Case Game: The Case Of Business Reorganisation

CASE GAME
The Case Of Business Reorganisation
Contd.

THE DISCUSSION

PRAVEEN MITTAL
Director, iitiim.com

Kumar should do more of what he has been doing well and resist the temptation to centralise. Decentralisation of decisions at the procurement, manufacturing, and selling levels has delivered the goods for Total, as each business of the company needs a different manufacturing set-up, procurement processes, and marketing skills.

Kumar should also put customers first. Delivering value to the customer is as important as managing costs. Kumar and his team are more worried about cost management than marketing and brand management. They will do well to go beyond tinkering with the symptoms and consider how each business fits with the long-term goal of the group.

A product supply organisation (PSO) makes little sense unless there is consolidation of material supplies or suppliers among various divisions. There are no major procurement, manufacturing or marketing advantages for consolidating operations of these four businesses. Nor is there any commonality of raw materials, suppliers, and transportation needs among any of the four divisions.

When the present set-up is successful, and the pooling of supplies does not bring any synergy, why seek a change in it?

Similarly, there is no apparent synergy, among major product ranges, even in selling. The end-customer behaviour and the marketing channels are different. Cost savings through a central sales organisation (CSO) are unlikely. In fact, making the sales team deal with different kinds of products may lead to a lopsided emphasis on cash cows and marginalisation of potential winners.

The importance of supply-chain management cannot be overstated and Total appears to have done well in managing its supplier relationships. However, if the supply-chain accounts for more than 80 per cent of the value addition in Total's product cycle, there is something very wrong with the way management perceives the market scenario. A number of Total's products-consumer durables, batteries and soaps-are brand-driven. The other half of the supply chain is the distribution network.

The company sales team has delivered in terms of marketshare and sales. As long as the company ensures sufficient control on floor pricing, margins can be controlled. Billing based evaluation of sales people is an easier and more transparent method.

SOMNATH GHOSH
Professor (HR), IIM-Indore

Kumar should side-step the issue of organisational structure and examine the actual problems at Total and their causes. The major problem facing Kumar and his team is the need to increase margins, as marketshare does not seem to drive profitability.

The consensus that the real issue requiring management attention is post-manufacturing costs has made Kumar and his team examine the possibility of an alternative organisational structure. There is, however, no evidence to suggest that Kumar and his team have examined the root cause of the high-cost, low-margin scenario. To consider a structure without first examining the reasons for the problem, is like putting the cart before the horse.

Moreover, more than 85 per cent of Total's soap manufacturing is tied to B&B, its erstwhile competitor. And, significantly, Total is moving closer to the latter's standards of quality, processes, and cost schedules. As part of identifying the core competencies and core processes, Total should first examine this aspect and how the success in the soaps division could impact on reengineering of the company.

A concerted attempt has not been made at Total to identify core competencies. While some of the questions raised at the meeting are pertinent, they have not been exhaustive. Kumar's poser about how it all boils down to the basic managerial premise of what gets rewarded getting done could not be more telling! But core competencies are not permanent attributes. Thus, Kumar and his team need to be cautious about preening on past achievements.

Organisational design changes should be considered only after a comprehensive situational analysis. Total needs to go about changing the organisational structure without losing sight of the larger strategy.

Given the nature of Total's diversified portfolio, and the problems facing its businesses, Kumar and his team may need to form cross-functional task forces for analytical purposes. After all, as management gurus C. K. Prahalad and Gary Hamel say, competitive advantage lies not just in differentiating a product or service or in becoming the low cost leader. It lies in tapping the company's special skills.

In this context, Kumar and his team may need to examine some employee-oriented issues that would impact on changes in organisational design. If Kumar could sense some discomfort among his divisional presidents because they would lose their turfs, he should also factor in the employee commitment to developing alternative organisational structures.

In many organisations, human resources may not just provide a competitive advantage, but may also become a distinguishing element. Hence, a source of competitive advantage.

V. VENUGOPAL
Exec. V-P, M&M

Depending upon the relative infancy of its product lines within, Total's overall corporate strategy should be guided by two factors: The need for business divisions that are strong on profitability to cross-subsidise the younger divisions. And, the need to discontinue the lines of business where profit after tax and the RoI show consistent downward trends relative to the industry.

Kumar should consider changes in organisational structure at Total in the light of three major factors: The need to retain market leadership in switchgears and refrigerators; the need to retain accountability for product design, brand development, commercial volumes, quality, product mix, cost, and delivery schedules in a market where customer preferences are changing; and the need, as stated by Rao, to build competencies, management depth, cross-learning, and to leverage resources thoroughly.

Before deciding on whether to go for PSO, CSO, or move towards SBUs, Kumar and his team should review more closely the profitability and accountability at various levels.

CSO appears to me to be more feasible. Ensuring market feedback, monitoring dealer requirements, handling large accounts, and collecting receivables can be centralised. It enables rationalisation of resources and distribution channels.

A commitment from the marketing heads of various product lines for volume mix and design upgrade costs to be absorbed in the final selling price is important before creating a PSO. Since the manufacturing lines have nothing much in common, it would be difficult to gain synergy in manufacturing in the absence of such a commitment from marketing.

Kumar could look at a structure to support the manufacture and sales lines with a unified materials procurement and logistics management for both inward and outward supplies. This will exploit all potential advantages in material costs, rationalise supplier base, and focus on distribution costs.

On balance, it appears to me that the a grip on costs and bottomlines could be better had by a structure which facilitates outsourcing all non-core activities-without impairing quality and delivery schedules-and ensures accountability to the customer in the chain. I would, therefore, recommend a central organisation for materials and logistics, independent product manufacturing outfits, and a CSO with strong product and customer focus. It should be governed by regular management reviews. A neutral and strong corporate control function would of course, be a pre-requisite.