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Godrej – Performance Analysis and Future Recommendations

Strategic Management Assignment

Group 3: Deep Mathur | Sumant Bhattacharya | Jayesh Tripathi | Sakshi Kapoor | Mohit Madan

1. Executive Summary

Established in 1897, the Godrej group is one of the India’s oldest, widely diversified, and most trusted brands with 7 major companies including real estate, FMCG, industrial engineering, appliances, furniture, security and agri-care and having overall turnover crossing 3.3 billion dollars. Godrej has 25% of business in overseas with presence in more than 60 countries. Since 1897, Godrej has emerged itself from mere a lock making company to a present day conglomerate. It took over a century for this phenomenal transformation and tells us how successfully the group has adapted itself to the dynamically changing environment and consumer demands.

Godrej Industries (GIL), a member of Godrej Group, is India's leading manufacturer of oleo chemicals and makes more than a hundred chemicals for use in over two dozen industries. It also manufactures edible oils, vanaspati and bakery fats. Besides, it operates real estate. The company was initially called Godrej Soaps until March 31, 2001. Thereafter, the consumer products division got de-merged into Godrej Consumer Products, and the residual Godrej Soaps became Godrej Industries. This led to the formation of two separate corporate entities: Godrej Consumer Products and Godrej Industries.

Besides its three businesses, Godrej Industries also runs four divisions — Corporate Finance, Corporate HR, Corporate Audit and Assurance and Research and Development — which operate on behalf of the entire Godrej Group. GIL has built a strong manufacturing base capable of delivering international quality products at competitive prices. It operates two plants, one at Velia in the Indian state of Gujarat and a second at Vikhroli in suburban Mumbai. The company's products are exported to 40 countries in North and South America, Asia, Europe, Australia and Africa, and it leads the Indian market in the production of fatty acids, fatty alcohols and AOS.

With the liberalization of 91, competition from MNCs, and emerging global market, Godrej evolved from an image of a closely held family business to professionally managed organization. The evolvement has been gradual and marked with a number of hindrances and milestones.

The two major companies of Godrej group – Godrej & Boyce and Godrej Industries Limited, have seen change of difference in organizational culture and focus areas. While, Godrej & Boyce continues to focus on consumer, industrial and office equipment products, Godrej Industries Limited is more dynamic and focuses on range of sectors including FMCG, retailing, food, IT, real estate, etc. It gives a lot of independence to its affiliate companies and subsidiaries in decision-making. However, the control of Godrej family exists with family members having full control or as board members in some of the

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companies. The company had other shares of troubles as well, for instance unsuccessful partnership with P&G.

Despite all the troubles, the second and third generation of Godrej families (fourth generation has entered the fray recently), continued to follow the vision of its founders. They diversified, ventured into new areas, and became global. However, they never allowed majority ownership to any of their foreign partner and survived when most of the other businesses closed down. It relies on building well-known brands, continues to expand in its own way and not let the majority stake to be ever diluted. The company continues to achieve operational efficiencies by continuous learning and improvement. The HR practices of the group are considered amongst best in the country. The practices have been influenced by family control, which considers employees as the group‘s biggest asset. The employee-friendly policies have contained attrition rates and increased loyalty. The CSR practices form a part of organizational values and are widely practiced.

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2. Group Organization Structure

Godrej group of companies is one of the largest privately held diversified industrial corporations in India. Godrej Group comprises of more than 20 companies. Post- liberalization Godrej moved from a product division structure to Strategic Business Unit structure (independent units) and entered into a number of alliances.

GODREJ GROUP COMPANIES

Godrej & Boyce Mfg. Co. Ltd. (G&B) and Godrej Industries Ltd. are two flagship holding companies of the group, which have all other companies in the group as theirs subsidiaries and affiliates.

Jamshyd N Godrej, cousin of Adi B Godrej, Chairman of the Godrej Group, chairs Godrej & Boyce Mfg. Co. Ltd. The company has several subsidiaries in which it has the majority stake.

