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CASE STUDY
Dealing with a Demerger
Continued...
Solution A
P.R. Rastogi
CEO, Clariant India
 There is, indeed, discontinuity when a
division is delinked from the orbit of an established lineage and spun off as an
enterprise in its own right. This sudden move changes the context of the division's
internal and external relationships that it has endured for decades. Renewing and
revitalising those relationships both become a priority for the division's core team.
Instilling a sense of pride in the splintered organisation should be the main item on CEO
S. Malhotra's agenda for change. This, by no means, is an easy task. It needs concerted
and sustained efforts; it also takes time. Simultaneously, there are a number of issues
that he must address.
First, Malhotra must evolve a long-term business strategy for
the division. This requires a consensus at the top, which can only emerge out of debates,
discussions, and dissent. Malhotra and his team should get away from their routine tasks
for a series of brainstorming sessions. Several basic questions need to be answered: what
are the business goals that we should pursue? Who are our customers? How can we add value
to our customers? Who are our competitors? What is the basis on which we should compete:
price, quality, or customer service? Is there a cutting-edge to our operations, which will
help differentiate us from our rivals? How do we sharpen that edge? A business strategy
must be formulated around the answers to such questions.
It is also necessary to obtain the views of the employees on
the business' future. Their responses should deal with pertinent issues. How do we want
our customers to describe us in 2002? How do we wish to be known among our suppliers? What
should we do to build our identity? Such feedback would provide a wealth of data on the
confidence and aspiration-levels of its employees, which have a bearing on Crystal India's
future. The top management's change initiative will not only generate internal allies, but
also enhance the level of commitment to the journey ahead. Equally, efforts should be made
to build a pool of skills and competencies in tune with the new growth imperatives. The
Speciality Chemicals Division has identified several gaps in the system: the need for a
business orientation among its line-managers, and the need to link functional excellence
to business results. These gaps must be plugged through intensive training and development
programmes. Malhotra's personal involvement in these programmes will be vital for their
success; it is bound to motivate employees.
Despite the openness of the management in dealing with
change, there are bound to be misgivings and apprehensions at various levels. These need
to be addressed as part of a strategic communications plan. This can take on various
forms: the display of production and sales statistics on a day-to-day basis; the
celebration of achievements, however small, at the individual level; frequent meetings
with groups of vendors and customers to discuss business strategy; and team-building
exercises Of course, Malhotra's biggest challenge is to change the organisational mindset.
That can be achieved through three steps:
Creating a network of allies among constituents who think
alike.
Projecting a shared vision for the division.
And establishing systems and structures in the organisation
that can help realise that vision.
Solution B
N H Atthreya
CEO, Atthreya & Associates
 Worldwide, companies are either selling
off or demerging divisions that are not integral to their core activity. Several factors
are compelling corporates to move out of the businesses they perceive as peripheral:
business focus, cost management, downsizing. It is necessary to acknowledge, however, that
the decision to spin off a particular division is not a reflection of the latter's ability
to survive on its own. Very often, divisions find their individual initiatives scuttled in
a conglomerate. A demerger, therefore, brings about focus at both ends. It enables the
core business to improve on its intrinsic strengths. It also provides an opportunity for a
spin-off to stand up and be counted as a profitable enterprise in its own right.
It is evident that the Speciality Chemicals Division was lost
in a business mass at Snowland. Therefore, while it is true that a large part of the
change that the division is saddled with was beyond its control, it was also a development
that was waiting to happen. Team Crystal should now turn the tide in its favour. It has an
opportunity to transform its future, but only if it recognises that change is best managed
by making it people-centric. Whatever be the contours of organisational
change--technological upgradation, vertical integration, new product development, customer
satisfaction--the Management Committee will have to place people at the centre because it
is people who propel change. While it may be easy for senior managers to realise that
change is the only constant, the realisation does not run uniformly through the different
layers of an organisation.
