Business Turnaround at Bayer Consumer Care India

Transcription

1 Business Turnaround at Bayer Consumer Care India Case Study By Rajiv Chopra 1. The Context Bayer AG is a German multinational headquartered in Leverkusen, Germany. Prior to 2002, it was a group of 20 odd business groups - all reporting into the Head Office. In 2002, the organization was re-structured - and Bayer AG became a holding company. Several legal business entities were created under this arrangement, with all the shares being held by Bayer AG. These included Bayer Healthcare AG, Bayer Crop Science AG, Bayer Chemicals AG, and Bayer Materials Science AG. The main business entity at the time from which this case is described was Bayer India Limited. It comprised of several business groups and many supporting corporate departments. The largest amongst these was Crop Sciences, while Consumer Care was one of the business groups that became a part of Bayer Healthcare. Prior to the global re-structuring of Bayer, the businesses of Bayer Consumer Care consisted of the consumer health (OTC Medicine) and household insecticide lines of business. Post the re-structuring of Bayer in 2002, the household insecticide business was spun off to SC Johnson. Bayer Consumer Care India thereafter had only the household insecticide line of business, represented mainly by the flagship brand Baygon. 2. The Situation I joined Bayer India in February 1998 as their National Sales Manager in the Consumer Care Division. Bayer being a well-recognized and reputed organisation, I was looking forward to a career that promised a settled and stable working environment. The reality, as I discovered within a week of joining, was quite different from. It transpired that I had entered an organisation that was in dire need of a rather intense turnaround effort. These revelations came to me as a rude shock.

2 It is tempting to elaborate at length on the nature of the issues that needed to be rectified. However, the present purpose is best served by first stating a brief summary of what I found at Bayer India when I joined them. Thereafter, we shall commence the journey towards understanding how that business was eventually turned around. Some of the issues that I faced and recognised are summarised below: Ø We were accomplishing sales well below the budgeted amounts. Our annual target that year was a turnover of Rs. 50 crores, but we would have been lucky to reach revenues of merely Rs. 35 crores. Ø The business processes needed an urgent overhaul. This included the sales forecasting and logistics systems, claims procedures as well as sales accounts. Ø Sales & Distributor Management needed looking into. Against a budgeted average debtor of 12 days, the actual outstanding was 93 days. The sales team productivity was low, and there were concerns of integrity. The salaries of the sales team were tied to union negotiations, with very little gap between the increments of the performers and the non-performers. Ø The marketing and sales teams did not talk to one another. Ø The product quality was a problem Ø The General Manager in charge of the business did not support any turnaround proposals. In October 1998, the General Manager was asked to leave, and a European expatriate from the Singapore Office was brought in to head the Consumer Care business. The first few months under the new Business Head were stressful, as there was a distinct lack of credibility on both sides. However, I had already laid down my action plan, which I presented to my new boss. This comprised of the following points: Ø To change the pattern of payments by distributors, from credit terms to advance payment Ø Taking back excess stock that was in the market. We had an estimated 12 months stock in the market Ø Changing the processes Ø Restructuring the sales team. After some hesitation, we agreed to put this into action. Nothing had been done

3 with the sales team all the years, and they had become rather complacent in their belief that no punitive action would be taken for their lack of performance and poor levels of ethics. I was of the opinion that dramatic action was needed. The Region where we had suffered the most damage was in the North. There was a deep sense of rot that had pervaded the North Region, and I was convinced that we needed to replace the Regional Head. 3. Action taken The Regional Manager was indeed replaced, and this was done during the tea break after the penultimate session of the Annual Sales Conference. Why did we do this? Until that point, the feeling that nothing would, or could, change was growing steadily in the organisation, and an unwarranted sense of complacency was growing in the organisation. I needed to make an emphatic statement, and this was the perfect moment to do so. When change has to be implemented, it is important to plan the steps and to implement them to perfection. There are times when words cannot take you any further along a journey. At that point, action is needed. Sometimes, as in this case, a dramatic statement was needed- something that clearly signalled, beyond words, that we meant business. The action steps that were implemented may be divided into a few phases. Phase 1: Corrective Action. This phase started in January 1999, and some of the steps that we implemented were: Ø Changing the payment terms from credit to advance. This was not very easy, as it meant that the sales team had to communicate the same to our distributors, and implement the same Ø Excess stocks lying in the market were taken back Ø Distributors & sales people who were guilty of unethical behaviour were terminated, after we presented them with proof. Ø We started the process of correcting many of the sales processes, and improved the communication with the other departments like finance, marketing, manufacturing and logistics. Phase2: Rebuilding. We started this phase in the middle of 1999, and this continued well into the end of We recognised that preventing, or controlling, chaos was only the first step in the process. The team and the processed had to be rebuilt.