Godrej & Boyce Mfg. Co. Ltd. has 14 major divisions, 1 corporate entity, 1 joint venture, and 4 international entities under it.

Godrej Industries also has 1 division, 3 corporate entities, 2 joint ventures, and 7 international entities under it.

Refer figures 1 and 2 for detailed Godrej organization structure and group companies.

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Figure 1

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Figure 2

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3. Godrej as a brand

With a history of over 114 years behind it, Godrej has stood the test of time. Not only has Brand Godrej survived, but through expansions, extensions and innovations, has remained relevant through the generations. Recently, the Godrej Group, has been valued at USD 2.86 billion brand through a valuation exercise undertaken by global brand consultancy firm Interbrand.

The home-grown corporate group had started out with security equipment and soaps. Over the years it has diversified into several businesses ranging from typewriters and word processors, machine tools and process equipment to refrigerators and furniture, from engineering workstations to cosmetics and detergents, and from edible oils and chemicals to agro products. JWT has been handling its creative duties for the past 44 years.

Godrej is one of foremost consumer brands in the country, used by 470 million Indians, with a scope straddling almost 70 per cent of household consumption. Over a period of time, there was a need felt for the brand to re-energise its bond with a new, optimistic, resurgent India. The brand adopted a new positioning of ‘Brighter Living’ based on core consumer insights anchored in the territories of freedom, optimism, progress and expression. Thus, there was a re-launching with a new synergistic identity and a cohesive and clear set of values capable of taking the Godrej brand forward.

The journey of rebranding has been divided into three phases: re-launch, acquisition of new values and acquisition of new franchise. In Phase I, brand Godrej was re-launched in 2008 in order to communicate the new brand positioning and identity. There was a launch campaign, ‘Good Morning Wall’, which successfully delivered the first step towards changing the perspective of millions of Indians towards Godrej coinciding with the first season of IPL. This was the first time that the Godrej master-brand was communicating with its consumers above the margins of its category portfolio.

Phase II saw Godrej work relentlessly towards evolving beyond its traditional brand value of trust towards new vistas of expression, progression, experience and empathy. This was accompanied by a number of initiatives to communicate the change in positioning and identity of various parts of the portfolio. The first major communication initiative of Phase II was the Godrej Aerospace campaign, which gave an unprecedented technological sheen to Godrej and helping it resonate with values of progression and empathy. The second big communication initiative of this phase was production and launch of India’s first branded lifestyle game show: ‘Godrej Khelo Jeeto Jiyo’, a unique concept showcasing the Godrej range of products wired into a singular proposition of Godrej Lifestyle. After a long time, Godrej started becoming bigger than the sum of its parts.

Phase III has just started with the launch of GoJiyo.com, said to be India’s first virtual world. GoJiyo brings together the power of social networking, virtual worlds and gaming on a simple, developing country friendly browser based platform.

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Godrej has always believed in going beyond tag lines to imbuing all its communication endeavours with a unique ethos and essence. By putting a distinctive brand at the core of their company actions across portfolio, Godrej is trying to be better positioned to meet the advancing expectations of the consumers of their products.

Global presence of Godrej :

The picture below shows the countries where Godrej is operating presently.

Figure 3

Today Godrej is on the verge of becoming an ‘Indian multinational'. Godrej has adopted a global 3x3 strategy - presence in three continents - Asia, Africa and Latin America through three core categories - home care, personal wash and hair care.

One Africa strategy

After acquiring three companies in Africa since 2006, Godrej now plans to have a ‘One Africa' strategy by merging the operations of Rapidol and Kinky in Africa.

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GCPL has put in place the ‘One Africa' strategy, which is to look at Africa as an opportunity right across the continent. The company has a substantial business in hair extensions in South Africa and is looking to leverage that across Africa through a ‘hub-and-spoke' model. Tapping into the opportunities across the African continent, Nigeria with 150 million people is a huge opportunity both for Godrej and Tura. It will help the company bring in products from the South African business – the hair colour brand Inecto, the market leader for ethnic hair colour, and Kinky, the hair extension brand. The Tura acquisition is a great opportunity for GCPL to extend its portfolio and over a period of time even look at other Godrej brands that can get into the African continent

Rapidol was acquired by GCPL in September 2006. This acquisition gave GCPL an opportunity to enhance its global presence through the modern trade network and the ownership of strong ethnic hair colour brands such as Inecto and Soflene in ten countries

Inecto is the leading ethnic hair colourant in SA with 92 per cent market share (volume) according to The Nielsen Company's data for December 2009. Today Rapidol has also begun sourcing Inecto powder hair colour from GCPL India.

