The first forty years of post-independent India hed been characterised by a highly interventionist economic policy amd growth had been a Siow 310 3.5 per cent per annum, Ffom the mid-1980s On, through » process of slow economic reform such as the opening up of licensing capacity, India’s industtial structure began to change, stimulating growth, itmentocn and Consumer spending but also intensifying competition, ¢ threat ro Rin was the last straw that ut new ways of proceeding. This move ion policies adopted by Rajiv Gandhi's The ‘esult was a changing pattern of gonsumption towards services and household goods and away from staples suth as food and basic clothing. It also ‘meant the emergence of a growing base of urban consumers, a "midaie class’ whose numbers were estimated to have grown from 10 million out of 350 iaillion in 1947 to 17¢ million out of 840 million by 1991. ‘This middle class began to parsue a more luxurious lifestyle, which demanded access rn * growing range of consumer goods. Deregulation removed many of the external restraints, output volume, tharhad hampered HILL in the past. Butt the cpportunities now available, HLL's management concluded thay perhaps it should first undertake a thorough internal review. Niema had challenged all the values and norms developed over decades, and perhaps it was time fer HL ng adopt a different mindset and business approach. As a result, the company radically altered its thinking about quality, financial management, production methods and so on, in order to implement STING, As part of the STING campaign, Monday ar 9.30 am. Led by the then senior managers, such as restriction on 0 take full advantage of a “competitor's meeting’ was held every chairman, Ganguly, and attended by all the it tried to frame a response to Nirma. The first hurdle was the blisters on the skin and, in the long run, damaged clo fabric. Accordingly, HLL’s R&D team were given the ashe or producing a low-cost powder that gave a be:ter performance in terme of whiteness, bur withour the side effect of itching and wear and teat caused by Nirma’s high soda ash content. thes by weakening the halle tel tad 6 ee o a 3 = < the ‘ She hk e wd ROP Any hf g al IMO ALALRL QO G Ah él a foot ~ a a(HL 3 of UV PREY? Geo tit vw €©€ @C EE CRCEVWSEeBWas eu C € | a wEUUOE ro , a ou = ~ x Y 4 y 3 > x gM Me oud u Hindustan Lever Limited ‘As summarised by Datta, the phitosoahy behind the ew product was straightforward: When it was clear tous that consu:nters wanted a low priced product, we got down to doing something about it. The point was that economy price should not be equated with low quality.” i it * could come: up with a better quality product at the right price, HLL knew it would be a winner. HILL’s R&D laboratory had already begun work on a new NSD powder in 1984 and consumer research on alternate formulations of the new product had been carried out in: 1985. In 1986, the mix development was completed and the as-yet-unnamed new powder.avas ready to enter production. In 1977, HLL had launched a green detergent bar, Wheel, to counter the growth of Swastik’s Super 777. Wheel had only been launched in three states as, at the time, HLL preferred to retain capacity for its premium products. In 1986, the brand name was resurrected for the new detergent powder. Production Method . Another part of STING was a task force to evaluate alternative ways of marketing the new product. At first, Wheel was made in HLL’s facsory as usual and sold at 20 per cent less. However, the work of the task force shortly resulted in the setting up of Wheel Business Systems. This now system took advantage of the altered political climate and was designed to duplicate as far as possible the low-cost Patel operation, but with the value-added gloss conferzec " y HILL’s strengths in management and organisational reach. ‘One of Nitma’s key advantages had been easy access to raw materials. On the basis of an optimisation model matching caw material availability and sales potential throughout the country, HLL selected certain regions where new plants could be set up to maximum