Mother of all changes

Crossing into the gates of Mother Dairy’s original plant at Patparganj in east Delhi, the abrupt change of scene hits you first. A landmark for the city’s residents, Mother Dairy is better known for the traffic crossing outside — chaotic, noisy and extremely congested. Once you enter, though, the manicured greens and almost military-style orderliness takes you to a different world. Few people can be seen on the premises, even as the 37-acre property, which was once the nerve centre for Delhi’s milk supplies, quietly goes about its business. Most of the processes here are automated and work with precision to deliver toned and homogenised milk to 1,415 milk booths that Mother Dairy runs across Delhi.

Tankers carrying milk from collection centres in rural areas around the city deliver their supplies after they are cleared through a rigorous but quick sample test. The automated processing plant purifies the milk and makes it ready for bulk vending machines at booths. At the ice cream unit inside the plant, people are working with an automated line that churns out 28 of Mother Dairy’s 60 varieties, even as a group of young visitors is herded across the factory. Daily tours are conducted for students and others interested in seeing how Delhi’s homegrown milk brand has never missed a single delivery since it started in 1974, except for one shift during the 1984 riots. 

The plant has seen many changes, from being on a desolate stretch outside Delhi to the expansion inside and the mushrooming of residential apartments around it. But nothing compares to the big transformation that has been taking place within the company since 2007. Around nine years ago, when archrival and national market leader GCMMF (Amul) made inroads into Mother Dairy’s home market, it set in motion a series of changes that would alter the game in India’s organised dairy business.

When Amul, finally, claimed a lead in the packaged milk segment in early 2010, the transformation was already underway at Mother Dairy, with top-level exits and a new organisational structure being created. It was the beginning of a process that would turn a well-oiled but bureaucratic machine into a nimble-footed player in a rapidly evolving market for milk and milk products. Today the ₹6,300-crore company has a presence across key markets in India with a robust innovation pipeline and an aggression that rivals the best FMCG brands. Driving all this has been its HR function, which has partnered with other business functions in order to keep pace with the company’s ambitious plans. 

 Makeover blues

In its earlier avatar as an NDDB-promoted organisation under the Operation Flood programme for milk procurement and distribution, Mother Dairy Fruits & Vegetables (MDFVPL) was set up as a holding company in 1974. It operated through four separate entities — Mother Dairy Food Processing (MDFPL) for procurement of milk and manufacture of dairy products; Mother Dairy India (MDIL) for sales and distribution; Dhara Vegetable Oils & Food (DOFCO); and a horticulture business under the Safal brand. These were projects NDDB had launched under Operation Flood and Operation Golden Flow (for oilseeds production). 

Around 2005, GCMMF stopped milk supply to Mother Dairy to launch its own brand, Amul, in the NCR. That was the turning point for the “corporatisation of Mother Dairy”, says Sivaramakrishnan Nagarajan, managing director, MDFVPL, who joined the organisation in May 2010. Though the cooperative model was fraught with political interference and seemed unsustainable, complete dependence on the private sector for milk sourcing was ruled out. “We needed to be a hybrid if we were to be a strong and well-managed company,” he adds. The revamped Companies Act, 2003, which required new generation cooperatives (NGCs) to be registered as producer companies, helped overcome the shortcomings of traditional milk cooperatives. That was the model Mother Dairy went on to adopt.

With India emerging as the largest milk-producing nation, the value-added dairy products space was fast heating up, Amul’s heft in the Delhi market was growing, and the urgency to expand, geographically and organically, was hitting home at Mother Dairy. Management consultancy Accenture was roped in to redraw the organisational structure and in 2005, the four separate companies were merged into MDFVPL and instead four SBUs were created for each line of business. The new and improved Mother Dairy was now a commercial entity with a social mission.

“From multiple boards, MDs, HR and finance departments, we became a unified governance structure with one P&L, one MD and one board,” says Saugata Mitra, chief people officer, Mother Dairy, who joined in 2007 from Sony India. He was among the senior executives brought on board from consumer goods companies to lead the change at the quasi-PSU. The process of integration began in mid-2006 and was completed by early 2007. With the new structure, commercial orientation started to come in. “We were now independent but interdependent organisations,” says Nagarajan. “The SBU structure gave scope for enlargement of roles at mid and senior leadership levels. Roles of functional heads started becoming crucial,” he adds. 

Rocky road

This newly created cocktail of old and new wasn’t without its challenges. With sales teams in their early 30s, manufacturing team in their 40s and four different companies merging into one, a clash of egos was inevitable. “People from the legacy system felt, ‘what do these guys know?’, while those who came in from outside were of the opinion that the existing employees had limited knowledge in a limited sphere,” says Mitra. Kiran Singh, GM, corporate HR at Mother Dairy remembers it as a time of tumultuous change. “The companies had merged on paper. But mindsets, rules, policies, designations and spans of control were still the same. Many people were working in silos,” she says. While Nagarajan insists there were no large crises or collective issues in the integration, individual issues kept cropping up.  