Kinky was acquired by GCPL in April 2008. Established in 1971, Kinky offers a variety of products which include hair, hair braids, hair pieces, wigs and wefted pieces to the South African consumer. It also has hair care products such as styling gels, hair sprays and oil-free shampoo. All Kinky products are manufactured at plants located in Durban, South Africa and sold through Kinky-owned stores as well as Cash-n-Carry outlets.

Asian mission

As for its latest venture, in Indonesia, that would help GCPL fortify its position in Asia as well. The Rs 600-crore Megasari group is a manufacturer and distributor of household products which include household insecticides, wet tissues and air fresheners. It is less than 15 years old and has plants in West Java.

Megasari is also the second largest player in the household insecticide market in Indonesia having a 35 per cent share in the category with brands such as the Rs 250-crore Hit (household insecticide) followed by smaller brands Stella (air fresheners) and Mitu (babycare). Interestingly, one of Godrej's own insecticide brands is called Hit.

Latin American Mission

Continuing with its spate of fast and furious acquisitions, there is no stopping the Godrej group this year as it gets ready to enter the Latin American market.

Additional Information

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International Operations

Popularity of GCPL products has been growing rapidly in international market, and to meet this emerging demand, the company is also expanding the breadth of its operations. GodrejCP products are now exported to 30 countries worldwide.

Subsidiaries

Subsidiaries of Godrej Consumers Products include Kinky Group (Pty) Limited, South Africa, Keyline Brands Ltd, Godrej Global Mideast FZE, Sharjah, and Rapidol Pty Ltd. South Africa.

Keyline Brands Ltd

Keyline Brands Ltd. is one of the most popular U.K brands which has brilliant track record in the toiletries and personal care sector. Some of its well-known brands are Cuticura, Aapri, Erasmic and Nulon. Brian Boyce and Vicki Dryden Wyatt founded the company in 1990, and in the month of October, 2005, it was taken over by the Godrej Consumers Products.

Rapidol Pty Ltd. South Africa

Rapidol Pty Ltd which is South Africa based company, and internationally known for its hair color brands named 'INECTO' and 'SOFLENE.' It was acquired by Godrej Consumers Products in September, 2006.

Godrej Global Mideast FZE, Sharjah

Godrej Consumers Products has enhanced its global presence by acquiring Global Mideast FZE on October 1, 2007. Based in Sharjah, this company was initiated to make Godrej FMCG products in countries like Kuwait, Bahrain, Oman, and Saudi Arabia.

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Kinky Group (Pty) Limited, South Africa

Kinky is another subsidiary of GCPL which was acquired in April 2008. In addition to its products such as, hair, wigs and wefted pieces, hair braids, and hair pieces, this renowned company also has hair accessories like hair sprays, oil free shampoo and styling gels. The company is based in Durban, South Africa.

4. Diversification

Investigating the reasons that drove the House of Godrej

Under the resource-based view, there are primarily 3 theories that govern the growth business houses that ultimately turn them into diversified conglomerates in developing economies:

Theory 1: The greater the market imperfections, the greater the importance of business groups in an economy.

Economists assume that diversified business groups can only exist in the absence of a well- functioning market. Thus, they regard business groups as functional substitutes for allocation failures in the markets for production inputs. Business groups emerge as attempts by entrepreneurs seeking to overcome the difficulties of obtaining capital, labor, raw materials, components and technology in emerging economies. Groups step in where the market does not work or is not allowed to work by institutionalizing an alternative allocation mechanism so that production can take place.

