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STUDY OF HINDUSTAN UNILEVER LTD
With respect to
Strategic model
Contents:
I. Company overviewa. Missionb. Corporate purposec. Objectives
Strategic positionII. Environment
a. Porter’s five forcesb. SWOTc. Market segments and strategic customers:STP
III. Value chain
Strategic choicesIV. Corporate level strategies
a. Takeoversb. Joint venturesc. Organic growthd. Integration
V. Business level strategiesa. Product innovationb. Market developmentc. Pricing strategies
d. Ad spending and sales promotionse. Investors interests
VI. Operational level strategiesa. Institutionalizing talentb. Capability buildingc. SCMd. ROMIe. IT
Strategy into actionVII. Organization structure
VIII. Balance score cardIX. Managing people
Introduction
I. Company overview:
HUL (HUL) is India’s largest fast moving consumer goods company, with leadership in Home
& Personal Care Products and Foods & Beverages. HUL's brands, spread across 20 distinct
consumer categories, touch the lives of two out of three Indians. They endow the company
with a scale of combined volumes of about 4 million tonnes and sales of Rs.
13,718 crores. The mission that inspires HUL's over 15,000 employees is to "add vitality to
life". With 35 Power Brands, HUL meets every day needs for nutrition, hygiene, and personal care
with brands that help people feel good, look good and get more out of life. It is a mission HUL
shares with its parent company, HUL, which holds 52.10% of the equity. A Fortune 500
transnational, HUL sells Foods and Home and Personal Care brands in about 100 countries
worldwide.
Mission:
HUL's mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene, and
personal care with brands that help people feel good, look good and get more out of life.
Corporate Purpose:
Our deep roots in local cultures and markets around the world give us our strong
relationship with consumers and are the foundation for our future growth. We will bring
our wealth of knowledge and international expertise to the service of local consumers - a
truly multi-local multinational. Our long-term success requires a total commitment to
exceptional standards of performance and productivity, to working together
effectively, and to a willingness to embrace new ideas and learn
continuously. To succeed also requires, we believe, the highest standards of corporate
behavior towards everyone we work with, the communities we touch, and the
environment on which we have an impact.
Strategic position
II. Environment:
a) Porter’s five forces
Buyer power:
Consumer faces weak buying power because customers are fragmented and have little
influence on price or product.
Considering buyer power retailers it is very high since they are able to negotiate the price
with the companies.
Verdict: strong buyer power from retailers.
Supplier power:
Consumer product faces some amount of supplier power simply because of the cost they
incur when switching suppliers.
Suppliers that do a large amount of business with these companies are also beholden to
their customers.
Verdict: limited supply power
Threat of new entrants:
Given the amount of capital investment needed to enter certain segment in house hold
consumer products, the threat of new entrant is fairly low.
Whether the new entrant can get its products on the shelves of the same retailers as its
much larger rivals.
Verdict: low threat of new entrants.
Threat of substitutes:
Within the consumer product industry, brand succeeds in helping to build a competitive
advantage, but even the pricing power of the brands can be eroded.
Verdict: high threat of substitutes.
Degree of rivalry:
Consumer in this category enjoy multitude of choices.
It does not cost anything for a consumer to buy one brand of shampoo instead of another,
making the industry quite competitive.
b) SWOT
Strengths
HUL enjoys a formidable distribution network covering over 3400 distributors and 16 million
Outlets. This helps them maintain heavy volumes, and hence, fill the shelves of most outlets. The
New sales organization named 'one hll' brings "household and personal care" and foods
Distribution networks together, thereby aligning all the units towards the common goal of
achieving success. Hll has been continuously able to grow at a rate more than growth rate for
FMCG sector, thereby reaffirming its future stronghold in Indian market.
Project Shakti - Rural India is spread across 627,000 villages and possesses a serious
Distribution challenge for FMCG cos. Hll has come up with a unique and successful initiative
wherein the women from the rural sector market hll products, and hence, are able to reach the
same wavelength as of the common man in village. Apart from product reach, the initiative also
Creates brand awareness amongst the lower strata of society. This has brought about phenomenal
results.
Deep roots in local culture & markets & great understanding of consumer needs.
Wealth of local knowledge & international expertise helps it to be globally competitive.
Exceptional high quality standard products.
New innovative ideas & products.
Highly professional management.
Excellent distribution network & good relationship with the wholesalers & retailers.
Continuous efforts to reduce cost & pass on benefit to consumers.
Good reputation & goodwill in the market for its products.
Good advertisements so as to make the consumers aware of its products, uses & price &
also have a lasting impression by catchy ads.
Excellent brand making capability. It has 110 brands out of which 30 are power brands
(ie, leader in market share with high growth potential)
Ability to provide good quality goods to middle class at reasonable rates & also cater to
the premium segment for the upper class.
Very high market price per share compared to the face value.
Good returns by way of dividend per share every year. Last year 5/- rs dividend per
share.
Steady increase in the return on capital employed.
Continuous increase in earning per share (EPS)
Good cash reserves.
Excellent past performances for a number of years.
Ability to manage diverse business
Having Unilever as parent company gives it a global presence.
Excellent research & development.
Use of rs-net a web enabled customer management system to establish two way
connectivity with stockist.
Using information technology to connect supply chain
Excellent financial support from banks & financial institutions.
Good financial liquidity & also ability to complete projects on time.
Good export earnings
Weakness
HUL's market dominance, originating from its extensive reach and strong brand presence,
allowed it to raise the prices even as raw materials were getting cheaper. Hence, though the
volumes decreased, the margins grew, and company was able to earn more profits. But higher
margins attracted competition in areas of operations. HUL's strategy remained focused on
creating power brands and earning higher margins. It was not left with any other option but to try
cutting down the costs in order to protect volumes, if not increase it.