4 Our goal was to hire good people. So, we changed the recruitment processes, by making the selection process competency based. We also needed to build and motivate the existing team, and to give them back their confidence in themselves, and in the organisation. Some of the action steps that we took at this point were: Ø Changing the business strategy of the organisation, and the marketing plan Ø Changing the compensation structure of the sales team. Until this time, the remuneration of the sales team members had been tied to the negotiations with the union. Further, the annual increments did not take performance adequately into account. In consultation with the corporate HR Department, this was changed to an annual increment, and the gap between the increments of the top performers and the bottom performers was increased substantially. We also implemented an annual bonus system for the sales team. Ø Some motivational programmes for the sales team as well the distributors were put into place. We organised an annual trip overseas for the best performers as a way to recognise their performance. These trips were part educational, but largely pleasure-oriented. In order to motivate the smaller distributors, we divided the distributors into slabs. Ø Training programmes were organised for the sales team. Ø We started a quarterly newsletter in print, as well as a weekly snapshot by . Ø Systems to manage C&FA Agents, and distributors were streamlined, and we started to reconcile and settle all old accounts of distributors. Some of these had been pending settlement for upwards of 5 years. Ø New advertising programmes were put into place. Phase 3: Phoenix. In early 2001, I had been promoted to General Manager. This was on the back of an acquisition project that had been turned down by the Global Managing Board. After the hard work of the previous two years, this was a bitter blow. Anyhow, I launched what I called Project Phoenix. Apart from the rejection of our bid, we had, in November 2000, changed the packaging of our main brand, Baygon Oilspray. The new packaging was deforming in the market. As I communicated to the team, Project Phoenix was aimed as a rebirth of the organisation, akin to the Phoenix - which is said to rise from its own ashes at the turn of each century.

5 What did we do? Ø We launched our own mission statement, clearly defining who we are and where we wanted to be. This was written in simple, actionable language. We also designed a symbol to represent this ambition. Ø We launched a project, "Ashtavakra" to solve the issue of the deforming packs. We had sought global help, but none was forthcoming. I took up the challenge, and challenged my manufacturing team to come up with a solution. Apart from finding the solution, we developed a new testing protocol, to test this product before putting this into the market in future production runs. This gave pride back to the organisation. Ø We launched air fresheners, and developed and launched the product in record time. This was the fastest development and launch programme by any country in the region. Ø I negotiated with the Head of Bayer India, to carry out a voluntary retirement programme, so that we could move all our manufacturing operations to third party manufacturers, to give us the flexibility we needed, and improved profitability. Ø I started negotiations with Bombay Chemicals to distribute "Tortoise" coils, and to sell them a new active ingredient from Bayer. Ø I had streamlined the appraisal and promotion system, to ensure that leadership positions were partly filled by deserving candidates from within, and that hiring was not just from the outside. Ø I also negotiated with the Managing Director to write back all irreconcilable claims/ accounts of distributors. 4. The Result We closed the year 2001, with all corrective actions that we had implemented being complete. The team was full of energy, and was looking forward to a new era in Ø We had cleared our books of all old accounts Ø We had restructured manufacturing Ø We had launched a new product, and had tied up with Bombay Chemicals, with a potentially transformative deal Ø The sales systems, processes were in place

6 It is sometimes difficult to describe the sense of liberation and optimism that now radiated through the team. We had, together, come through very hard times. There had been times when the confidence and morale of the team had faltered. Through these times, the one message that I continuously communicated to the team was that, if we keep our eyes on the goal, and work together as a team, we could transform the business. Now that we had done this, it was indeed, a new dawn for the team, and when we met in January 2002, we knew we could now grow and be counted as one of the major players in the market. The first quarter of 2002 was the best that the team had seen. We were, for the first time in living memory, ahead of target instead of struggling to reach it. We were ahead of target, and this fact only helped to strengthen the team's morale. In April 2002, we were informed that we were part of a global restructuring exercise, and that our business was being divested. That, however, is another story. 5. The Insights During the process of re-structuring the business, we focussed on many areas that included business strategy, transactional processes and the rebuilding of the sales team. Among The aspect that consumed most of our attention was that of rebuilding the team. While the case material talks a lot about the sales team, as this is where most of the corrective action needed to be taken, we spent a lot of time looking into the effectiveness of the people in the other departments, like manufacturing, marketing and controlling. Some of these people had come from the old school of thought, where they believed that longevity of service, and not contribution to the organisation, was the key factor for rewards and recognition. Changing this took considerable time. Re-structuring an organisation cannot be done without paying considerable time and attention to the human aspect. In fact, the human aspect is the foundation of any successful re-structuring exercise. Without due attention being paid to this critical aspect, any such re-organization exercise is not likely to succeed

7 About The Author Rajiv Chopra is a graduate of The Indian Institute of Technology (IIT), Kharagpur as well as the Indian Institute of Management (IIM), Bangalore. He started his career with Mukand Iron and Steel Works, Mumbai. Post the MBA, he worked with Britannia, ITC Limited (Agri-Businesses Division), and then with Bayer India. During his tenure with Bayer, he was also transferred to China, and then to Singapore. Post these assignments with Bayer, Rajiv returned home as the President of DSM India. Here, Rajiv built the nutritional business for DSM and also established a new legal entity for their ITES services business. Further, he established DSM s India Corporate Center as well as an Innovation Center for the company. Rajiv has been actively involved with several trade bodies, including the CII, FICCI, OPPI and ILSI-India. Over the course of his career, Rajiv has been responsible for building very strong teams. He has been involved in several business turnaround situations, as well as acquisition and divestment activities. As a result of these experiences, Rajiv has come to the firm belief that it is strong individuals and teams that build businesses, and that Human Resources needs to be an active partner in helping build high performance organizations.