The rise of the Godrej business house can, thus, be attributed to the pre-independence era in India. When the group was diversifying into soaps (1918), steel cupboards and steel office furniture (1923) and shaving products (1932) for instance, the Indian economic market was premature, to put it mildly. The absence of a healthy market ecosystem must have helped the Godrej group, to first come into existence and then diversify by driving and building upon its own resources and ingenuity.

Theory 2: The more vertical the pattern of relationships in a society, the greater the importance of business groups in its economy.

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The postulate is based on the social structure and ambience prevalent in a particular country at a particular time. Cultural and social inputs do guide the way an organization develops and moves in a particular country in the long run. The argument revolves round the concept of authority as developed by the Weberian sociological tradition. In a vertical authority-led society like India, firms run a by a single paternalistic, figure-head have the maximum chance of being successful.

In such societies, members of a firm owe obedience and personal loyalty to its patrimonial figurehead. Owing to the strong personality and authoritative hold of the central figure on the business, new activities are integrated into the patrimonial household as subordinate units rather than branching out as separate business efforts. Every effort is made not to lose control as the household turns into a collection of businesses of greater size and complexity.

The house of Godrej, headed by Ardeshir Godrej, sat perfectly in the socio-economic structure like India. Since the firm was lead by a single entity, it commanded the focus and allegiance required for growth. Throughout the decade, as it entered into new categories, it absorbed those forays under the same group company.

Theory 3: The greater the autonomy and size of a state, the greater the importance of business groups in its economy.

The third approach to the study of business groups focuses on late economic development as a process driven by states. In a first version of this theory, scholars of East Asian development have observed that autonomous states with the ability to allocate capital and other resources at will encourage a few entrepreneurs to enter new industries, thus facilitating the proliferation of business groups. For control and accountability reasons, autonomous states generally prefer to deal with only a few entrepreneurs as their private sector agents.

In the early years of Independent India, the state would have liked to go take only slow and measured steps towards economic growth and privatization per se, owing to political and ideological reasons. In such an environment, only a few, and big business houses must have had the chance to encash the business opportunities. That must have helped the house of Godrej to build upon its existing resources and venture into a diversified portfolio.

The 3 theories, however, do not expound much on the resource enhancing capabilities of a firm surging ahead on the path of diversification.

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The Resource-Based theory (Mauro F. Guillen) applied to Godrej

A resource-based view of business group’s implies that the inimitability of the set of rare resources that enable entrepreneurs to diversify is only guaranteed under certain development circumstances. According to the resource-based view, the importance of business groups will be greater in emerging economies with asymmetric trade and investment conditions because they allow a few entrepreneurs and firms to develop the capability of combining the requisite foreign and domestic resources for repeated industry entry.

Such a generic capability (1) remains idle if a group does not prepare to enter a new industry, (2) has multiple uses, and (3) is difficult to trade, encourages those who possess it to diversify across unrelated manufacturing and service industries.

For Godrej the human resource was generic. However, The main problem faced by the Godrej group in 1991 was that it was getting too bureaucratic with slow pace, getting bogged down in routine matters, too many slow-moving products and a reluctance to do away with old practices. The key to break this shackle, Godrej realized is that to make everybody accountable and responsive. Godrej went all out into incorporating corporate governance in all its subsidiaries and group companies (both listed and unlisted). Each group company had a CEO or a President (not necessarily from the family). Full freedom was given to these leaders to devise strategy for the companies and lead Godrej in the liberalized and open economy. However the board of each company still has some family members to oversee the working of the top management and the company and there is consultation at both family and business levels on critical issues.

This change led to the concept of divisionalization with each division as a profit centre, decentralization of decision-making and empowerment of managers at the grassroots level. Once fit to compete, Godrej went into the alliances and acquisitions spree to exploit this generic resource.

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5. Mergers and Acquisitions

Godrej group has done several mergers and acquisitions since 1999 to control and expand its reach in consumers and India and in emerging markets. It is still keeping its “eyes and ears open” for any further mergers and acquisitions across the continents of Asia, Africa and Latin America.