As shown in above figure, the key differentiators for an fmcg player are ability to call shots and
pricing power, and hll has shown weakness over both these factors. Hll's weakness was its
inability to transform its strategies at the right time. They continued with the same old strategy
which helped them gain profits but was not genuine in this changed environment. Hll's risk
aversion and market myopia led to stagnation of business, and ferocity of competition forced it
into a defensive mode. Lack of pricing power in core business and absence of growth drivers
have put HUL on a deflationary mode.
Diversification into various lines in which it does not have much knowledge would be
very risky proposition.
High competition from established brands which has resulted in reduction in profit
margins.
Non FMCG products are losing ground & their market share & sales have been declining.
Working capital turnover is negative.
Unable to make a big impact in rural areas.
Competition from its own brands ( lux, liril, lifebuoy )
Opportunities
Opportunities India is one of the world's largest producer of FMCG goods but its exports are
miniscule as compared to production. Though Indian cos. Have been going global, their focus is
more towards Asian countries because of the similar preferences. Hll is one of the top companies
exporting FMCG goods from India. An expansion of horizons towards more and more countries
would help HUL grow its consumer base and henceforth the revenues.
Opportunity in food sector - the advent of modern trade has opened up greater opportunities For
HUL to diversify its brand and strength its food division. It could look at introducing products.
From its parents stable like margarines and could also look at expanding its more range of
products.
Well-placed to take advantage of future fmcg growth - hll reach out 80% of 207 million
Households in the country through various brands. It has a very well-defined product portfolio
Spread across many product categories. Penetration levels for some major categories like skin-
cream (22%), shampoo (38%), toothpaste (48%) and processed foods, continue to remain low
offerings but great growth opportunities products.
Big untapped market available., especially the rural areas.
Growth potential is high for the power brands.
Good source of revenue & foreign exchange available by way of exports of its products.
Its competitors don’t have the financial banking like it so it can take advantage of this.
Due to good reputation it may experiment & introduce new innovative products in the
market.
The food, culinary & ice-cream category have a lot of growth potential available
Threats
ITC has reduced its dependence on the cigarettes business - contribution of the core business In
revenues has come down from 87% in fy99 to 70% in fy05. Over a period of five years, ITC has
extended its presence into areas like foods, retailing, hotels, greetings, agri, paper, etc. These are
businesses that can give it growth impetus in the long run. With ITC gaining momentum in each
of these businesses, it is turning into a consumer monolith, and hence, the Greatest threat to
HUL's business.
Sski india has gone on to say, "we maintain out performer on itc with a price target of rs. 2200,
while our under performer call on HUL remains unaltered (price target of rs. 160)."
High competition from established brands.(Nirma,Colgate, P & G )
Competition from unbranded products.
Competition from its own brands.( lux,breeze,liril) (pepsodent & close up)
Poor monsoon leads to poor growth due to lack of purchasing power by the rural areas.
Negative working capital turnover may lead to short term instability.
Its food, culinary, ice-cream segment & beverage segment are facing reduction in sales &
hence innovation required to meet threats of competitors.
c) Market segments and strategic customers: STP
India offers tremendous opportunities to global companies. A brief look at the Indian landscape
would prove why - an estimated 1.2 million affluent households that is expanding at 20% a year,
40 million middle income households (earnings of US$20,000 to US$45,000 adjusted for PPP)
growing at 10% a year, more than 110 million households with earnings of US$7,500 to
US$20,000 (adjusted for PPP) and more than 70% of the population below the age of 36. It is no
wonder then, that global brands are making a bee line to the Indian market to grab a share of the
growing pie.
This alluring face of the Indian business landscape has another facet to it and that is the presence
of highly discerning and demanding customers. In spite of the booming economy and the
increasing disposable income, Indian consumers are very cautious and clear in their priorities.
Consumers are still not ready to splurge on branded goods at premium prices. Added to this is a
growing number of Indian brands that offer superior quality at affordable prices. In such a
scenario, global brands can win only if they attune themselves to the local conditions.
Unilever is a classic example of a global brand which has pioneered serving the locals with
products that address the local sensitivities. Unilever's Indian subsidiary Hindustan Lever Limited
(HLL) has been the leader in recognizing the tremendous opportunity lying at the bottom of the
pyramid - customer base that aspires to consume products but in smaller quantities and at lesser
prices. HLL literally invented the shampoo sachets - small plastic packets of shampoo for as less
as INR 1 (USD0.022). This became such a rage among the rural consumers that many other
brands started offering products such as detergent, coffee and tea powder, coconut oil and tooth
paste in sachets. Even though the unit price was higher, rural consumers were able to afford to
purchase the smaller quantity at their convenience.
HUL is the market leader in Indian consumer products with presence in over 20 consumer
categories such as soaps, tea, detergents and shampoos amongst others with over 700 million
Indian consumers using its products. Sixteen of HUL’s brands featured in the ACNielsen Brand
Equity list of 100 Most Trusted Brands Annual Survey (2008). According to Brand Equity, HUL
has the largest number of brands in the Most Trusted Brands List. It has consistently had the
largest number of brands in the Top 50, and in the Top 10 (with 4 brands).
The company has a distribution channel of 6.3 million outlets and owns 35 major Indian brands
Its brands include Kwality Wall's ice cream, Knorr soups & meal makers, Lifebuoy, Lux, Pears,
Breeze, Liril, Rexona, Hamam and Moti soaps, Pureit water purifier, Lipton tea, Brooke Bond (3
Roses, Taj Mahal, Taaza, Red Label) tea, Bru coffee, Pepsodent and Close Up toothpaste and
brushes, and Surf, Rin and Wheel laundry detergents, Kissan squashes and jams, Annapurna salt
and atta, Pond's talcs and creams, Vaseline lotions, Fair and Lovely creams, Lakmé beauty
products, Clear, Clinic Plus, Clinic All Clear, Sunsilk and Dove shampoos, Vim dishwash, Ala
bleach, Domex disinfectant, Modern Bread, Axe deosprays and Comfort fabric softeners.
