On A 10x10 Drive

On a drive down Lal Bahadur Shastri Marg in Mumbai’s suburb of Vikhroli, it’s not unusual to spot congratulatory vinyl banners. Put up by workers’ unions near the Godrej Group headquarters, they celebrate group chairman Adi Godrej being awarded the Padma Bhushan. Incidentally, his cousin and Godrej & Boyce (a group company) chairman Jamshyd Godrej had won the same award in 2003. Elsewhere in the city, the felicitations give way to protest. Outside many high-visibility locations, aggrieved employees have put up posters or desecrated walls with graffiti against the Godrej management for not giving workers their due.

Come 2021, the Godrej Group would want only the bouquets and none of the brickbats. That’s when the audacious target announced two years ago by Adi — grow 10 times in 10 years (the 10x10 strategy) and achieve a turnover of $33 billion — reaches the finish line. The task, as spelt out by BW in its cover story two years ago (1 July 2011), is onerous. Not in the least helped by the fact that it’s a moving target. Two years ago, when the Godrej Group had announced that it aspired to be a $33-billion empire in 10 years, it had to touch a group turnover of around Rs 1,47,000 crore, given the exchange rates prevailing then. Now, with the US dollar trading at Rs 56, the group would need to achieve a turnover of Rs 1,84,800 crore.

A growing global presence — Godrej Consumer Products, the group’s single largest company, has roughly 40 per cent revenues coming from abroad — and a weak rupee could actually come to Godrej’s advantage. But group executives are quick to emphasise that the vision is not about achieving a target in terms of billions of dollars but to grow the group to 10 times its size of around Rs 15,000 crore (Godrej Industries Limited and Associated Companies, or the GILAC group, and the Godrej & Boyce group, put together) when the vision was articulated.

Gaining Speed
Again, topline growth is not the only challenge. The target of $33 billion needs to be achieved while keeping an eye on the bottomline. In the early days at least, Godrej seems to be faring decently in this respect. While its revenues grew faster than competitors’ in the past few years, operating profit margins have not been bad either. The listed Godrej Consumer Products grew at 32 per cent, faster than most competitors (Dabur’s topline growth was 29 per cent and Marico’s more than 27 per cent). Other FMCG players recorded growth in the teens. Its operating margins, too, outperformed illustrious peers such as Hindustan Unilever, but fell behind companies like Colgate and Dabur.

While Godrej Properties beat competitors by a mile — its revenues grew 70 per cent over the previous year while publicly listed competitors largely showed a decline in growth rates — its operating margins lagged, with Godrej Properties clocking one of the lowest profit margins in the business, largely due to its asset-light model, where it does not own land on its books. Still, because of the nature of the business, operating profit margins were at a healthy 26 per cent.

The Godrej Group’s unlisted businesses such as appliances also fared well. While the consumer durables sector as a whole witnessed a slowdown in 2011 and 2012 — the average industry growth in the past five years has been 10-12 per cent — Godrej Appliances claims to have grown at 23 per cent. In categories such as refrigerators, where the rest of the industry has grown at barely 2-3 per cent, Godrej claims 26 per cent increase in value and 16 per cent in volume terms.

But in the early years of the 10-year mission, Godrej companies will have to do better than the required 26 per cent compound annual growth rate. The reason: as companies become larger, their pace slows.



In the two years since the 10x10 strategy was articulated, the group has broken down the target into three-year plans. “In the initial years, we plan to grow faster and build a base. In the final years, 26 per cent growth may not be easy because of a larger base,” says Adi. “Besides, we will have more inorganic growth in the last 5 years of the period.”

While Jamshyd declined to meet BW for this article, Godrej & Boyce’s executive director, Phiroze D. Lam, echoed Adi’s views. “We realise that going by the 10x10 plan, it’s not possible (to achieve targets) unless there is both organic and inorganic growth.” Lam says a company that keeps doing the same thing well will grow, but is unlikely to expand to 10 times its size in 10 years. That said, what is Godrej doing differently?

Group Effort
It’s said that winning is a team effort. And that’s what the Godrej Group is doing. “We have gone from being primarily a product manufacturer to a solutions provider,” says Lam.

Godrej & Boyce has shrunk its 14 businesses, ranging from aerospace to appliances, into four verticals — B2B products and projects, and B2C products and projects. “Business heads realised that between themselves there is so much power,” says Lam. Now, various group companies are bidding jointly for projects. For instance, to build a hospital, Godrej Construction (a Godrej & Boyce company) can potentially put up the building, Interio can do its interiors, Security Solutions can take care of the locks and security, Prima can do the video-conferencing facilities and Appliances can look after air-conditioning and cold storage.

In some cases, Godrej has also tied up with international players. For instance, for the hospitals that the company is currently building for the Kirloskar group, it has tied up with Linet, a Czech company that’s the largest manufacturer of hospital beds in Europe. Similarly, Interio has partnered with companies from the US and Japan (Knoll and Itoki, respectively) for seating systems. “One is the leader in form and style, and the other in technology,” says Anil Mathur, COO of the Rs 2,000-crore Interio business.

For the Rs 2,500-crore Godrej Appliances, the biggest challenge has been to tackle the might of the Korean and Japanese companies. As it could not hope to match the research and development budgets of these giants, it decided to scout for partnerships. It found an answer in German consumer durables manufacturer Bosch with which it has co-developed a refrigerator with a 7-star energy efficiency rating that will meet 2016 norms — the rest of the Indian market mostly markets 5-star or lower-rated products. Bosch will market the co-developed product in other countries while Godrej will do so in India. The appliance business is also working closely with Chicago-based IA Collaborative, a global leader in innovation and design.