Some of the keyacquisitions done by Godrej group between 1999 and 2010are as follows:

The company over the last eighteen months acquired five companies at a net expenditure of Rs 3,000 crore feels buyout of firms would continue to be an option for it to expand its footprint in international markets. In words of Managing director “Mergers and acquisitions is a major part of our growth strategy and we always keep our eyes and ears open to acquire a company that is a strategic fit for us” Majority of the acquisition done by Godrej group ranges between $50 million (Rs 240 crore) to $250 million (Rs 1,200 crore). Over the last couple of years major acquisitions of Godrej group include Indonesian household product firm Megasari Group, Argentine hair colour brand Issue Group. In June this year, GCPL bought 51% stake in Darling Group—the African hair products firm for $100 million (Rs 480 crore). These buyouts are in sync with Godrej’s 3 by 3 strategy whereby the company wants to increase its presence in emerging markets across Asia, Africa and Latin America through its three core categories—personal wash, hair care and home care.

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6. Strengths of Godrej Group

Godrej is a well established brand in market standing on the pillars of loyalty and the core strength of the Godrej Group is its value system put in place by the founders. Godrej has established and developed its brand in a way that it has always enjoyed the loyalty of its customers since decades.

The group has developed network of dealers, distributors and branches which is helping the group in reducing marketing costs tremendously. The trade is nurtured meticulously using a multi-tier approach (local/regional/national contact).Throughout its history Godrej has considered ‘People’ as its most valuable asset. Its relationship with its dealers and suppliers has always given it an advantage over other firmsGodrej has always been able to take up large projects through internal funding and available resources such as land, machinery, technology, competent management teams, social goodwill.

7. Conclusion

Foremost amongst the points that emerge out of the analysis of the Godrej Group, is the tight, coherent decision making that guides the group. Since the fortunes of a family-run business are tied to the dynamics within the family, it can become quite topsy-turvy. A conflict can grow big, create fissures, and can even bring down a business. On that score, Godrej comes out trumps. By staying away from control and succession related conflicts, the Godrej family and board has presented a united and strong face to its stakeholders. While some of the divisions, such as appliances, are facing losses due to a lack of fierce focus, the others are faring well. The group may face problems deciding the strategic fate of the divisions facing difficulties. At the same time, there could be a lot of exit barriers that may prevail like family culture and control, goodwill in the market, social and psychological barriers, such as emotional attachments of family members that may result in renewed vigour for such divisions.

Overall, the group derives a lot of strength from the united vision and values of the family that runs the business. It has enabled the group companies to survive and grow even during adverse external conditions. The unity of vision, in turn, seems to have outlined the strategic path for the group that is clear to all its stakeholders. And as the group companies have common objectives in the interest of the group, it has reduced agency costs giving it an advantage over its competitors.

A resource-based analysis of the Godrej group indicates that it is extremely rich in resources of different types. Be it tangible resources such as manpower, machinery, technological expertise and land or intangible resources such as brand, customer and supplier loyalty and acquired knowledge, the group has been able to build up impressive

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assets over the decades. This is due to the scale of operations of Godrej, and has increased continuously with time.

Godrej also has had a typically higher duration of tenure of the family members. This has helped them invest in long term benefits and also invest in next generation leaders.

8. Going Forward

Much of the success of the group can be attributed to the values and vision of Godrej family, which continued as the generations passed-by. To continue reaping the benefits of such a strong a stable value system, the group must have a clear succession plan at hand. Power struggle can become ugly and for a group as big and diversified as Godrej, it can wreak havoc.

During the latter half of the century, Godrej made the right moves by adopting strong corporate governance practices while trying rightfully to shed its image of a family-run business. However, it must instill far more energy into its outlook. Compared to the vast scale of its operations, Godrej still has a long way to go to overcome the existing inertia in the organization that must have crept in due to the family control. The current strategies adopted by Godrej Industries Limited are more in line in this direction; however, Godrej & Boyce is still lagging behind. The group has an enormous potential and with lots of opportunities in the India market, it will have to be more dynamic to sustain and grow in the future.

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