Sound numbers

The organisational overhaul is showing up in topline growth

Vijay Kumar Singh was with MDIL when the integration took place. He joined the company in September 2005 on deputation from NDDB, where he worked for 12 years. As team leader for milk logistics, he was in charge of milk delivery from the plant to 900 booths across the city. “I was worried about my career path and next position,” he says, recalling that his was the only job title of its kind in the new organisation. Four years later, when Singh was redesignated deputy general manager (DGM) and his salary corrected another six months later, he realised others at his level from other Mother Dairy organisations were getting different entitlements, a spillover from their earlier positions. “It was confusing and you didn’t know where you stood,” he says. 

For some, the integration wasn’t a big deal. Debasish Samaddar, DGM (administration), is an old timer with the company, having joined the Patparganj plant’s maintenance department in 1982. Later, as part of the team that set up the Safal booths between 1986 and 1988, Samaddar says he, like his colleagues at Mangolpuri’s horticulture processing unit, welcomed the change. “The pay structure was better in milk, and 15% higher on average,” he says. Similarly, Ashok Kumar, who heads procurement for the Safal SBU, admits that the integration brought in contemporary systems and policies to the horticulture unit. But he does miss the old culture. “We were a small company then, and decision-making was fast,” he says. 

Rationalising designations was perhaps the most critical piece of the change process. Externally hired managers in the newly formed SBUs came with higher designations than those working for years in the old system who often had bigger roles. Not surprisingly, reporting became tricky. To address this, a third-party assessment was done through global employee profiling firm Thomas International. During the three-year period till 2010, around 500 people were redesignated and promoted. “With this one stroke, the disconnect between legacy and external employees was finished once and for all,” says Mitra. 

The role of HR had been evolving and it was restructured into two streams — operations HR and strategic HR. The strategic side would work on systems in the core areas of recruitment, performance management, training and compensation and benefits. Those in operations HR, on the other hand, would be more hands-on, working with SBU heads in their businesses, supporting them in operations and sales — hiring, training, formulating policies and incentives schemes, and so on. Since milk procurement is at the heart of Mother Dairy’s business, there’s even a separate HR team assigned to this in villages. 

One more problem remained, though. With the average employee age at 44 years, Mother Dairy didn’t compare favourably with its peers in the dairy and FMCG industries. A large chunk of employees were old timers, either from the beginning or having joined within 10 years of its inception. With these people set to retire, it was necessary to develop a pipeline of talent that could take over some of the roles.

Also, to compete more aggressively, it had to be nimble-footed and younger, at least in market-facing roles. In 2009, Mother Dairy launched its first management trainee programme. Since then, it has added about 25 management graduates every year, from reputed institutions such as the IIMs, ISB, FMS Delhi, MDI Gurgaon, XIM Bhubaneswar, IRMA Anand and Symbiosis Pune. With around 100 of them still with the company, many have risen to senior roles. In addition, Mother Dairy has also been recruiting from regional institutions such as Praxis in Kolkata and the Amrita School of Business in Coimbatore for its executive trainee programme for frontline sales and operations roles.

Things fall apart

If HR was getting its act in order, at the business level, things weren’t working out quite as planned. With declining sales growth and the internal pressures of the organisational change process, by early 2010, Mother Dairy’s CEO Paul Thachil and MD Sanjeev Khanna had both quit; Nagarajan came on board in May the same year. Coming from business roles at Cadbury, Pepsico and finally Philips, where he served as HR head, he brought a greater appreciation for HR’s role in driving the organisational agenda, both on a strategic and operational level.

Nagarajan found a unique set of challenges at Mother Dairy. Managing the nearly opposing forces of its strong cultural legacy and an aggressive growth agenda was only part of the complexity at hand. Those coming in from other FMCG companies were expected to understand the unique social nature of Mother Dairy’s business model.

“While the common language of business worldwide is revenue, employees here learn that we are also committed to providing a remunerative price to dairy farmers and delivering affordable nutrition to consumers,” explains Mitra. 

Again, Mother Dairy sought expert advice, bringing in PwC in 2011 to develop a competency framework for future skills that would be needed to take the company in its intended direction. 11 competencies — such as leadership, business focus, managing ambiguity and cost consciousness — were identified. Around the same time, Mother Dairy began looking outwards for growth. “We rolled out a five-year plan to expand our manufacturing and marketing footprint,” says Subhashis Basu, business head, dairy products. 

This meant taking calls on production and channel decisions. Jams, pickles and juices, earlier available only at Safal booths, were now being taken national. Ice cream, which had a longer shelf life of up to nine months, could be shipped from Delhi, while fermented products such as dahi, lassi and chaas needed to be made locally due to their 10-15 day shelf life. 

Today, Mother Dairy has a network of its own and contract manufacturing facilities for its portfolio. For example, in the northeast markets and hilly regions of the north where production of milk has always been low, long shelf-life products such as UHT milk in tetrapaks and dairy whiteners were found to be more suitable. These markets also depend heavily on the wholesale channel given their difficult terrain, so Mother Dairy’s distribution had to be designed accordingly. Its newly commissioned plant in Etawah in Uttar Pradesh is geared to service such markets.