Of course, there is often a misguided belief that everyone
resists change. This is hardly the case. People usually fall into three categories as far
as their response to change is concerned. There is a small minority which is as
enthusiastic as the top team. Merely informing it of a new development, and of the need to
gear up for it, is enough; it rises to the occasion. Then, there are people who are open,
but not enthusiastic. They comprise the vast majority in any organisation. They need to be
motivated, and transparency in communication will, usually, bring them around. Malhotra
should market the benefits of the demerger to this segment. Finally, there is the third
category of people--interestingly, a minority--which fights for the status quo in
insidious ways. It is so used to a particular way of thinking and working that it is rigid
in its attitudes. But it is, usually, competent in its areas of activity, and is also in a
position to influence the opinions of others.
It is this segment which poses the biggest threat to the
process of change at Crystal India. There are several ways of dealing with such managers.
You can develop their skills of adjustment through training; you can unseat them from
their current positions and move them into projects where they can do no harm; you can
appoint them as consultants and use their competencies from the outside, leaving the
organisation insulated from their day-to-day influence. But there are some self-righteous
people in this minority who are not even aware of their rigidity. They see themselves as
clever, and get busy proving everyone else wrong. In the larger interests of the
organisation, such people must be identified and outplaced. This is a tough decision for a
CEO. But it must be made if the transition is to be smooth.
In the final analysis, the onus rests with the CEO. This is
particularly true in the Indian context, where an organisation is perceived as the
reflection of the CEO. He has to personally take charge, and set the tempo. He is also
expected to formulate a strategic vision. Malhotra has one thing in his favour, though. A
crisis creates a compelling need for change, and gives an extraordinary opportunity to a
CEO to push through a strong agenda for change in several directions. But it is crucial to
place people at the centre to manage change best.
Solution C
Alok Gupta
CEO, Cabot India
 Malhotra has an excellent opportunity to
build the Speciality Chemicals Division into a focused business enterprise. Unlike
Snowland's other two business divisions, Speciality Chemicals lends itself to
value-addition through customisation. It is, often, necessary to redesign the process at
the customer's end to enable her to accept a particular product. No customer can afford to
ignore a vendor who initiates process redesign with a view to saving costs, improving
product quality, and increasing customer value. Such value-addition can take place only if
a supplier works closely with the end-user.
It is obvious that there are a number of marketing
constraints in the multi-divisional structure of Snowland. The spin-off should release a
lot of latent value. However, the break-up will also release a lot of negative energy.
Apprehensions about the future of the new company--and one's own standing in it--are bound
to prevail at the individual level. There will also be limited options for career growth
in a smaller company. But a major cause for concern would be the sudden depletion in the
knowledge-base built over the years. Especially since Snowland has, consciously,
encouraged functional specialisation. Malhotra should, therefore, quickly identify
potential gaps in skills. The overall objective should be to enhance the comfort levels in
the organisation.
At a more fundamental level, of course, Malhotra should
identify the business processes that drive business results--a critical issue for a
business where production-cycles are long, and price-realisations are low. It is necessary
to concentrate on a limited number of business processes so that management attention is
focused--not dissipated. Besides an external customer focus, Crystal India needs a strong
internal customer focus. This issue, often, tends to be ignored in large, multi-divisional
set-ups like Snowland. In fact, the shrinkage in the number of employees--from 1,800 to
400--is a blessing in disguise. It is far easier to internalise the concept of customer
focus in a smaller enterprise like Crystal India. More important, Malhotra should take
advantage of the level of excellence in operations by connecting it to business results.
Manufacturing, research and development, and product development are the areas which the
top management should target first. Line-managers think that as long as the product
conforms to pre-determined norms of quality, they have done a great job. But unless these
norms are linked to the customer's requirements, the company will have a great product,
but no customer to buy it.
Finally, while it is true that the demerger will give a lot
of leeway to Malhotra in guiding Crystal India towards a new growth path, it does not give
him enough freedom to manage the subsidiary's destiny. In fact, no CEO can expect absolute
freedom because management itself is, essentially, about working within constraints. What
facilitates managerial freedom is internal alignment. For example, if Malhotra can get
every influential segment--policy-makers and strategists at the corporate headquarters,
for instance--on his side, it would make his task far easier. A focused business company
has an inherent advantage in this regard since the CEO of a subsidiary can look forward to
a favourable response from his global corporate headquarters for any initiative he takes. |