HUL doesn’t target a single line of customers but customers of all segment are targeted by its
products. The variety of its products targets from premium customers to the customers of rural
India. Its aim is to cater the local customers. E.g. Hul have Dove Shampoo and soaps a product
for the premium customer and the products like lifeboy and clinic plus for the lower end
customers.
Demographic variables: essentially refer to personal statistics such as income, gender,
education, location (rural vs. urban, East vs. West), ethnicity, and family size. Hul has focused on
the customers of the urban India with the premium products life Dove, Lux, Surf excel etc and at
the same time a focused penetration can be seen in the rural market with economic products. Hul
has a strong distribution network which is the main tool to reach to its customer. Even a small
retailer in the rurals of India is having HUL product.
Behavioral segmentation: Some consumers are “brand loyal”—i.e., they tend to stick with
their preferred brands even when a competing one is on sale. Some consumers are “heavy” users
while others are “light” users. So HUL with the unique range of its products have focused this
aspect too. All the products of HUL are available in small packs and sachets. The company
introduces the sachet form especially for the rural market so the people started buying even the
expensive products and HUL the untapped market of rural was taken by HUL.
HUL’s corporate position its “to meet the everyday needs of people everywhere.”So a Strong
Distribution was imperative.HLL’s distribution network is recognized as one of its key strengths
-- that which helps reach out its products across the length and breadth of this vast country.
HLL's products, manufactured across the country, are distributed through a network of about
7,000 redistribution stockists covering about one million retail outlets. The distribution network
directly covers the entire urban population and the company has also begun an e-tailing service,
called Sangam, which can home-deliver on order by phone or through the Net, a diverse range of
about 5000 branded and unbranded products. The service is now available in select areas of
Mumbai and Navi Mumbai, besides Thane.
III. Value Chain Process:
HUL’s business processes and brands have an impact at every stage of the value chain - from
sourcing raw materials, manufacturing, distribution, to consumer use and disposal. Therefore,
they implement changes in their processes that will positively influence the entire value chain.
The demands of a competitive market require a solution that supports process-centric
collaboration internally and across its value chain.
Primary & Secondary Activities:
Product Development:
HUL has concentrated in a very wide way on the product development factor. The product
has been focused on various segments from low price products to premium products. Most of
our products are developed on a global scale by following the policies and procedures laid
down by Unilever. They have entered untapped markets and tried to focus on products which
can satisfy the demands of all class of customers. Their product ranges are health care,
personal care, household care, beverages etc. They have developed products which focus on
all ranges.
Inbound logistics of HUL is very efficient in the manner it excels itself the form of
storing in warehouses and in the form of maintain the goods manufactured. The logistics
management is very efficient with respect to rural areas. The focus of HUL is to make
available the goods to the shops and retail outlets which supplies HUL products to its
consumers.
Procurement and Manufacturing:
The procurement procedure undertaken by HUL is followed by a combination of backward
integration and with suppliers. HUL has its own farms for the production of agri based
products. HUL has a strong network of suppliers which supply materials for the production
purpose. HUL has a speedy process of procurement to make it reach to production as it is
needed to meet the growing demand. HUL has its own 19 tea estates which produces tea
leaves which are certified by Rain Forest Alliance. HUL has a speedy process of
manufacturing. Material consumed and Purchase of goods is round about INR 8,901 crores
in 2009-10. HUL has its own production departments which focus only on packing of goods
produced.
Service and Logistics:
Hindustan Unilever, which once pioneered distribution in India, is today reinventing
distribution - creating new channels, and redefining the way current channels are serviced. In
the process it is converging product availability, with brand communication and brand
experience. Services and Logistics of HUL is very efficient. The sales services of HUL are
very efficient as their supply chain management is very efficient. Hindustan Unilever's
distribution network is recognized as one of its key strengths. Its focus is not only to enable
easy access to our brands, but also to touch consumers. HUL's products, manufactured across
the country, are distributed through a network of about 7,000 redistribution stockists covering
about one million retail outlets. The distribution network directly covers the entire urban
population.
Outbound Logistics: The general trade comprises grocery stores, chemists, wholesale,
kiosks and general stores. Hindustan Unilever services each with a tailor-made mix of
services. The emphasis is equally on using stores for direct contact with consumers, as
much as is possible through in-store facilitators.
Outbound logistics in the villages: HUL has also revamped its sales organisation in the
rural markets to fully meet the emerging needs and increased purchasing power of the
rural population. The company has brought all markets with populations of below 50,000
under one rural sales organisation. The team comprises an exclusive sales force and
exclusive redistribution stockists, under the charge of dedicated managers. The team
focuses on building superior availability, while enabling brand building in the deepest
interiors. HUL's distribution network in rural India already directly covers about 50,000
villages, reaching about 250 million consumers, through about 6000 sub-stockists.
Marketing Activities:
It focuses on short supply chain for distribution. It also focuses to meet the every need of
people everywhere. It also uses Direct selling channel, franchisee to reach everyone e.g.
Unicare. For long term benefits, HUL started Project Streamline in 1997. They appointed
6000 Sub-stockists that directly covers about 50,000 villages & 250 million customers. They
also undertook PROJECT SHAKTI, partnership with Self help groups of rural women &
covers 5000 villages in 52 districts in different states to make available HUL products in
rural areas. HUL has also a portal named: ISHAKTI portal which focuses on the activities of
PROJECT SHAKTI. Shakti has already been extended to about 15 states, 80,000 villages in
with 45,000 women entrepreneurs and generating Rs.700-1000 per month to each woman.