It helped that Mother Dairy was transforming even as the dairy products industry picked up pace, spurred by changing consumption habits and growing acceptance of innovative products. Rabobank expects the organised dairy market to double from the current $10 billion (approximately ₹60,000 crore) to $24 billion (₹144,000 crore) by 2020. Of this, the dairy products business is around Rs 20,000 crore. 

Bringing together its disparate sections helped Mother Dairy bring in synergies in many ways. While most milk and Safal booths are located next to each other, they had earlier sold their own range of products. Now dairy products are sold in Safal booths, while frozen peas can be found in the milk booths. The sense of purpose ingrained in milk employees is now part of the new organisational culture, Nagarajan says.

Changing tide

The impact of all these changes has been trickling in over the past few years (See table: Efficient change). Manpower cost as a percentage of turnover has dropped to 3.5%, from 4.8% five years ago. “It has been fairly constant over the past couple of years now,” says Mitra. In absolute terms, people costs have gone up from ₹162 crore in FY10 to ₹224 crore in FY14, while headcount has increased marginally from 2,991 in FY10 to 3,124 in FY14.

Efficient change

With a boost in productivity, manpower costs stayed under control

Mitra also cites an organisation-wide engagement survey by Aon-Hewitt in which 90% employees participated in 2012-13: at 68%, Mother Dairy’s engagement score was comparable with FMCG standards in India (70%). Meanwhile, attrition has come down from 10.06% in FY13 to 9.06% last year. “Our recruitment cycle time has gone down and cost per hire has reduced considerably,” Mitra adds.

Aggregate revenues for the company have grown at a healthy 20% CAGR in the past five years, and Mother Dairy has a target of ₹7,800 crore for this year. As the company’s cost and efficiency measures, geographical expansion and organic growth of its business lines through new products and innovation all produce the desired results, the pace of growth could increase.

And HR is as involved in business targets as any other department. For starters, training and equipping the sales team for each sales channel as well as new markets, where the approach is more like that of a start-up, has been HR’s responsibility. “Their role is ensuring good performance, training needs for a new territory, setting incentive programmes and systems and recruiting people with a high-growth mindset,” says Nagarajan. 

HR’s business orientation is evident in its support to cost reduction, too. For some of its eastern locations and for the north-east region last May, Mother Dairy roped in an outsourcing firm for its sales and distribution of new tetrapak products such as milkshakes, cream and UHT milk. These require a capability very different from its traditional cold chain channels. “It would have taken us thrice the time to set it up ourselves,” says Nagarajan. But the true benefit has been in the flexibility it offers. It is the single touch-point for SBU heads and the agreement has an in-built condition for Mother Dairy to take over the system after a few years. 

The department also supported the sales and marketing teams in making the booth-to-FMCG transition. For a company known by its signature booths in Delhi NCR, it was important to extend the availability of Mother Dairy’s milk products, such as ice cream, butter, cheese, paneer and dahi to other retail outlets and modern trade. At ₹765 crore, the dairy products SBU contributed barely 12% to revenue last year. Yet, it’s the fastest growing among Mother Dairy’s lines, with a CAGR of 27% and a revenue target of ₹900 crore for FY15. Bringing down the contribution of liquid milk from 70% a few years ago to around 65% now has been a gradual process. 

More recently, the action on dairy products has shifted to markets such as Mumbai and Kolkata, which Mother Dairy has entered in the past few years. A new market needs two to three years to seed fully through pilot projects and carefully calibrated expansion. The gradual approach is due to the perishable nature of dairy products and the need to have the cold chain logistics and supply in place before attempting new outlets even within a city. “In newer geographies, we are the challengers. HR plays a bigger role in developing the challenger mindset among our teams,” says Basu. 

What this means is developing the framework required to store, transport and sell dairy products that require different ways of handling. So, while dahi, lassi and chaas have a shelf life of 7-15 days and are stored at 4 degree Celsius, they require daily replenishment. On the other hand, ice cream, with a shelf life of six to nine months, needs a frozen cold chain of -18 degree Celsius and can be restocked once or twice a week.

Tetrapak products need what Nagarajan calls “a grocer’s mindset” at the FMCG level. “This meant a new shape of the sales organisation, marketing organisation and supply chain for each category of products. HR has also helped us create a team for modern trade,” says Basu, who also credits HR with starting the pay-for-performance culture in sales. Mother Dairy’s recognition systems go beyond monetary rewards, he adds, recognising contribution in areas such as coaching and mentoring as well. 

As the company looks at new products lines such as processed fruits and vegetables and ready-to-eat foods to bring in higher margins, Mitra says HR’s mandate is likely to be more aligned to the business in the future. For instance, the outsourcing model is something that could be applied to other areas as well. “It’s flexible and faster to execute.

We are asking ourselves if the plug-and-play approach can be developed further to other areas, such as warehousing and logistics,” says Mitra. Such thinking never came naturally to the organisation in the past. “We now explore new ways to support the business in innovative ways. It’s an orientation change for HR.” The change definitely seems to have put Mother Dairy on the milky way of growth.