advantage. As a result, towns were chosen in the states of Gujarat, Rajasthan, Uttar Pradesh, Punjab and Pondicherry for the location of new units. > In these towns HLL set up AFACON manufacturing units or third party production. Five existing suppliers and agenis were acked to set up plants for the production of Whee! powder according to a blueprint drawn up by HLL. The units were given conversion contracts, Raw materials were made available by HLL and the contractors hired their own labour. Working on a just-in-time basis kept working capital very low. AFACON manufacture enabled HLL co scart up 55World Class in Indie hnew units much faster and gave it greater flexibility to increase or decrease production. “These serstautomated units replicated the smell scale manufacturing units and d by Patel. In early 1988, Wheel’s cost advantages, especially labour costs, enjoyes costs were approximately 15 per cent higher than Nirma’s. However, by 1959, a effectiveness programme had resulted in a similar cost structure (sce Appendix 5). in Punjab.as a wholly-owned subsidiary of TILL, which eventually took over all marketing and distribution activity for Wheel Its turnover was kept sepatate {com that of HLL and so did not increase HLL's export commitment under FERA. This also avoided potential lsbour problems as Stepan was not obliged to take on permanent employees. Scepan thus gained even more importance as a separate, low cost company Later, HLL set up Stepan Chemicals By 1991, HLL had fifteen manufacturing installations, as opposed to only three in the early 1980s. : Distribution . To distribute the product to its 300,000 units, HLL initially used its existing system which the company considered one of its greatest strengths. From its factories, stocks went to the forty-strong carrying aud lonwarding agents (C&cFAs), The C8cFAs supplied the 4,000 redistabution stockists {RSs} who in turn supplied HLL's 300,000 retailers throughout the country. The stockists were also aided by a company sales force. . Between: 1976 and 1991, the RSs had considerably strengthened theit presence it rural areas. From having abou: forty rural vans, by 1990 they can abous 1,200 Indirect Coverage (IC) and Operation Harvest Vans. HLL ensured its stockists made yood profits and, consequently, they stayed loyal for generations. With this structure, HILL was able to distribute throughout the country in over 3,200 towne and almost 60,000 villages, ensuring all shops a regular service. However, this stiucture was expensive and so in 1990 distribution too was given to Stepan manner close to Patel’s for Chemicals who evolved a simpler system. Again in a Nicma, supplies of Wheel were sent directly to the stockists, bypassing the CXF. re @ ‘ fa Sa Sh Sh S PB PoP RDA IOS Preah t.2 a in a LATIN I Woo Tol taia ol af!wy Laas dv Le ) byt vod wh — “Hindustan Lever Limited Advertising : HILL stepped up its advertising for Wheel, spending the samme sum of Rs 50-60 inn per year that Mr Patel was investing in Niema, The advertising strategy was to ‘create dissonance among Nirma users on safety, and provide teasons co ewritch to Wheel’, Thus, the campaigns emphasised thac Wheel provisied extra power, extra lather and was ‘sate on hands anil clothes". After a successful test market in 1987, Wheel powder finally wene on sale in strong Nirma markets in 1988, priced at Rs 5.50 as against Ks 5.25 for Nirma. Sales quickly grew to 100,000 cons, half that of Nirma. By 1989, Wheel had grown swiftly to become the second largest brand in tndia and by 1990, was larger shan any other Unilever brand in the world In 1987, HILL had tost the leadership of the fabric wash market to Nirma. By 1990, it had regained that lead in value though not in volume, Wheel had succeeded in inhibiting Nicma’s growth and for the first rime since its launch, Nirma’s market share started to decline, The self-audit and the consequent restructuring of irs operaticins also helped HLL react to Nitma’s threat in the NSD bar segment swiftly and efficiently. Rin was improved and relaunched in 1989. The advertising countered the Nirma message; Rin