IV. Strategies of HUL in Competitive Environment:
Focus on product innovation/ relaunches/ development of new markets:
Successful relaunch of Lux helped volume growth in the soaps segment and market share
seems to be stabilizing now. Fair & Lovely winter fairness cream was relaunched and the
company is seeing good growth. In the hair & oil category, Dove and Clinic Plus grew
strongly and the former is now the No. 1 brand in modern retail. Sunsilk was relaunched in
November 2009 and growth momentum continues in this category as well. Launch of Cif
continues to see good momentum.
Brooke Bond Sehatmand was launched to attract down trading customers. The tea also
projects additional health benefits and should lead to filling up of the void in the discount tea
segment. Knorr soup is registering good growth post relaunch. In the ice cream category,
HUL launched the Litchi Zap and 85 swirl parlours are in operation now, recording
good growth in the segment.
Recent price cut in Rin/ price war in laundry: Currently, the price cut in Rin is just
a price promotion/offer over the near term. This will be evaluated again. HUL took a
30% price cut in Rin washing powder (to INR 50 from INR 70). Price cuts could also
lead to upgrading to mid segment from lower price points. Growing India
opportunity means competition will increase. However, HUL remains focused on
leadership. It remains confident of growth over medium and long term. Impact on
HUL, if any, depends on cost scenario, competitive intensity.
Market share improvement is the key objective over near term: HUL will focus
on competitive growth over near term. However, profitable growth remains the
key objective over the medium and long term. There is a change in strategy from
a competitive and profitable growth to competitive growth over the near term.
HUL is focused on speed to market and determined to grow ahead of the market.
New products/ innovations which have done well: Fabric conditioner,
hair conditioner, OOH consumption of ice creams, water, premium skin lightening.
Raw material costs: HUL has forward cover for key commodities and
keeps reviewing the time lines. The company will relentlessly drive down
costs.
Ad spends: The level of ad spends will depend on competitive
intensity and product innovations. Launches and relaunches will keep
happening. However, over the near term, ad spends are likely to remain high.
Ad spends are unlikely to go back to 10% of sales.
Down trading in tea and detergents: HUL has introduced a new variant in low end
of tea which is competitively priced with respect to regional players. The new
brand is Brooke Bond Sehatmand and has been introduced in UP, Bihar, and
MP. Penetration is high in these two segments which partly explains the down
trading. Prices of tea as a commodity have shot up so uptrading decreased from
packets to lose consumption.
Strategic choices
V. Corporate level strategy:
Strategy for expansion of business
Takeovers:
Unilever considered takeovers as a prefeered moe inits strategy of rapid
expansion in all its major businesses. For e.g. in soaps and detergents industry it
took Tomco for consideration of 21 crores. The prices and benefits of Tomco
constantly enhanced HUL s position in market share.
In food and beverages section the takeover of UB group’s Kissan Products and
Dipy’s.brook bond was spearheading the acquisition which absorbed Kissan. It
was followed by Kothari general foods (KGF) instant coffee and Pepsi’s tomato
paste plant.
In Cosmetics and personal care HUL acquired Lakme sin care through joint
venture 50:50 first in 1995 and formed a marketing company as Lakme-Lever
Company. It used all its ready made dedicated nationwide distribution chain of
lakme to market all its products.the dedicated shelf spaces and salons in network
greatly enhanced HUL ‘s launchof top line products like Elizabth Arden,
Rimmele and Calvin Klein.susequently HUL took over lakme in 1998
trademarks/brands and manufacturing leaving lakme just a shell company.
Joint ventures:
HUL derived the expansion route throught joint ventures also first being LAKME. in
Cosmetics and personal care .a joint venture 50:50 in year 1995 enabled HUL to have
ready made dedicated nationwide distribution chain of lakme to market all its
products.the lakme lever company successful thus launched products like Elizabth Arden,
Rimmele and Calvin Klein throght the dedicated shelf spaces and salons in lakme
network later in 1998 all the trademarks /brands and manufacturing also merged into
HUL form the shell company lakme and greatly enhanced the network and market share
of HUL in Indian market.
ORGANIC GROWTH ROUTE
Start up route: backward integration strategy
HLL invested some 40 crores in skin care factory at silvasa in dadra and
nagar haveli. This unit became one of the largets manufacturing facilities
ofr skin care products with capacity to manufacture entire line and range of
skin care compounds and Ingriediets.this facilities enabled HUL to produce
Fair &Lovely cream and lotion, shampoo bases and lotion bases for the
brand Pond’s and lakme.
Integration strategy:
HUL like the parent company UNILEVER carried out regrouping and integration
of existing businesses and company in the country into a single mega firm.It took
two companies at a time – two companies which enjoyed the closest synergy were
merged into a single entity, and subsequently merged into another company to form
a larger group. This continued till a stage where there remained one and sole single
company in India - HUL
i. Brookbond merger- two of the exixting HUL’s company Doom Dooma India and
tea estates India and two taken over companies Kissan General Foods and Brook
Bond were merged into one company. Lipton was also subsequently merged into
one with now BBLIL- brooke bond lipton india ltd.
ii. Quest international Indian ltd was merged with pond’s brand . QIL was engaged in
perfumery and flavours which enabled pond’s expertise in launching many unique
perfumes and fine fragrances.
iii. HUL took over Stepan chemical ltd. And its detergent business (wheel) mainly to
create a low cost popular segment detergent base and mainly to compete with
Nirma detergents. Stepan Ltd was a BIFR company and HUL tok over 60 %
holding in equity merging chemical and detergents under one roof, inspite of the
wheel brand still licensed with Stepan chemicals.
VI. Business level strategy:
Focus on product innovation/ relaunches/ development of new markets
HUL has undertaken hands on focus on developing new markets and products brands.
