M.S. Banga, the new Chairman of Hindustan Lever, has his task cut out for him. Lever, the FMCG behemoth, has reached a plateau in many of its product categories, and has to re-orient itself to a vastly-changed business environment. In an interview with BT's Sanjoy Narayan and Roshni Jayakar, Banga shares his strategy to take his company into a new growth trajectory.

Mr Banga, there has been a marked slowdown in many of Lever's businesses. The beverages business, for instance, isn't growing. And if you look at soaps and detergents where product-penetration and volumes are high, there does not seem to be much scope for incremental growth. What is Lever's strategy? Where do you go from here?

The slowdown you refer to was due to a specific problem in our tea business. Our Home, Personal Care, and other businesses actually grew very well last year. The tea business was adversely impacted by a huge differential excise duty; now that the duty has been removed, the business performed well in the first few months of this year.

Now to your second question: where will our future growth come from? I believe that growth is all about mindset. The most significant barrier to growth is the manner in which we approach the challenge. The first important point is to set a stretch-target. A stretch-target challenges the mind to think differently and creatively. The second point is the way you define the markets. Let's take the example of the personal-wash market. If you define the market in terms of the number of tonnes of soap sold, you will see that the market has been growing at 3-4 per cent a year. But you must, then, ask yourself--what is the percentage of people who use soap every time they take a bath? It may surprise you to learn that there are a large number of people who use soap only once out of every 10, or 12, baths they have. If we could increase the usage of soap to every time they take a bath, you can imagine the growth that is possible.

But wouldn't increasing usage imply moving into other price-segments?

I think it will involve a range of issues. Price is one aspect, but there's more. You have to identify the barriers to usage. By empathising with consumers, watching them, even living with them. Only then can you design solutions to overcome these barriers.

Fine, but when you say the bath-market is huge, do you mean it's much bigger than the market for toilet soaps?

Exactly. The minute you say toilet-soap market, you are defining it from the perspective of today. The minute you talk about the market for bathing, you are speaking about an opportunity that is several times the multiple of the toilet soap (market).

Accepted, but how do you change your company's focus from one to the other?

That's the challenge. That's what our marketers will do. They must reflect an extraordinary degree of consumer knowledge. Operationally, we have plenty of data about the consumer. But we have to go beyond that and develop a true intimacy with her. Alongside, you need technology to surmount the barriers (to usage) at an affordable cost. We have both competencies in spades.

Can you tell us more about how growth will come?

We need to think of growth across different time-horizons. We need to think of deriving much more growth from the businesses we are in today, like personal-wash. But we also need to think of the businesses for tomorrow and the businesses for the day after. What are the businesses for tomorrow? There are many ideas we have been experimenting with for some time--where we have developed new business models. We will expand significantly in these areas, and they will become the businesses of tomorrow. It could be popular foods, which is capable of very high growth, and where we have a lot of experience. Or it could be an extension of our laundry service business. Or our Aviance business. These are what I would call businesses of tomorrow.

You must also have heard of Project Millennium. A truly unique project. One of the things it has done is to look far ahead and identify nine or 10 different growth businesses for the day after. We have already taken out a lot of talented people and constructed teams and given them the responsibility of building these future businesses. What I would like to see is growth plans in these three horizons: today's, tomorrow's, and the day after's.

When you say tomorrow, what kind of time-frame are you speaking about?

When I say tomorrow, I am talking of the next couple of years. When I say the day after, I am talking of beyond. We have got ideas for today, ideas for tomorrow, and ideas for the day after. And I think one of the challenges that we face is to simultaneously manage these three initiatives.

Let's look at the foods business. There are many imponderables in this business in India. In terms of diversity. In terms of taste. For instance, do Indians like ready-to-eat chapattis? How do you see this business growing? Will it happen by moving up the value-chain as you have tried from atta to chapattis? Does this make sense from the volumes perspective?

You are absolutely correct when you say that the foods business is a huge challenge. And we must not underestimate that. Why? Because it is uniquely anchored in people's local habits. So it's regional in that sense. How do we go about it? In most cases, building a branded foods business means you are competing with a commodity. So, the question we need to address is: how can we deliver sustainable competitive advantage. The answer lies in three levers. The first is consumer insight: what is it that people really want?. The second is leveraging technology to add value by making the product superior to the commodity. And the third lever is to develop expertise and competence in supply-chain (management) to reduce the cost-structure dramatically.

Let's take salt. Salt is as much a commodity as you can think of. When we entered the salt business, we faced a huge challenge on how to brand it. But as we worked on it, we realised that there was a huge opportunity to deliver real value to the consumer. This real value was by delivering iodine. It's extremely important for children in their formative years to have a regular dose of iodine in small, measured quantities. Many districts of India are iodine-deficient. And clinical studies have proven that there is a huge difference between the IQ levels of children who get right level of iodine and those who don't. We linked all these facts--this is what we call consumer insight, a set of linked and relevant facts--and got our technical people involved to produce a superior product. We also looked at the supply-chain and did innovative things to make sure we were the lowest cost producer of salt. Today, we have a large business which is growing very fast.

