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I N T E R N A T I O N A L


IMD-2-0122-T
v. 24.04.2006
Teaching Note
by Professor Ulrich Steger, CSM Program Manager Aileen Ionescu-Somers and Research
Fellow Wolfgang Amann
IMD-2-0122 HINDUSTAN LEVER (A): LEAPING A MILLENNIUM
IMD-2-0123 HINDUSTAN LEVER (B): THE REALITY CHECK
IMD-2-0124 HINDUSTAN LEVER (C): DELIVERING THE DESIRED RESULTS

Copyright 2005 by IMD - International Institute for Management Development, Lausanne, Switzerland. Not
to be used or reproduced without written permission directly from IMD.
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Case Summary
The case series centers on a new, proactive business model developed by
Hindustan Lever Ltd (HLL) in order to tap the business and sustainability
potentials hidden in rural India and focuses on a win-win partnership with rural,
female self-help groups (SHGs). HLL helps these SHGs access micro credit,
which is usually restricted, the SHGs then buy HLL products and sell them in
their villages in a decentralized way, thus creating various opportunities for rural
communities: training and income opportunities that are otherwise largely
unavailable to these women, as well as improved living conditions, e.g. through
the hygiene products on offer.
Case A describes the cornerstones and key decisions in the projects inception
phase. It details the value chain and expected deliverables for the stakeholder
groups as well as covering the set-up and launch of the entire system. It reveals no
insights regarding the actual results.
Case B illustrates how performance clearly lagged behind expectations--women
dropped out of the scheme, sales decreased during the harvest season and the
system risked losing momentum. HLL needed to decide whether to patiently wait
for the system to take off, or to implement changes to the complex system of
interdependent variables and players. This case points out that mere innovation, as
presented in Case A, does not in itself create a sustainable model. Learning, not
reality avoidance, and a careful evolution of the system over time are key success
factors.
Case C presents the actual changes that were implemented, the impressive
successes over time and the vision forward. HLL envisages building a pool of
100,000 self-employed women covering 500,000 villages, and reaching 500 million
people within less than a decade. HLL will therefore undoubtedly continue to create
opportunities for rural women and thus improve their lives, while changing their
families overall standard of living for the better.
Objectives
The case series has various learning objectives:
1. Changing perceptions: The case series is a vehicle for discussion and insight
into how multinational corporations (MNCs) can radically change their
perception of the poor rural sector as a potential customer base as well as into
their role in developing economies in general. Instead of regarding themselves
as serving only the richer sectors of society that have sufficient purchasing
power, leaving the poor to governments and NGOs, MNCs can also play a role
within this sector. Through innovative thinking and creation of partnerships,
new dynamics can boost these communities, breaking traditional moulds and
improving growth and development.
2. Innovation in a truly sustainable way: Many cases outline great ideas for
marketing (with strong local characteristics) and sustainability. The case series
at hand moves beyond the mere presentation of a real life innovation with only
potentially enormous effects, while the jury is too often still out. The case
series emphasizes key aspects hitherto neglected: the crucial role of learning
and adaptation over time in order to make the model last and evolve. The
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cases thus fit into the ongoing debate on advances in sustainability, revealing
how to actually make it work. But one controversial question remains: to
what extent is HLLs initiative truly sustainable?
3. Understanding India better: Besides China, India is currently on the radar
screens of many top managers, educators and academics. The case series
sensitizes them in respect of local characteristics and crucial success factors in
this future market (refer to the suggested reading material for an update on
Indias sensational development and potential to gain a better understanding
of the local situation).
Audience
The case series has been successfully taught to a variety of audiences ranging
from undergraduates and MBAs to participants in executive education seminars,
as the discussions level can be easily adjusted to the experience in the classroom.
The series of suggested questions is relevant for all groups. The case can thus be
taught as part of courses on international management, strategy, ethics, marketing,
entrepreneurship or sustainability, as it places the sustainability issue within a
larger perspective.
Suggested Teaching Questions for the A-Case
The case comprises several tension fields (opportunities, risks, ethical dilemmas
etc.), some of which are quite controversial, which is why it will be easy to
stimulate interaction in the classroom. Possible questions that could stimulate
discussion include the following (they are followed by our proposed answers):
1. Should HLL have entered the informal sector in this way? What are the threats
and opportunities associated with such a step?
2. Describe the characteristics of this new business model. How does it differ
from others?
3. Consider the channel conflicts as potential problem issues. How should the
company deal with these?
4. Should HLL roll out this business model on a large scale?
5. If the company were to propagate this model, what do you think is needed in
order to ensure success?
6. Is HLLs initiative truly sustainable? Which aspects of this sustainability
solution are decidedly local?
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1. Should HLL have entered the informal sector in this way? What are the
threats and opportunities?