Similar cooperation can be seen in real estate as well. To develop realty at Vikhroli, where Godrej & Boyce owns most of the land, Godrej Properties, a GILAC company, has tied up with Godrej Construction, a Godrej & Boyce enterprise. While the master planning and design of the project is done jointly, Properties takes the lead on sales and marketing and Construction on execution.

 

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The Flow Of Money
While the 10x10 strategy is largely revenue-focused, individual company heads stress it won’t be at the cost of profits. “We’d rather reach Rs 5,000 crore revenues with Rs 2,000 crore profit than reach Rs 20,000 crore revenues with a Rs 1,000 crore profit,” says Pirojsha Godrej, Adi’s son and CEO of Godrej Properties. “While the number we have been communicating externally is driven by the topline, it clearly has to come along with profitable growth. If we had to deliver just topline growth in real estate, that’s no problem at all. We could touch Rs 20,000 crore even sooner than 2021,” he says.

To ensure profitability, Godrej Properties has started an internal operational excellence programme. Called Project Pyramid, it seeks to ensure that various parts of the business, be it in contracting or procuring, deliver as much value as they can. “We are focused on unlocking value and lowering costs for the company by 10-15 per cent. That will improve the value of the enterprise,” says Pirojsha.

And, to reduce the risk on its books, Godrej Properties is pursuing joint ventures with international finance partners. “The JV model allows us to do more projects than we could if we bought the land,” says Pirojsha. “Our model is about capital-efficient land sourcing.”

However, since development itself can be capital intensive, the real estate company has decided to focus more on residential real estate as it needs less capital and space can be sold even before construction starts. “Residential real estate fits better with our capital-efficient strategy, and will allow us to do more projects than we can in other asset classes. Therefore, it will allow us to scale faster,” says Pirojsha.

Also, the company is able to leverage the strength of its brand particularly well in residential real estate, as customers are willing to trust it. However, unlike other group businesses such as consumer goods, appliances or even forklifts, Properties will focus on India. “We are at an early stage of the growth story in Indian real estate. International markets would be an unnecessary distraction” is Pirojsha’s take.

Striving For Efficiencies
Efficiency is being driven in other businesses as well. Godrej Appliances is drawing inspiration from management gurus ranging from Harvard Business School’s Clayton Christensen to Eliyahu M. Goldratt’s Theory of Constraints. According to George Menezes, COO, Godrej Appliances, the company is adopting a just-in-time stock replenishment strategy between distributors and retailers. The strategy has been piloted in Mumbai for the past one-and-a-half years.

 

The credit lines, too, have been reduced from 40-45 days to 21 days. “We could not give that much credit in a downturn. We cut that and it paid off,” says Menezes.

A larger shift has been in the way the group sees consumers. Many companies under the Godrej & Boyce umbrella are no longer looking only at the categories they belong to but the tasks they help consumers perform. “In 10x10, we are widening our portfolio to look at product definitions on a much larger canvas. The four Cs — cooling, cooking, cleaning and climate control — are clearly the large categories that we will operate in. Godrej Appliances will work in core categories and then look at adjacencies,” says Menezes.

So, when Godrej shifts focus from making refrigerators to cooling, it could lead to the launch of adjacent products like visi coolers or deep freezers, cold chains and so on. “Logically, one can keep extending in that space,” says Menezes. Similarly, in cooking, the appliance business can go beyond microwaves to mixers, induction heaters and so on. “Cleaning could also mean providing clean drinking water. We are doing some work in that space with the IITs on technology that can be really affordable,” says Menezes.

These innovations, along with existing products like the low-cost refrigerator ChotuKool, give the company enough ammunition to penetrate the hinterland. “The penetration of consumer appliances is largely limited to urban towns. We can look at all segments, including the bottom of the pyramid. Look at the business model differently and create an ecosystem of micro-finance companies and self-help groups,” says Menezes.

Godrej’s centralised product development cell helps in creating products across the board. One of its aspirations is a luxury safe. Lam says the idea came from a luxury magazine in which he read that Indians were shopping for luxury safes abroad.

“For product development, we have a multi-generation product plan laid out for each category for the next five years,” says Menezes.

Generation Next
The younger Godrejs taking centre stage is perhaps the biggest development in the group’s Vision 2021. The greater aggression in the group is being attributed to this shift.

“Younger generations are typically more aggressive and have bigger ideas,” says Vivek Gambhir, chief strategy officer at Godrej Industries.

While Adi’s son Pirojsha runs Godrej Properties, his daughters Tanya and Nisaba spearhead the marketing push across the group and manage strategy and human capital, respectively. Jamshyd’s son Navroze leads the design function.

The average age of the group’s top managers is coming down too. Five years ago, the average age of the top 100 employees was 52-53 years. Now, it is down to 42 years. But it is talent that will probably see the biggest ramp-up. Godrej Consumer Products will have nearly 25,000 employees on its rolls from 4,000 at present. “We are doing work in various parts of the company to create competencies needed for this kind of operational scale-up,” says Arnab Mitra, group HR head, GILAC.

Beyond Targets
Gambhir is upbeat about the progress made in the early days of Vision 2021. “We are firmly on course so far to exceed the expectations that we have set for ourselves. It’s still early days. The first couple of years will be focused on laying the foundation. Then trying to accelerate growth becomes a lot easier.”

But there is life beyond the numbers. “This is just an aspiration. It’s not what drives our day-to-day operations and goals,” says Pirojsha. “The strategy allowed us to come together as a group and brainstorm on what the full potential for our various businesses would be. The 10x10 strategy was an outcome of what businesses were planning and what their potential was, rather than us setting a target and then chasing it.”

Right now Godrej looks to have all the ingredients in place. But it’s the execution over the long term and commitment to the vision that will make or break the 10x10 dream.

With additional reporting from Nevin John

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(This story was published in BW | Businessworld Issue Dated 01-07-2013)