Another example. We sell atta today. We said to ourselves, mothers are interested in nutrition of their children. So, we did some research to understand the specifics of nutrition-deficiency among children. Then we tailored our atta to give them the right balance of nutrients in terms of iron and vitamins that compensate for that deficiency. On the atta supply-chain side, there are many unique things we have tried. We actually buy directly from the farmer and have built a very low-cost supply-chain operation.

Yes, building a branded foods business is a huge challenge. It took us about 18 months of work to identify how we could build the wheat and salt businesses. It didn't happen overnight. But, today, the popular foods business is our fastest-growing business and capable of rapid expansion. It takes time, but the secret of success lies in understanding and exploiting consumer insight, using technology for relevant differentiation, product superiority, as well as a low-cost supply-chain.

Does this mean you will look at higher volumes and lower margins?

We will have different types of products, and the pricing and the margins of each will depend on the extent of value-addition. At the base, we will have products with a certain level of value-addition. As we go up the chain, we will charge a higher price, reflecting that differentiation. For instance, our fortified atta is sold at a premium to our normal atta.

What about going further up the value-chain?

We will have chapattis, for instance, and are working on the product to get it right. We also see a lot of synergy in this business and the Modern Foods business. That was one of the principal reasons we went in for the acquisition. Modern Foods' biggest business is bread. We are in the wheat business. If we understand the wheat supply-chain, we should be able to leverage that supply-chain in the making of bread. If we are distributing bread, then we have a fresh distribution system that we can leverage to sell other products.

What about using this acquisition to get into the biscuits business?

We will look at all the categories and exploit them as the opportunities arise.

Some of these categories will have well-entrenched competitors. Wouldn't the easiest way be to enter these markets by acquisition, like what you did in ice-creams?

As far as competition is concerned, there is room for everybody. As for acquisitions, we will look for them. If an opportunity presents itself, we will look at it and take a decision on a commercial basis as we have done in the past.

But you haven't made much inroads into the ice-cream market as you would have liked...

I think the progress in the ice-cream business has been slow. It is a complex and capital-intensive business, requiring a cold-chain from the time of manufacture, through distribution, to the point of sale. That has been a major constraint in the growth of the market.

All the while, the company's principle will remain the same: use cash-cows to fund new businesses...

That's why I emphasised the need to think in terms of time-horizons earlier. If you are able to grow the businesses you are in today, they will provide the cash to invest in the businesses of tomorrow. But you can only build the businesses of tomorrow if, today, you are experimenting on where to go. And as soon as you have perfected the business-model for tomorrow's businesses, use the cash to scale them up. It's important to think long-term. That is why Project Millennium was undertaken.

If you look at the most successful companies around the world and analyse the reasons for their success, you'll find that the most successful have got this sorted out. The computer industry is a case in point. They've got the next innovation, and the three after that.

As you get into new businesses, will you exit a few old ones?

At this point in time, we have absolutely no plans to exit any of our current businesses, other than animal feeds, and that too, only at the right price. The simple criteria we will use is this: as long as a business is delivering a good return to our shareholders--higher than our cost of capital--it's worth retaining.

Service is going to be part of your agenda for growth. Some of the service businesses you are getting into are adjacent to the current businesses. But others, like stoking rural demand by entering the micro-credit business, may require skills not readily available within the organisation. Aren't these diversifications risky for an FMCG company?

I think we must constantly push the boundaries. Whether it is thinking about how we can extend into the service sector or how we can extend into e-Commerce. Of course, it is risky. But we must manage our risk through controlled experimentation.

We will have to see how we will bring in new skill-sets. The best way is to bring in new people. We must really look at diversity of recruitment. We have to look at different colleges; you have talent everywhere. It will also mean recruiting people at different life-stages. Historically, we have tended to have most of our recruitment at the management-trainee stage. As we look at new businesses, we may need to bring in people at different levels in the company.

What are Lever's growth-engines for the future going to be?

All our current businesses have enormous capacities for growth. We also have several new businesses identified through Project Millennium. But this growth will not come easily. Why will it be a challenge? Because the market is crowded and competitive. There are international players and low-cost local operators. Barriers of entry have come down, and you can import almost any consumer product. So, we have many more competitors in our own category. What's more, we are competing with many new categories for the consumer's wallet, such as durables, entertainment, leisure etc.

The foods business, it is clear, will be one of the engines for growth. Do you see the home and personal-care business being overtaken by foods business in terms of its contribution to turnover?

It will be a long time before that happens. If you look very far ahead--I am talking decades--the foods business could possibly be much larger. And the reason for that is that the consumer expenditure on foods is much larger than consumer expenditure on home and personal-care.