The successful relaunch of Lux helped volume growth in the soaps segment and
market share seems to be stabilizing now.
Fair & Lovely winter fairness cream was relaunched and the company is seeing good
growth.
In the hair & oil category, Dove and Clinic Plus grew strongly and the former is now
the No. 1 brand in modern retail.
Sunsilk was relaunched in November 2009 and growth momentum continues in this
category as well.
Launch of Cif continues to see good momentum.
Brooke Bond Sehatmand was launched to attract down trading customers. The tea
also projects additional health benefits and should lead to filling up of the void in the
discount tea segment.
Knorr soup is registering good growth post relaunch.
In the ice cream category, HUL launched the Litchi Zap and 85 swirl parlours are in
operation now, recording good growth in the segment. Moreover, there were recent
media reports that noodles will be launched soon.
Higher ad spending to prop up volumes and market share
Hindustan Unilever’s (HUL) first level of aggression was to increase ad spends from
12.5% in Q1FY10 to 13.5% of sales in Q2FY10. Ad spend in Q3FY10 increased further
60bps Q-o-Q to 14.1% of sales. The company is also trying to improve product/mix with
superior high growth margin products (through new product launches, rebranding, etc.)
and this predicts that HUL will be able to deliver volume growth and market share gain
through this strategy.
Aggressive price cuts:
HUL’s second level of aggression was to cut prices sharply in the soaps and detergents
category.
In this high inflationary environment, regional players will be under cost pressure as
they do not have HUL’s international sourcing acumen and scale. The company
insisted that “competitive growth is the No. 1 priority” and thus the company’s price
cut in Rin (~2% of sales) and other segments will help it record higher volume
growth.
HUL’s global management has emphasized the importance of a “strong foothold in its
own backyard” and the recent price cuts indicate the company’s strong commitment
to continue as market leader in the soaps and detergents segment, while maintaining
profitability. As a reminder, the company still holds 45% market share in toilet soaps
and 37% in washing powder as per industry data.
After several quarters, HUL has been successful in arresting the loss of market share
in Q3FY10. Its strategy to rejuvenate brands seems to be paying off as market share
in soaps increased 10bps, while volume share in laundry and bars increased 100bps
and 60bps, respectively Q-o-Q.
High investment in Advertising and Sales Promotions
Several competitors increased ASP (as % of sales) spending Q2FY10 and in Q3FY10
HUL thus also did not want to stay behind the curve.
HUL is the biggest FMCG player and has the scale to absorb increased ASP costs.
Therefore increasing brand awareness for new and existing products improves brand
equity in the longer run and HUL believe this is the right strategy at this point of time.
This should also enable the company to focus on other high margin business such as
personal products
Outlook and valuations: investors’ entry made easier
The company is investing heavily in its brands, realigning its sales and distribution
strategies and it will start regaining market share, a trend which has already begun in
Q3FY10.
HUL has underperformed the Sensex and BSE–FMCG Index in the past six months by
22% and 19%, respectively. Recent correction has been overdone and these levels
provide a good entry for investors looking for defensive names and a likely turnaround in
fortunes. At CMP of INR 237, the stock is trading at P/E of 20.9x and 18.3x of FY11E
and FY12E, respectively.. On relative return basis, the stock is rated ‘Sector Performer’.
Premiumization of customers
HUL is focused on market development as well as uptrading consumers in certain categories.
New product launches (in ice cream and foods) as well as the recent price cut in Rin are
possible opportunities to uptrade customers to midsegment from lower price points.
Dove grew rapidly across shampoo and conditioners, becoming the No.1 hair care brand
in modern trade while Dove sachet has captured ~5% of the market.
In skin care, Pond’s White Beauty and Fair & Lovely’s ‘winter fairness' cream has
received good response from the market.
Clearly, HUL is benefitting from the ‘premiumisation trend’ of Indian consumers.
VII. Operational level strategies
HUL has institutionalized the process of attracting, developing and retaining top talent. Some
steps in this process are:
Get them early
Train them well
Build careers
Encourage diversity
Reward top performance
Instil values
HUL does capability building across functions and at every level of the organisation. For
example, HUL has ‘skills-maps’ against which the workforce in its manufacturing units and
its sales force are benchmarked.
Besides on the job training, they undergo up to eight man-days of training every year. On
a conservative basis, this implies a staggering one lakh man-days of training across the
organisation every year.The same emphasis on skills training is extended sales and
distribution network to have invest another one lakh man-days of training every year.
Supply chain management
HUL prioritise speed and flexibility in its supply chain to deliver growth. HUL are doing this
through simple ideas.
For example, in some of its detergent factories HUL are running 'twin track' on single
production lines.This has helped us to nearly double its production thus enabling better
customer service while improving operating efficiencies.
Apart from this, today most of its production lines have developed the capability of quick
changeovers to meet the market demand.
Supply Chain service levels as measured by CCFOT (Customer Case Fill On Time)
HULre the highest achieved in the recent past. IT solutions based on SAP application
systems led to significant improvements in planning and logistics efficiencies
Return on marketing investments (ROMI) :
An area where we drive continuous improvement ROMI is about maximizing the
effectiveness of its advertising, promotional and trade investments.
HUL have developed advanced marketing mix modeling techniques that allow us to
assess all the marketing levers to drive growth and superior yields from marketing
investment.
For example, HUL have identified the media elasticity of each of its brand which helps us
to optimise its advertising spends
IT
As part of the backbone IT capability for Sales and Customer Development, HUL
successfully established a common transaction system that is used by all Redistribution
Stockists and that is fully integrated with Company's systems. Distributor salesmen use a
Hand Held Terminals as an aid for taking retail orders.
