BackGodrej Consumer undergoes restructuring to focus on profitability
Company decentralizes decision making in its domestic operations, disbands international head of operations post
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Mumbai: Godrej Consumer Products Ltd (GCPL), maker of Cinthol soaps and Hit insect repellents, is restructuring operations and putting profitability ahead of sales growth as it looks at cost savings of up to ₹ 250 crore in the new financial year after a prolonged slowdown and high inflation.
In the year starting 1 April, the personal and home care products maker will decentralize decision making in its domestic operations, placing greater emphasis on state-level operations.
Internationally, it has disbanded the position of an global head of operations, appointing cluster heads who have also become a part of the management committee reporting directly to Vivek Gambhir, who became managing director on 1 July.
Shashank Sinha, president, international business, will report to work for his last day on 31 March, Gambhir said.
International operations account for half of GCPL’s revenue and the change will allow it to drive agility as it de-layers the organization. This also will allow it to focus more on cross-pollination and collaboration after completing the basic integration and consolidation of the eight overseas acquisitions it has done in the past three-four years.
As a rule, the international geographic heads have reported to the head of international operations. With this position being disbanded, the company has created three international clusters—Rest of Asia, which is Indonesia and West Asia; the UK and Latin America, and Africa.
At the state level, regional heads will now be responsible for profitability and maintaining a profit-and-loss account. This is different from the past practice in which regional sales teams were only given revenue targets and only one India-level profit-and-loss account was maintained.
The change comes as the company is gaining in size and also with the realization that a state-level focus would empower regional teams to be more agile, said Gambhir.
The greater focus on profitability comes in the wake of the economic downturn that has led to slower sales growth, making it necessary for companies to save on costs.
“Turbulence is going to be a defining characteristic of the environment and prudence in cost management has now become essential along with growth," said Gambhir, while explaining that cost management programmes are usually undertaken every three-four years, and the last time the company had embarked upon such an exercise was during the integration of Godrej Sara Lee with GCPL under a project named Neo, which resulted in savings of ₹ 80 crore.
This time, the Adi Godrej-led company has embarked on a much more ambitious programme—Project Pi in India to get savings of ₹ 250 crore in the coming financial year.
Project Pi will look at packaging changes, raw material changes in formulations, yield improvement, sourcing benefits, better procurements, inventory reduction and better optimization of marketing spends. Close to 20-30 teams are working on the project and they meet every three weeks.
The savings will be used to invest in growth and also to beef up profits to achieve its objective of profit growth outpacing sales growth in the coming year, said Gambhir.
“Given the uncertainty in the environment, we have to create a culture that fires on all cylinders. One has to be agile and one has to be relentless in execution. We have to do things differently...maybe explore digital, which we haven’t done before," said Gambhir.
As it looks at digital, the company has for the first time equipped 1,800 of its salesforce with hand-held devices making information available at their fingertips. “We have had a good run for the last 8-10 years in the consumer space, and in that sense, financial year 2014 has been difficult with both top-line growth slowing down and input costs also increasing," said Rajat Wahi, partner and head, retail, KPMG India.
According to Wahi, the consumer packaged goods sector has seen its growth rate slow to 10-13% in the current fiscal year, from the high teens in the past 8-10 years.
Even in a tough environment, most consumer product companies have big ambitions for growth from India, and hence are making changes such as looking at new channels of sales or getting in new management, Wahi said.
To be sure, other consumer packaged goods companies have also embarked on similar restructuring.
In 2013, Marico Ltd, the maker of Saffola and Parachute oil brands, restructured its consumer products business in India and overseas under a unified structure, with chief executive officer Saugata Gupta leading the unified business. Gupta was elevated on Tuesday to take over as managing director from Harsh Mariwala, who remains chairman.
On Wednesday, GCPL shares closed at ₹ 815.80, up 4.28% from its previous close, as BSE’s bellwether Sensex ended up 0.57% at 22,339.97 points.
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