HR Restructuring - The Coca Cola & Dabur

Way: The Leader Humbled

It all began with Coca Cola India's (Coca-Cola)
realization that something was surely amiss. Four
CEOs within 7 years, arch-rival Pepsi surging ahead,
heavy employee exodus and negative media reports
indicated that the leader had gone wrong big time.
The problems eventually led to Coca-Cola reporting a
huge loss of US $ 52 million in 1999, attributed
largely to the heavy investments in India and Japan.
Coca-Cola had spent Rs 1500 crore for acquiring
bottlers, who were paid Rs 8 per case as against the
normal Rs 3. The losses were also attributed to
management extravagance such as accommodation in
farmhouses for executives and foreign trips for
bottlers.
Following the loss, Coca-Cola had to write off its
assets in India worth US $ 405 million in 2000. Apart
from the mounting losses, the write-off was
necessitated by Coca-Cola's over-estimation of
volumes in the Indian market. This assumption was
based on the expected reduction in excise duties,
which eventually did not happen, which further
delayed the company's break-even targets by some
more years.
Changes were required to be put in place soon. With a renewed focus and energy, Coca-Cola
took various measures to come out of the mess it had landed itself in.

The Sleeping Giant Awakes

In 1998, the 114 year old ayurvedic and pharmaceutical products major Dabur found itself
at the crossroads. In the fiscal 1998, 75% of Dabur's turnover had come from fast moving
consumer goods (FMCGs). Buoyed by this, the Burman family (promoters and owners of a
majority stake in Dabur) formulated a new vision in 1999 with an aim to make Dabur India's
best FMCG company by 2004. In the same year, Dabur revealed plans to increase the group
turnover to Rs 20 billion by the year 2003-04.
To achieve the goal, Dabur benchmarked itself against other FMCG majors viz., Nestle,
Colgate-Palmolive and P&G. Dabur found itself significantly lacking in some critical areas.
While Dabur's price-to-earnings (P/E) ratio1 was less than 24, for most of the others it was
more than 40. The net working capital of Dabur was a whopping Rs 2.2 billion whereas it
was less than half of this figure for the others. There were other indicators of an inherently
inefficient organization including Dabur's operating profit margins of 12% as compared to
Colgate's 16% and P&G's 18%. Even the return on net worth was around 24% for Dabur as
against HLL's 52% and Colgate's 34%.
The Burmans realized that major changes were needed on all organizational fronts.
However, media reports questioned the company's capability to shake-off its family-oriented
work culture.