Threats
HLL
Changing traditional roles: The company is essentially moving the poor from a
badly organized economic system, sometimes even based on barter, to an
organized sales system involving monetary transactions. This constitutes a major
change in the roles that companies, communities and governments have
traditionally played within society. The fundamental question is: should an MNC
take on such a prominent role? Globalization has led to governments losing a
certain amount of their previous power as the centralized shakers and movers of
society. The class could consider whether this is a role that MNCs could partially
and legitimately take on.
Exposure: HLL tried to keep a low profile, but the innovative nature of the
project attracted attention and was difficult to hide. If the project had failed, the
companys exposure would have been great.
Creating the infrastructure: This is major challenge, since the market is hard to
reach as far as credit, distribution and communications are concerned.
SHG
Lack of purchasing power: The low level of monetary resources and
transactions within the communities is a major concern as it is essential that the
activities provide the SHGs with adequate income in order to motivate them to
continue operations. Clearly, tier four of the pyramid (refer to Figure 1 on page
7) determines that basic needs are looked after first, which leaves very little for
the luxury items that HLL provides.
Logistics and perception: The SHG women find it difficult to travel as their
retail grows. They tend to wait for SHG meetings in order to sell the products.
There is also a perceived stigma attached to door-to-door selling--hence the
reluctance of the women to travel. There are no small vehicles available for short
trips and all journeys have to be made on foot.
Cyclical sales: During harvest season, the women have no time to travel, as they
are required to work in the fields. Their customers are also busy in the fields and
do not purchase products. As a result, sales may decline significantly during this
period.
Bank
Exposure: The risk that in economically difficult times (such as after a bad
harvest), the payback rate will decrease considerably. If the initiative expands to
significantly more groups across states and districts throughout India, as is
intended, there could be an element of risk from this point of view.
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Government
Credibility: If the model does not work and HLL withdraws, the government
would lose considerable credibility as it has dedicated significant resources to this
project. The partnership implies that the government is not the sole decision-
maker and therefore does not have full control over the process. A lot depends on
HLL reaping adequate benefits from the alliances to justify the continuation of the
operations to their board.
NGOs
Exploiting the poor? In a situation in which people have barely enough to subsist
on, some NGOs may ask whether the promotion of relatively luxury products in
poor communities is ethical. Is it furthermore right to train, or condition new
customer groups to use the suggested products? There is also the question of the
recycling of the wastewater and packaging material produced by the products, a
point absolutely neglected thus far. Another issue is that the social setting in rural
villages is being fundamentally influenced by women being lured to use their
contacts for sales.
Note: Prahalad and Hart (2002) state: New business models must not disrupt
local cultures and lifestyles. An effective combination of local and global
knowledge is needed, not a Western system. p. 12.
Opportunities
HLL
Market share increase: Better product reach and category penetration in a major
market segment.
Superior understanding of rural consumers: HLL will have gained this even if
the project is terminated.
Social fulfillment: HLLs public image and credibility have been greatly
improved among government officials and the NGO community.
First mover: The initiative profiles HLL as a socially responsible leader, whereas
a year ago the company was not known as such.
SHG
Income-generating activities: These create a stronger economic base within a
community. A community is thus converted from an informal to a formal
economy, stimulating demand/consumption and enhancing buying power.
Investment opportunities for new enterprises: The provision of a meaningful
income-generating activity creates a micro-enterprise dynamic within a
community that also generates new ideas regarding both sales and production
activities.
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Training/Education: This initiative has the net effect of introducing transferable
skills to a community. The entrepreneurial skills acquired could be used for
activities other than HLL product sales. The increased awareness of possibilities
in the outside world that the initiative brings, makes a positive contribution in the
form of ideas that could be developed within the community.
Less dependence on grants from NGOs: Benefiting from the teach a man to
fish approach, the local communities become more self-sufficient.
Less vulnerability: The creation of wealth within the community effectively
eliminates the local peoples vulnerability to exploitation by moneylenders. In
India, moneylenders traditionally lend at extortionate rates (20% per day in some
cases), which has the effect of perpetuating the poverty cycle.
Bank
Faster turnaround of money and better repayment levels: Previous
experiences with payback behavior based on micro credit were quite positive,
even if they involved higher interest rates. HLL products may be a safe bet,
especially if HLL launches support activities.
Social fulfillment: Banks should also support initiatives with a potential to
improve living conditions among those who need it most.
Government
Improvement of economic base/less poverty: poverty and lack of opportunities
still characterize rural areas.
Increased credibility: Actively engages industry in finding a solution to the
economic concerns of the country.
NGOs
Teaching a man to fish: NGOs can concentrate on capacity building in respect
of income-generating activities. Their activities therefore focus on a teaching a
man to fish approach, rather than the hand-out approach, which would prolong
dependency.