gave a cheaper wash with more lather. Rin had dropped from 79,000 to 69,000 tons, but by 1991 it was back to annual sales of 84,000 tons. The Wheel bar was also relaunched: The price was kept similar to that of Nima and by 1991 the Wheel bar was selling at aut 100,000 sons, about halfthat of the Nirma bar, and HLL was again ahead in-terms of value, if not in volume (see Appendix 6). Bolstered by this success, HLL then turned to deal with an attack on its flagship brand in the laundry soap segment, Sunlight, whose volume and marker share had been dropping under attacks from lowcost producers. The high excise levy kept Sunlight’s cost higher than those of players like Tata, who were not liable for the levy. By 1991, Sunlight had dropped from sales of 3, ‘.9 cons co 6,000 and had less than 7 per cent of the market. Unless it acted quickly, HLL knew it would be out of the market altogether. It also realised that despité all the activity in the powder segments and against all expectations, laundry soap still enjoyed 45 per cent share of the fabric wash market and was not going our of fashion. Helped by a technological breakthrough, HLL relaunched Sunlight at a much jower cost, Where the old Sunlight had been sold in 150 g packets at Rs 16 per. ue nares its product on more value for money as well. A $00 g pack of Gi World Class in India kg, she new product was sold in 200 g packets atthe same price. As a result, sales went up from 7,000 to 15,000 rons a year in 1992'and HLL set a target of 30,000 tons by 1994. Plans were also afoot to launch a Premium Sunlight, a high quality product. However, HLL could not afford ro relax. Yet another threat had appeared in the form of Procter and Gamble (P&G) India, a competitor with the same global backing and access co high technology, marketing experience and a range of international brands as itself. HLL had recently opened up the concentrated detergent sector of the market in India. Now, P&G was abcur to enter that sector with its own powerful offering, Ariel. HLE’s ability to beat off this challenge would be.a real test of the effectiveness of its changed mindset. hanged Mindset ~ Jn 1989-90 P&G had a turnover of Rs 99.5 mn in India, 13 per cent of which came from exports. P&G had not hitherto been active in the detergent market. However, in 1988, it had acquired Richardson Vicks in the USand with it, Richardson Hindustan, an established company in India with a strong marketing and distribution infrastructure for branded consumer prodacts. HLL had been expecting an invasion of the detergent market by P&G ever since news of the takeover had broken. P&G's rarget.was expected to be the top end of the organized detergent sector. In November 1990, backed by heavy investmerit in advertising, P&G test marketed its product Ariel Microsystem. It was a powder which used their mos advane~d anc’ vuprietary enzyme-based technology and was superior to Surf. I ‘was priced at Rs 32 per 500 gm compared with Surf's Rs 15.80 and Rs 17.50 for Surf concentrate (and Rs 4.90 for Nirma). TAHE vould last for a month's normal washing, itclaimed, and would eventually work but as cheap as Nirma, for according to P&G: It’s not HLL or Surf, Nirma is ‘of competition’, 2s & In rho areas where the growing middle class was found, HLL knew that this message would hold great appeal. HLL managers travelled to the test market in Visakhapatnam in Andhra Pradesh and, by the end of January 1991, knew that AE a & ABRHindustan Lever Limited« 59 P&G's product represented a serious threat to them, squeezing them from the top just as Nirma had squeezed them from the bottom. HILL had been the first to open up the concentrate sector in India by latineinig~ Rin Powder as a concentrate in some areas of the country. For housewives, it was positioned as a superior product at ho extra cost. The advertising message was that a spoonful of Rin equalled three spoonsfull of Nirma. However, Rin - ald not deliver the quality of the P&G product. ot HLL’s parent company, Unilever, did of course have an enzynie-based * technology and HLL’s management had repeatedly discussed