In 2009, HUL have enhanced this capability for analytics and intelligent sales calls. As
part of the thrust of further improving its direct coverage in rural areas, HUL are
leveraging geospatial aids extensively. HUL have also established an IT enabled
consumer interaction centre for addressing complaints and suggestions
HUL has deployed an end-to-end technology solution which helps reduce inventory
cycles while enabling optimum service levels.
All its salesmen are equipped with hand-held devices which help to improve on-shelf
availability of its products while also building assortment at individual store level.
Similarly, HUL s merchandisers have been equipped with hand-held devices to improve
in-store display of products so that its products are top-of-mind whenever a shopper
makes a purchase.
This year, HUL rolled out a unique and innovative concept of 'Perfect Stores' as part of
its endeavor to win with consumers at the point of sale.
HUL Distribution Network:
HLL’s distribution network is recognised as one of its key strengths -- that which helps reach out
its products across the length and breadth of this vast country. The need for a strong distribution
network is imperative, since HLL’s corporate purpose is “to meet the everyday needs of people
everywhere.”
HLL's products, manufactured across the country, are distributed through a network of about
7,000 redistribution stockists covering about one million retail outlets. The distribution network
directly covers the entire urban population.
In addition to the ongoing commitment to the traditional grocery trade, HLL is building a special
relationship with the small but fast emerging modern trade. HLL's scale enables it to provide
superior customer service including daily servicing, improving their range availability whilst
reducing inventories. HLL is using the opportunity of interfacing more directly with consumers
in this retail environment through specially designed communication and promotions. This is
building traffic into the stores while yielding high growth for the business.
An IT-powered system has been implemented to supply stocks to redistribution stockists on a
continuous replenishment basis. The objective is to catalyse HLL’s growth by ensuring that the
right product is available at the right place in right quantities, in the most cost-effective manner.
For this, stockists have been connected with the company through an Internet-based network,
called RSNet, for online interaction on orders, despatches, information sharing and monitoring.
RS Net covers about 80% of the company's turnover. Today, the sales system gets to know every
day what HLL stockists have sold to almost a million outlets across the country. RS Net is part
of Project Leap, HLL's end-to-end supply chain, which also includes a back-end system
connecting suppliers, all company sites and stretching right upto stockists.
RS Net has come as a force multiplier for HLL Way, the company's action-plan to maximise the
number of outlets reached and to achieve leadership in every outlet, by unshackling the field
5/ Profile – January 2003 force to solely focus on secondary sales from the stockists to retailers
and market activation. HLL Way has also led to implementing best practices in customer
management and common norms and processes across the company. Powered by the IT tools it
has further improved customer service, while ensuring superior availability and impactful
visibility at retail points.
For rural India, HLL has established a single distribution channel by consolidating categories. In
a significant move, with long-term benefits, HLL has mounted an initiative, Project Streamline,
to further increase its rural reach with the help of rural sub-stockists. It has already appointed
6000 such sub-stockists. As a result, the distribution network directly covers about 50,000
villages, reaching about 250 million consumers.
Distribution will acquire a further edge with Project Shakti, HLL's partnership with Self Help
Groups of rural women. The project, started in 2001, already covers over 5000 villages in 52
districts of Andhra Pradesh, Karnataka Madhya Pradesh and Gujarat, and is being progressively
extended. The vision is to reach over 100,000 villages, thereby touching about 100 million
consumers. The SHGs have chosen to adopt distribution of HLL's products as a business venture,
armed with training from HLL and support from government agencies concerned and NGOs. A
typical Shakti entrepreneur conducts business of around Rs.15000 per month, which gives her an
income in excess of Rs.1000 per month on a sustainable basis. As most of these women are from
below the poverty line, and live in extremely small villages (less than 2000 population), this
earning is very significant, and is almost double of their past household income.
For HLL, the project is bringing new villages under direct distribution coverage. Plans are being
drawn up to cover more states, and provide products/services in agriculture, health, insurance
and education. This will both catalyse holistic rural development and also help the SHGs
generate even more income. This model creates a symbiotic partnership between HLL and its
consumers, some of whom will also draw on the company for their livelihood, and helps build a
self-sustaining virtuous cycle of growth. Management
Style: HUL has a totally centralized structure wherein all the decisions are taken from the HQ.
Sustainability Strategy:
Small individual actions multiplied with our large consumer base will make a big difference
in combating the issues society faces. For example, if one household uses Surf Excel detergent, it
can conserve two buckets of water per wash. A million Indian households using Surf Excel can save
enough water for meeting the basic hygiene needs of many Indians. Small innovations in HUL
brands and business processes can lead to a big difference in society as they touch the lives
of two out of every three Indians.
In HUL, its Brands, customers and processes are the key drivers for sustainable growth and
improvement in business processes. So HUL considers these factors as change elements in
bringing BIG DIFFERENCE to the nation through their contribution by involving in the lives of
every two out of every three Indians.
Strategy into action
VIII. Organizational structure
Unilever represents another common organizational structure; the hybrid form. This company
operates with three divisional regions, two product segments, and five functional segments.
Unilever developed and implemented this organizational structure for their company to improve
communication and to take advantage of resources that are available to them. Typically this kind
of structure is organized in a top-down manner. Once the executive level is satisfied with the
structure, it flows down to management. In some cases the organizational structure may not be
visible, but judging by actions and specified reporting protocol the structure is intact and in use.
Advantages
Integrated knowledge
Flexible
Allows for dual dimensions
Disadvantages
Length of time required for decision making
Unclear job and task responsibilities
Unclear cost and profit responsibilities
High degrees of conflict
A comparison within structures:
Most businesses choose to begin their international ventures with exports. This is exactly the
case with unilever (ball at al, 2005, pg. 446). To inexpensively test foreign markets and
competition, unilever experimented with different strategies and investments by exporting to
Africa over 100 years ago. Sunlight soap was the first wrapped, branded soap in the region.
