Transformation after liberalization: HLL
R Gopalakrishnan*
(The writer is a best-selling author and corporate advisor. He was Director of Tata Sons and Vice Chairman of Hindustan Unilever).
Email: rgopal@themindworks.me
In two previous columns, I had recounted the initial responses of Hindustan Lever and Tata Group respectively to the shocks of the 1991 liberalization. In this column and the next, I propose to summarize how both steadied their boats.
Hindustan Lever undertook what I call QICA efforts—Quality, Innovation, Collaboration and Acquisitions. The key lesson to remember is that transformation efforts demand upgrading the car engine while it is running.
In this brief article, I have highlighted only those activities that could not be undertaken earlier due to restrictions. The QICA issues may appear to be ordinary when viewed through a 2021 lens, but they were a novel way of thinking at that time. It also demonstrates how far Indian management has moved in terms of strategy in the three decades.
Four key initiatives were:
Quality: A major product quality drive by benchmarking locally produced products with imports, pointing to the urgent need for upgradation. HLL internally proselytized techniques like TPM, and considered imports of machines and packaging materials, as required, an activity that was near impossible earlier.
Innovation: Next was the special emphasis on product innovation and the setting-up of a second international R&D centre at Bangalore, the first one having been set up in Mumbai in the 1970s.
Collaboration: Then there were multifarious business collaborations with the parent Unilever. Earlier Unilever could not be remitted brand, technical or service fees, but such expenses could now be paid under the new dispensation. For example, being a global leader in ice creams, Unilever had for long been very keen on establishing an ice cream business in India. Under the license-permit raj, dairy ice cream was reserved for the small-scale manufacture, being one out of some 750 items so reserved. Claiming vegetable fat-based product, which was called frozen dessert by HLL, was different from dairy ice cream, Brooke Bond Lipton set up a spanking new investment at Nashik and launched Walls Frozen Desserts. This became very controversial at that time, though the controversy died a natural death with subsequent de-reservation of several reservations, including ice cream.
Acquisitions: M&A was a relatively new activity in the 1990s for India Inc. After acquiring TOMCO, HLL went on to acquire Lakme from Tata after both companies undertook relevant governance processes. HLL also divested its phosphate chemicals business to Tata Chemicals. The acquisition of the public sector company, Modern Bakeries, followed. Later HLL divested its hair oil brand, Nihar, and purchased an ayurvedic hair oil brand called Indulekha. Cadbury’s ice cream operations were acquired by Brooke Bond Lipton. The company entered a hugely complex deal to acquire four independent Kwality ice cream entities, all of which used a common brand name. This could help Unilever to establish an ice cream business in India. Kissan tomato products business was acquired from the flamboyant Vijay Mallya, as also the Zahura tomato plant from PepsiCo India. It was an appropriate vehicle for the ambitious plans that Brooke Bond Lipton’s foods business had.
When I was the Managing Director of Brooke Bond Lipton, I found a company whose employees had experienced as many as ten mergers within just the previous four years: first Brooke Bond acquired Lipton, then Doom Dooma Assam and Tea Estates India, followed by Kissan, Milkfoods, Zahura and four differently owned Kwality entities. All this was possible in such a short time because of liberalization. I might point out that the resultant company suffered from some indigestion and loss of morale.
In a quandary about how to handle management morale, I casually asked an assistant hailing from Kerala what the future bore for the company. Being a trained astrologer, he promptly cast the company horoscope after ascertaining the date of birth from the company’s registration certificate and pronounced, “This company has so far behaved as a man and has given its own name to those he married. The company will get peace of mind by behaving like a woman, and by taking the name of a husband whom she should marry.”
His astrological opinion did not influence the subsequent decision to merge Brooke Bond Lipton into Hindustan Lever! It became the biggest merger of that time and was also highly controversial because it led to some legal cases.
Before liberalization, India was quite insulated from global media, trends and thinking. The winds of liberalization brought in global ideas into business.
In the case of HLL, this began in the mid-1980s, a tad ahead of liberalization. HLL strived to be productive, not only in economic terms but also in terms of benefitting the environment. HLL started the first experiment with Chhindwara in Madhya Pradesh where it began to recycle significant quantities of treated effluent back into process or on land for irrigation. This saved costs for the company but ensured that HLL’s operations would not strain the rural environment. The chemical engineers in the factories explored the possibility of designing zero effluent factories long before it became a part of sustainability programs. Re-forestation attempts at Khamgaon in Maharashtra were started for similar reasons.
Did Lever transform itself successfully by repairing the car while its engine was running? In 1991 HLL earned a revenue of USD 700 million, which has grown to over USD 7 billion now. The company’s market capitalization has grown from USD 900 million to over USD 75 billion currently.