whether or not to launch an-‘ultra? product in India. But the proposal. had been rejected on the grounds that Indian consumers would not pay for the advanced technology of latest western products. ‘ s 2 3 : : ry : : : However, faced by the reality of Ariel's market presence, FILL's view changed and in contrast to P8¢G’s cagtious progress, it moved fast. First, advertising for Surf was stepped up throughout the test province, Andhra Pradesh, and prices were cut. Second, the national roll out of Rin concentrate powder was expedited” to capture the concentrate image. In February 1991; the company also set to work to develop their own ‘ultra’ product based on indigenous technology that was cost effective, The product was on the market by 1 September and was on sale nationally by February 1992. To achieve this, HLL compressed its conventional method for the development and launch of a new product. Instead of its traditional step-by-step approach which meant waiting for results before proceeding with the next stage, HLL: carried out every stage in parallel (see Appendix 7). While the product was being developed in the laboratory, work on the packaging and perfume was simultaneously carried out. While the product was being test marketed, the production went ahead with capacity creation. The effect was to cut the lead time from two years to four months. WWBBBUssqywsy5s The result was a triumph for the company. HLL was able to limit the progress of Ariel. By 1992, of the 11 per cent national market captured by concentrated detergents, 7 per cent belonged to HLL (3 percent Rin concentrate and 4 per cent Surf Ultra) and 4 per cent to P&G. HLL's total value share of the fabric wash market had risen from 39 to 42 per cent. In a pre-emptive move, HLL launched * ° ° ° s e - y 4 2, World Class ix leddia an eleborate seymentation and positinming exeteise. ‘The different segments for gach of its product categories were analysed one by one, and vacuum was Tound aniwthere, a spécial project was initiated to create and launch a product co fill thac gap. The objective was to avoid any loose brick wn HILL's defensive wall against P&G. Lo this, Unilever's workd-wide intelligence of P&G products was of Scent assitance, The emphasis was on competitive pricing, made possible by the Company's new methods and cost reductions dawn the line, In 1991 the detergent marisee was growing fast the rural arsas, which oy then accounted for many of te business key segments. HLL anti double its volune by 1995. The moveme: would give both growth opportunities at about 20 per cent, especially in nearly half the total demand for icipated that with a push: ie could nat to liberalise the markets, it expected, and more aggressive competition, In the peridd beoween 1988 and 1992, HLL had broadened its Strategic approach and cramatically changed its management Processes. It had-understood what ‘cn could do and learnt thar no competitor could be left unchallenged, idence restored, hungry and aebitious HLL masiaders were feady 10 face anything and anyone. HLL's watchword for the future would be ‘edge'—competitive edge through marketing edge, distribution edge and léchnolagy edge. GY 86 HLL chairman $, Datta had hada dream for HLL. With Wheel, he explained, the company had successfully moved into the popular segment of the detergent market. In hs dream, HLL went on to become the lowest cose sq highest quality Producer in a variety of products, both within Li's existing categories and in Rew areds, to ceposition itself at the frontier of the emerging consumer markets in India. tn that process, ic would also open up new opportunities for Unilever World-wide, as similar consumer markers emeryed in other developing countries. But he added, “If we come up with a new visivn, wemun seve our structures and procedures to match that new vision, 'four current ways of working impede Our ambition, we must change these ways of working! He then’ provided his managers with their next challenge. ‘Even the existing middie-class consumers we serve in India represent about 4 per cent of the total world-wide market served