Because their products were readily received, unilever expanded their venture by building a soap
making plant in the country just a few years later. By the 1960's, the company had investments in
half a dozen additional African regions.
IX. Balance score card
Hul follows a very good balanced score card system. Every department right from marketing,
logistics, sales, finance and human resource are internally connected. It is very important for an
organization like hul to have an internal fixed process in a company which has very less profit
margin. Every department is very well connected. With the indian retail boom started already hul
has identified the flaws in the system and has successfully modified entire system of sales and
marketing internally.it has had good competition from proctor and gamble but it has emerged out
as a leader in the fight between both of them.
Hr strategy of hul is so good that the employee satisfaction is to the highest level which
Enhances the motivation in the employees and allows them to be vry open in their minds for the
Effectiveness of the organization.
X. Managing people:
An organization that is serious about leadership development makes it a way of life. Hindustan
Unilever has been consistently producing CEOs and corporate leaders for India INC for more
than 25 years now; the leadership development process at Levers is more of a tradition,
institutionalized over the last many decades. With more than 1000 alumni sitting on boards
globally, HUL is a source of inspiration for many companies.
The key tenets of this solid tradition have been -- commitment from top leadership, a robust and
consistent process, strong linkage between individual development and level of exposure offered,
mentoring, training – all fostered in a culture of transparency and equal opportunity. The
company uses what it calls a “70-20-10” model for developing its workforce: 70% of learning
happens on the job, 20% through mentoring, and 10% through training and coursework.
Leadership development is one of the core tasks of the Management Committee at Hindustan
Unilever. “Senior management devotes enormous time in the leadership development process,”
says Leena Nair, Executive Director HR. In every fortnightly management review meeting,
talent review session is an integral part of the overall agenda. Top management at Hindustan
Unilever invests anywhere between 30 to 40% of their time in grooming and mentoring leaders
for the future. They get involved at various stages -- from redefining the talent identification
process, to identifying talent, to grooming and coaching, to creating opportunities for growth and
exposure.
The critical role of a “leader” at HUL is to create talent and capability for the future. Each
identified leader is expected to create leaders within and draft their succession plan. “As Head of
Human Resources, I need to ensure that I have identified and am grooming a couple of people
who can take over my role today, another couple who could take over my role in 2 to 3 years and
in 5 to 7 years -- that is my responsibility as a leader,” says Leena Nair.
In the process of identifying leadership talent, Performance and Behavior are considered equally
important. “You need to be delivering great performance, but just that is not sufficient. The
demonstrated behaviors or ‘Standards of Leadership’ as we call them at Unilever, will also
determine your potential for future growth and success,” says Leena. Unilever uses the
Leadership Differentiation Tool (LDT), a 3x3 grid of performance vs potential to differentiate
amongst its talent pool. These principles are applied to around 5,000 people as part of talent
assessment across the company.
Information on performance is taken from the appraisal review process & KRAs on the job,
while information on behaviors and potential is taken from multiple sources: a 360 degree
profiling (done once every two years), behaviors demonstrated on the job & GPS (Global People
Survey) results. GPS is an employee survey that captures insights into employee engagement
levels across various teams, thus giving information and feedback at the organizational level.
LDT & the assessment of future potential of employees leads to identifying High Potential (HP)
and Sustained High Performers (SHP) talent pool. “We identify 15% of our talent pool as HP &
another 10% as SHP,” says Leena. From this point onwards, this select pool receives
differentiated inputs when it comes to training and development, career opportunities, coaching,
compensation etc.
The leadership development has a very strong component of learning, as emphasized in the 10%
of the 70-20-10 principle. The e-learning options for employees are exhaustive. Senior leaders,
identified as High Potential also have access to training at Unilever’s exclusive training center in
London, Four Acres and programs at top business schools across the world.
The process also incorporates job rotation- the 70% part of the learning principle. “People learn
by exposure to a variety of jobs, there are career paths defined based on the potential future role
identified for the individual,” says Leena Nair. Employees identified in the talent pool will go
through planned moves to ensure that they get the right skills and exposure required for the next
level of responsibility. “We believe in building individual capability by providing opportunities
to deliver in a wide range of roles which get broader in scope and responsibility. These are roles
with huge responsibilities and bring with them opportunities for personal growth,” says Leena.
There is also this interesting concept at HUL called “Hot Jobs for Hot People”. Every year the
management committee identifies around 50 jobs that could be the most impactful jobs for the
year, either because it is an area of growth or a strategic pursuit for the group. “We identify the
hot jobs & hot people on an annual basis, roughly 7-10% of jobs based on their complexity &
impact to the business” says Leena Nair. “Hot Jobs are opportunities with very high visibility in
the company and provide a chance to the employees in HP/SHP pool to create an impact at the
organizational level. The HP/SHP pool is a dynamic pool since about 20% of managers in this
would move into new roles every year.
Finally, the last 20% is the coaching and mentoring program. This is accomplished through
access to coaches; both external and internal coaches are available depending on the requirement.
This also includes the role that Line Managers are expected to play as coaches to their team
members.
In terms of compensation, “employees on the top right box of the LDT could be receive between
175% to 200% more shares that the rest of employees at the same level”, says Leena Nair. This
compensation differential is also reflected in salary revisions, where employees listed could
receive double or more than the rest in their base pay revision; similarly, for variable pay the
difference can also be 100% or more for talent pool employees.
Transparency is paramount for the success of the process. Managers in the organization are given
a capability card after the annual review cycle. This capability card details all the output of the
review cycle and highlights the path for development for the coming year.