What do you perceive as your biggest challenge?

Ensuring that we continue to have the best people and the most entrepreneurial culture in which they will be free to find the solutions to all these questions. I really believe people make a huge difference. I saw this very early in my career when I was in sales. If you travel 10 miles in a region--the markets are similar, the consumers are similar, the products are the same, and the only thing that changes is the company salesman. Very often, one could see a huge difference in sales coming largely through the efforts of one man! Project Millennium has addressed this challenge and thrown up a number of ideas which we will implement.

Most of your products are targeted at women, yet, there aren't too many women in senior managerial positions at Lever. Why?

Our problem is not attracting women, but retaining them. The Millennium team has looked at this issue and come up with innovative ideas. When women marry and have families, they have the added concern of looking after children. We are trying to facilitate that by setting up high-quality day-care centres. We can also try and recruit mid-career women much more aggressively than we have in the past. I am determined to try and increase the number of women in Lever.

When can we expect to see a woman in this room?

That would depend entirely on the performance of the women who join us.

Lever's employees have always been sought after in the placement market. Today, there are several exciting opportunities for people. Are you finding it difficult to attract and retain people?

Not at present. Our attrition rate has been low at 5-6 per cent. It is more a challenge for the future given the number of competing opportunities. In any case, I think the real solution to attrition lies in attracting the best talent and then providing them with opportunities for growth. Young people are often able to take on responsibility much earlier than you may think. I believe in giving a person a job when he is 75 per cent ready for it, not when he is 110 per cent ready. That is because he becomes energised and grows into it. I will personally spend a lot of my time in recruitment and making sure that we attract the right people.

What do we have to offer that other companies don't? Firstly, I believe people respond to the thrill of building business: the entrepreneurial challenge involved in creating something. We are unique in that we have a large number of very diverse businesses. Therefore, we can offer an individual the opportunity to build a personal-care business today, a laundry business tomorrow, and a foods business the day after. To get this variety and challenge elsewhere, one will have to join several companies one after another! Secondly, we can offer our employees global exposure. Many of our young people are working on projects involving huge amount of exposure with varied international markets.

Is funding employee ideas part of this gameplan?

We have set up a venture fund within the corporation. It recognises good ideas, allows a certain amount of investment to develop that idea, and measures the results carefully. If the progress is fine, you get more resources, and if the progress does not meet expectations, you stop it.

What else will you do to attract talent?

If we have to attract young people, we must recognise that we ourselves have to change and be a youthful company. We have to be young in mind, spirit, and heart. The company must, in every way, reflect the values that the young live by. This is a bigger challenge then we think it is. We have to put ourselves in the shoes of the young. They respect speed. They have grown up with computers, so, they think and want things to move at Netspeed. We have to recognise that and re-craft the way we work and do things. They also respect a great degree of transparency. They are people who have come through a challenging educational system where achievement is rewarded. They expect to work in a culture of meritocracy. And, finally, they wish to be in a business which is entrepreneurial.

What will transparency and speed mean to the existing structure?

First of all, there has to be a recognition that speed is important. In the past, we often tended to act after a lot of thought, and a lot of research. That's fine. But we must also recognise that we have a lot of individual talent. More important, we have a lot of collective talent. I believe that one way to enhance speed of action is to rely much more on our individual and collective instinct.

Does this mean that research gets a back-seat?

No, we will still do a lot of research. That's an integral part of any market(ing) organisation. But it is important that we encourage ourselves to use our individual and collective instincts more. We must use our own knowledge-base. In many cases, it's better to go to the market when an idea has fructified 90 per cent and do the rest of the learning in the market. That's a quicker and a surer way to get there rather than trying to aim for total perfection.

Naturally, this will be easier when we are talking of growing our current businesses because that's where all the individual and collective knowledge, or collective instinct, is. When it comes to the businesses of tomorrow, we have to be far more careful. There we have to experiment, refine the business model. We have to use different ways of working, at different speeds, for different types of decisions.

Isn't this approach riskier?

Of course, it is riskier. But that risk will be balanced by our collective instinct. The second way to attain speed is to re-organise our businesses. We want to push decision-making down into the company. So, we are going to re-organise our businesses into smaller category operations.

Which means a larger category of heads broken into sub-heads...

Today, we have the detergents business. Tomorrow, we could well re-organise the detergents business in such a way as to have three category business units: personal-wash business, laundry business, and home-care business. And the decision-making will come one level down.

Going back to retaining employees, what about your reward systems. Have they changed too?

Our policy on remuneration is clear: you have to be competitive and reflect the values of the market. We have increased our remuneration-packages quite significantly in recent years. We are also launching a stock-grant scheme in the company to synergise the interests of the employees with those of the company. We will continue to be aggressive in remuneration because it's an important aspect of attracting the best talent. But it is not the only one. It's equally important to provide them the thrill and the opportunity of building businesses with lots of variety, lots of challenge.

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