From your years at HUL and the Tatas, both of which have weathered a slowdown, is there a philosophy or a framework you have followed to deal with an adverse business environment?
Just like the five stages of grief, I have coined something called the ‘DANDA’ philosophy. The first ‘D’ stands for denial, when you can’t believe something bad is happening to you. The ‘A’ stands for anger over ‘why you’, the ‘N’ is for negotiation, which is when you realise what your situation is and you’re looking for other options to get out of it. The second ‘D’ is for depression, because after negotiations don’t work, you don’t know what else to do. Finally comes ‘A’, which stands for action. This is the most important stage. For instance, pertaining to the auto sector, when the government completely denied a slowdown at first, there was anger all around. Different parties were blaming one another for what was happening. After that, the government began negotiating by offering GST relief and so on. Depression has not set in yet, but if it does, it will do the country good because only then will they spring into action. Hence, I believe this ‘theorem’ is important because, if you can directly go from first ‘D’ to the second ‘A’, that would be great. The key skill in dealing with a slowdown or any other bad news is accepting the reality quickly after understanding the facts, and immediately jumping into action.
Should a CEO be always prepared for a slowdown in the business?
To be prepared for or to anticipate a slowdown is very subjective. For instance, you may gain a few kilos soon after a festival or a celebration. But as soon as it’s over, you pull yourself up. You don’t wait till you gain so much weight that you have to get a bariatric surgery done. Also, it’s easier to shed that weight when you’re young, not so much when you get older. It’s the same with companies. If you’ve been around for a long time, being prepared will take a lot of effort as things change with time. Your response will not be as elastic as a start-up’s. So, the leadership should focus on building muscle, not fat. That will give you strength. Fat will just make you feel large. Companies that grow large by muscle building have to exercise, which means they’ll always be doing things, even if they make mistakes. Building muscle has another advantage — you can choose specific ones. You can focus on where you need muscle and train that part of your body.
What’s the most critical aspect or muscle in a business that the management should first focus on during a slowdown?
In 1973, HUL was going through a difficult phase and there were severe price controls. We had a chairman called T Thomas, who came to Delhi and told the then-PM Indira Gandhi that we will have to shut the factory if we can’t raise prices. I was just a sales manager then, but we got talking and discussed the slowdown. He suddenly asked me if I wanted to be the communication manager and I said, “you must be joking”. He told me the chairman of HUL doesn’t joke and asked me to sleep on it. What could I do? I accepted the offer the next day. He taught me the importance of communication, of telling your side of the story to the shareholders, employees, media and so on. He realised that we weren’t using our ‘communication’ muscle and, hence, we had to build that.
How can a CEO choose to keep his long-term focus, that’s not mortgaging the company’s future, yet play it out, one quarter at a time, during a slowdown?
If ‘A’ is a short-term solution and ‘B’ is for the long term, I don’t think A+B is constant. It can be highly elastic. For instance, when you’re cutting cost for this quarter, it will matter in the long run which cost you’ve chosen to cut. Rationalising your product range is important, but how you do it will determine your long-term strategy. Long back, when I was a young trainee on production schedule, our factories were choked up and I came to the not-so-startling conclusion that we had many variants of soap at HUL. One of the bosses said, every time there was a new brand manager, he would want to introduce a new variant. He didn’t care what happened in the factory. So, the boss said if anyone wanted to introduce a new one, they would have to let go of a previous one. Many companies don’t do that. Take the case of the auto industry. They keep introducing new models with different handles, more tools, more spare parts and so on. Then, when the big slowdown happens, they rationalise. That’s why they keep saying they have knocked out $3 billion in cost rationalisation. But the moot question is: how many billion dollars were you spending in the first place?
So, does the market leader’s way of dealing with a slowdown also apply to the second or the marginal player?