by Unilever. We should therefore be contributing 4 Pes cent of Unilever's world-wide revenues. We are actually generating 2 per UO Oe Se Sia ie Se So Se On 99 DOL o ‘ew tas? fn rf 1G. 0 IB eltetiel tA Ste oNi OO Ore oOuUuUue uv if rO0ovv0 oO VE eECE CEE EEOOEH t wuuUE vb os 0 uo Ob Oo MOM OM A CR Nt OR ORL Vou Hindustan Lever Limited cent, The challenge is not just holding share! The challenge is dramatic improvement to double our revsnues to fil this gap. Twenty per cent per anoum yrowth will nor get us there. We need a quantum leap, not just incremental improvement. How must we make this teap to Till this gap?” 61PUT ET OU wor Qi #22099 1 SHAE OOT VOrSET sORETI Tszcet OtOsei TIsGIT EPRI OBLFOT TEBE vases VESTS SPOUSE TOON ut in se anssy snuog SH Ot ose «ORE OST OME OE OT sees {2%} spuapiary Oss OZ6E —S9ZE PRET REET 9BSLOOHL-— OTE. soE gee spuepiaig veak ay OLS} ERE GH SATT—THHL EBT ESIL.— soOT. £98 09T ooont foH. = STO9 FS Suck GzHE CSS TIZCt@ LEZ Oceet peOLL 1968 E62 © GEL «LOSS 95SS LOY TE SHH STSLLE LTO9HE HOLT 9OTTOL TEESE SEHR 9BSTL DED WEBS | ELITE Ori6e™ Besse esHZZ LOOT GERI TESMI HRT SUPE CEENE . BGpET FeSSh beOIh NLBSE OSETE SEOE N87 BETZ SSHEE H¥ODL CREO *leyst pest SPSBL OSL GLBLT EBEIT BF6TT ELOIT OssE Sse sissse 3002209 29 Stloe _ocest 9zict cheb 9sset_ BRNO eebé TERE HITS zOTR s2asse, port 16st O66 G8 8GI<86I_ SRT SB _FR6T _t4BT—zBaT eR r spar] song] UB}snpuyy t XtQNadd¥ RE yy I TT“| \ renters Loxronsaay 9) pracy sae wove BHAA WF 1 PH he hh HHAAAYY 0900.09.00 80APPENDIX 3 Hindustan Lever Linuted a Unilever Financial Highlights, 1991 Deceanber 1990 Rosai v¢ ation? Funnioses 23163 Gper acne pees 1990 Po ou nmardanaes aotteties before taxation v9 Sev gid Coit ontinary aetvities mst 4 Dat 1 serourinary tes 4153 6 opening ane) 86 - Peoter ater taxation 35 2 percentage of turnover 1%) 52 - Rema an capitibemployed is 164 - Net guesses! 279 - dete 2 2 4 - © urtmed eamncugs fer abare’on urdunary activities Guides per 1.4 of ordinary sapical 13.55 1286 5 Pare per Sp of ordinary capital 61.62 99.32 4 Ordinary divndends Guilders pet 11.4 of ordinary capital 5.56 527 5 Peace pot Sp of ordinary capital 1834 186 4 Cambbted carnistes per share after extraordinary items 28 Guilders p Pence ver Spofoniingry capital. $167___#2.4 16 Turnover by Geographical Area, 1991 Turnover by Operation, 1991 £ million} we [3 rood Products (11203) (50%) 1] Letergents (6218) (27%) 1) Personal Products (2028) (9%) 2 Spacianty Chemicals (1762) (8%) coiners (1402) (8%) (£ million) 5% $B North America (4769) (24%) [2] Europe (15/04) (85%) 1 Rest of the world (9830) (23%) oe Vie sie a to ? a = ee a = - “a “a “eA a = a } ( wf a nts 1. Gel hank fee icie ts rveoe , » tor if aib eee we eee u BASRA LE vue Am ob UuuY Vous 7 World Class in india APPENDIX 4 Fabric Wash Market 19701975 1959 Votume (000 T) NSD powders 2% 49 12236000 535 610 NSD bars 444 123 0h 29s ag aay Laundty soap, Seg $60 81S 89890" gS Ger gy Tora S86 53 oF) ase Gea gay Share NSD powders 38 Sod 9 sang NSD bars 06 38 ins 77 02 237 Laundry soap 936 876 774 Sul S24 48.7452 Torat 100 sho. 100 100 100 109 100 Growth pad WSIS yrs. eey ivsuss rsss9 NSD powders Bs 0k 20 m2 Ha. NSD bars os 22.8 10.2 mae Larry soap on 46 Ww Ad. Tora] 1 23 64 68 = APPENDIX 5 _ Wheel : Nima Cost Structure Costs (Rs per ton) _ Whee! Niona Raw oateiais 4605 4730 Packaging 378 500 Other variables 60 60 Factory directs 2s 225 cwe 3 - Suppor 45 150 Pai 25 210 Excise 1470 sas Distribution cos ani 480 Sales tax 80 700 Distribution maegin vs . 650 Retail - . Ct $250,Hindustan Lever Limited APPENDIX 6 : HLL; Ninna Market Shares ~ IST NSD Ponders Volume (% mm 1" wo, n an Nira @ 3 x4 30 Value (6b - . . HL 2s 6 8 a8 Nico 32 30 46 a NSD Bars Volume (21 : HU, a 2 as - Nirwsa 2 40 8 - Value (%) HLL 9 2 “0 - Niema__ 33 3 2. —— = APPENDIX 7 HLL Develo; ment Process - Conventional Process Sur ea Formiaion — , . m fF] | L 1° capaciy Fomiaton Colour — Perume Packaging L Packaging ! fragronces | + TT ‘Test market | ‘ at Crvesute Markel by September 1991 1 \ suecesstu, capacity 67 wh hd ab) bP EP SE SE ye TR SR ROR RCAC RO AS RE AG OE » DRE E HE OSE 16 BS S.