Leadership development is ingrained in the Hindustan Unilever culture and is aligned to the
vision of being a high performance workplace. “The differentiation created around people
identified as leaders creates a culture where people are competitive, they want to outperform,”
says Leena Nair.
The success of HUL leadership program has been proven over decades. The leadership team now
tracks metrics like succession plan compliance, listing cover, number of positions with ‘ready
now’ candidates, number of successors for each position, percentage of roles with female
successors as potential options etc. The success of the organization’s efforts in leadership
development is evident in its 80%+ succession plan compliance for key roles. “90% of our senior
leaders are groomed internally.” Says Leena Nair.
Indeed, Hindustan Unilever is a model example of how taking talent and its management
seriously across the organization can create a culture of performance, excellence and leadership.
Indian employee’s aspect:
More than 10 per cent of Hindustan Unilever's (HUL) managers today work for Unilever in
various countries.
A fact that led Chairman Harish Manwani to say at the company's AGM a couple of weeks back
that HUL is the fountainhead for managerial and leadership talent for industry in India [ Images].
This stupendous success of Indian talent for Unilever globally is in no small measure on account
of the strong foundations that were laid in the early years of the organisation, which is
celebrating its 75th year in India.
The Indianisation of the senior management staff took a while, but the process, chronicled by A
Company of People, an HUL publication, is fascinating and shows how the erstwhile all-British
management overcame its initial doubts about the ability of Indian managers.
It was in 1961 that the late Prakash Tandon became the first Indian chairman of HUL (then
Hindustan Lever [ Get Quote ]). In retrospect, 1961 seems too late for the installation of the first
Indian chairman in a company which had thought about this way back in 1931. The vision was
articulated by the then Chairman, Andrew Knox: "The India of today is only a chrysalis for yet
another India which will develop tomorrow. An 'Indianised' India is at hand and we must adjust
our policy. The part of the goodwill that rested merely on prestige and not on intrinsic value will
disappear," Knox had said.
Knox's words, however, were taken with a lot of scepticism at that point. After all, it required a
special audacity to propose that the best way for a British company to further its trading interests
in India is by relinquishing a bit of its expatriate identity.
The company's dilemma at that point was as follows: Could the Indian managers, with their
relative inexperience, guide the company ahead as its British owners might have?
Tandon captured this dilemma wonderfully in his book, Beyond Punjab [ Images ]. "The older
Lever men shook their heads and doubted if it would ever be possible to train locals to take over
responsibility completely. There were natural limitations which no amount of training could
overcome, at least not in the foreseeable future".
This is despite the fact that Tandon was recruited in 1937 and recalls what the then chairman of
Lever Brothers India, W G L Shaw, told him during his interview: "I don't see why you should
not sit in my chair one day."
But people like Knox and Shaw were then in a minority. The majority mindset ensured that the
Indianisation process took a long time. It was only in 1942 that Unilever "considered it desirable
that Indians who prove themselves qualified to do so would enjoy privileges equal to the
Europeans they substitute."
By 1944, 15 out of 57 people in the company's junior and senior management were Indians.
Eleven years later, there were 97 Indians managers out of 149. But the perception about Indian
managers having "natural limitations" ensured that all the members of the Management
Committee and eight out of 11 senior executives were Europeans. So when Andrew Knox visited
India in 1955, he recommended a rapid reduction in the number of Europeans to 40 -- roughly a
quarter -- within one-and-a-half years.
This time, Unilever listened to Knox. In 1955, Lever started its management training scheme for
Indians. The quality of the training was recognised by S H Turner, who became chairman of the
company in 1959. Speaking at the AGM that year, Turner said "these trainees are homespun, but
excellently spun."
Meanwhile, Tandon, who had already spent 24 years with the company, was feeling he had
"come to a halt on level ground". But an element of destiny pushed him to the top slot. The plan
had been that when Chairman Hoskyns-Abrahall retired in 1957, he would be succeeded by
Vice-Chairman S H Turner, who would later be followed by David Orr. But illness forced
Turner to return to England [ Images ] in 1961, by when Orr had left the Indian management to
join the Overseas Committee. It was in June that year that Tandon was called to London [ Images
] and offered the chairmanship.
Later that evening, Knox, by then chairman of the Overseas Committee, invited Tandon for a
drink and spoke to him about the problems he saw ahead of the company's first chairman -- a
vision he had articulated 30 years ago. "It baffles us that even after your government has
sanctioned a project, and we have approved it, you take ages to do It. What takes nine months to
build elsewhere takes you five years."
Tandon left England, taking a BOAC flight, to return to his new assignment in India. When he
took over the helm of Hindustan Lever, there were 205 senior managers in the company. Only 14
of them were Europeans. And the five years that Knox talked about were soon compressed to
less than nine months.
Hindustan Lever had started living up to its name -- finally.
XI. Pricing Strategies
HUL always believes in customer friendly products with major emphasis on low cost overall
without compromising on the quality of the product. They are leveraging the capabilities and
scale of the parent company and focusing on the value of execution. The entire product portfolio
is also being tweaked to include premium offerings such as Pond's Age Miracle and dove
shampoo in skin and hair care. HUL brought sachets and small bottles which can be used by
middle income group as well. In each of its products all range starting from premium price to
low price range products are arranged.
CONCLUSION
Thus from the study of HUL through strategic model it can be understood that
being so large and so extensive in brands it has allocated equal importance to each
of its product and services. Moreover being so evident in each of its segment which
is widely used by Indian as well as world wide customers; HUL is not only
focusing in major brands but also on those brands which are not performing well
and new products are brought into market by viewing the importance of Innovation
in this changing environment.
As bees are treated as social insects, committed to priortising the colony’s needs
and working together. Such team work and a passionate commitment to achieve a
shared goal is what helps HUL create milestones.
EVERY SMALL ACTION MAKES A BIG DIFFERENCE