I don’t think it depends on whether you’re a market leader or not. It depends on who you are and what your capability is. When we were dealing with price controls on soaps in 1975, we launched Fair & Lovely. It was a huge innovation because nobody was going to control the price of a fairness cream. Today, it’s the world’s largest selling fairness cream. So, setting up a research centre to create innovative products is in the DNA of HUL. A similar example would be that of the detergent bar. No country in the world used detergent bars, since they used washing machines and washing powder was enough. But we turned that powder into a tablet — a tablet that had to be dry and clean when not in use, but becomes soggy and supple once you make it wet. It was a hit even in countries such as Indonesia. The next example I’d like to talk about is Liril. Many might question what’s so great about this product, but back then, nobody had ever produced a marbled soap in the country. We didn’t even have the equipment to make it, so we had to build our own ‘marbling’ machine. We launched it in two colours initially — green and blue — to test which one worked better, and branded it as a freshness soap. Today, it’s one of the most popular freshness soaps in the country. There are many such instances I can cite from my days at HUL, but it all depends on what the DNA of your organisation is. It doesn’t matter if the number one or number two companies are doing or not doing something, you have to be true to your capabilities. It’s an analytics-driven call. You have to decide if you can fight for share in an already explored territory, or would you rather go to an unexplored territory and build share. For example, at HUL, in 1998, a McKinsey study had suggested that money was in services and not in the product business. Based on this insight, the company forayed into Lakme salons and laundromats where people could dump their clothes to be washed and pick them up later in the day. It was not a successful experiment and in the process, a lot of cost was added. However, following a slowdown, couple of years later, the experiment was wound up.
But wouldn’t nixing that innovation at HUL during a slowdown have compromised a potential growth driver?
Companies need to experience disruption before they can react to it. Back in 1964, HUL felt that it had become more of a detergent company, while its parent Unilever was a food company. That’s when HUL launched its dehydrated vegetables and foods business under the brand name HIMA. Right from peas to gulab jamun, the brand had a total of 52 products. But again, the move was far ahead of its time, even though our market research showed that with rising urbanisation and women joining the workforce, there was going to be a huge potential. But after running the business for several years, HUL exited during the slowdown in 1972. So, it’s one thing to hear a distant thunder but you can’t act before it strikes closer. You have to respond to change dynamically.
In a market that is slowing down, is focusing on gaining market share a good strategy? Also, does offensive advertising work?
Honestly, in a slowdown, if a company manages to hold on to its market share, it’s a job well done. However, it’s not the time to show your bravado even if you think you have an idea, because that’s when you are trying to save on costs. But, one can take the offensive approach if the slowdown is caused by a competitive force in the industry, like when Nirma showed up and HUL had to respond. HUL did not want to knock out Nirma, but the new entrant had eaten up some of our breakfast and was about to grab some of our lunch as well. So, we had to grab the plate back. That’s when we decided to put a lot of money behind Wheel.
Could you share insights on how the Tata group handled periods of slowdown?
The auto industry goes through a dark tunnel every four to five years. When I joined the Tatas in 2001 in R&D, we reported a Rs.4 billion loss. Tata Motors is a fairly creative company — Indica was a great innovation but could not sustain modern times, Nano was again a great idea, but something went wrong. Much before I joined the Tatas, the Japanese were entering the market with Mitsubishi and its light commercial vehicles. Sumant Moolgaokar told his people that it was time to innovate and launched the 407 Tata Light Truck in 1986. And they held sway over the light commercial segment for a long time. In 2001, when the slowdown happened, Ravi Kant was running commercial vehicles, and they realised that the time for 407 was over. We needed smaller vehicles and they launched Ace, which had several versions. Similarly, following the Y2K boom, the Indian IT sector was facing a slowdown, when TCS chose to go after bigger clients because it felt too much energy was being frittered away chasing smaller clients. So, that’s another response to a slowdown.
Interestingly, IT companies, for example IBM, are saying the opposite of what you referred to. They are chasing smaller companies now.
It depends on the nature of your crisis. There’s nothing wrong in following such a strategy. For example, FMCG companies that went rural have succeeded while those who have stayed in urban markets haven’t. HUL has been in rural markets for over 50 years and it continues to strategise on its rural marketing plan.
Finally, how can companies leverage a slowdown?
Innovation is leverage. A crisis is a good time to usher in change and think out of the box. Today, we are among the largest producers of chicken and egg in the world. How did that happen? There was something called the Protein Food Association founded under the UN Food and Agriculture Organisation, which conducted a research saying that India was running into a protein crisis in 2007, and some people said they could solve the problem with chicken. The breeding and broiler industry started saying chicken is good for your health and today, India is the third largest egg producer and fourth largest chicken producer in the world. That was the poultry revolution. When the milk crisis happened, we had the White Revolution and after the food crisis, the Green Revolution. So, that’s how you leverage a slowdown.