Involvement and empowerment: Local communities become more self-
sufficient and have a voice.
Note: We also point out the importance that such a project may have for the
project manager and the individuals within HLL as the project allows for high
levels of visibility. Success and failure will be obvious, representing opportunities
as well as risks.
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2. Describe the characteristics of this new business model. How does it differ
from others?
Innovation: Working in the informal sector requires imagination and creativity.
The initiative described in the case is a radical innovation, combining low cost,
good quality, sustainability and profitability.
New delivery format: The SHG direct-to-home approach is a new delivery
format in a hard to reach market. The aim is to maintain a low-cost, but high-
quality distribution system. The SHGs distinguish themselves from traditional
retailers by offering customers the possibility to purchase products directly from
within their homes.
Different value proposition: This is not the traditional model that focuses only
on monetary aspects. The business model is built on a completely different value
proposition, involving partnerships and communities.
Ground-breakers and first movers: HLL dares to take risks and sees itself as
writing the book on micro enterprises.
New kinds of leadership: The new model is based on experimentation,
collaboration and empowerment of locals.
Entirely new market: A real opportunity for growth lies in the vast number of
upwardly aspiring poor who are joining the market economy for the first time.
Prahalad and Hart (2002, p. 4) described the global market in terms of what they
called the World Pyramid (refer to Figure 1), which divides the market into
four tiers with 4 billion people in tier 4 living on less than $1,500 per year. The
majority of these people live in rural villages, urban slums and shantytowns. This
huge number of aspiring poor represents excellent possibilities for future
profitable growth as yet virtually unexplored by MNCs. The basic idea of the
pyramid still holds true today.

Figure 1: The World Pyramid















Community benefits: Creating access to credit for the rural poor, building on the
success of the Grameen model, and thus making the poor consumers.
Tier 1
Tiers 2- 3
Tier 4
Purchasing Power
Parity in U.S. dollars
Population in millions
>$20,000
$1,500-20,000
<$1,500
75-100
1,500-1,750
4,000
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The creation of positive externalities: The company focuses on actions for the
collective good without neglecting its legitimate commercial interests.
Companys public image: It is clear that setting up entrepreneurial systems in the
informal sector will give HLL much leverage in terms of its market share and
public image (and an opportunity, as its mission states, to be in the hearts and
minds of people).
Involvement of multiple players: local governmental authorities, non-
governmental organizations (NGOs), local communities, financial institutions,
infrastructure builders, and others.
New sources of competitive advantage: The discovery that the scale of
opportunities in emerging markets is larger than previously thought.
As Prahalad and Hart state, companies need to re-evaluate their understanding of
scale, and learn how to make the link between highly distributed small-scale
operations and world scale capabilities.
3. Consider the channel conflicts as problem issues. How should the
company deal with these?
Some retailers expressed concern at what the SHGs were achieving in the
villages, and also voiced the sentiment that they would be happy to see this
project fail. At the time the case was written, the retailers throughput was
certainly reduced, but only a fraction of overall turnover was affected. Some made
threats--If you continue doing this, you will not get credit!--but the SHGs
showed no signs of succumbing to such pressures. Within HLL there were some
concerns at the prospect of having two channels of the same organization
competing on price. The main issue was one of adding value to what the
consumer gets from buying from the SHG rather than from the normal retailer. At
the time of the case study, the costs of reaching the villages were still higher than
the profit gained. There was also concern that the individual gain for SHG
members was not enough to justify the scaling-up of the model. Why should the
villagers buy from an SHG instead of a retailer?
Very rational criteria: It is clear that the SHGs have to compete with the
retailer on price-led parameters in order to survive.
Lower price expectations: the invariable response is best deal.
Genuine goods--trust--company prices.
Peer pressure for social equity for the group, and support mechanisms for
those individuals who are also part of SHGs--HLL could build on this in
future as well.
Fresher stock.
In some cases, envy stopped non-SHG village women from purchasing from
the SHG.
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Why buy from a retailer?
Location advantage
Wider product portfolio
Discounts on products
Buyback of goods
Credit facilities with flexible limits and payment options
Emotional bonding (I have always bought from..).
Note: Using different channels for different types of village is a viable option in a
country like India where the social geography of the village greatly influences
income, accessibility and selection of socially advanced groups.
4. Should the company roll out this business model on a large scale?
Pros
Market share: Consumption of HLL brands increased by 17% in six months in
the Andre district. Example: Without having scaled up completely, personal care
products market share increased from 72% to 79% within just six months in this
area alone. There was a dramatically improved awareness of several previously
almost unknown brands in the area (e.g. Red Label Tea--from 0% to 35%).
First indicators: The first indicators were encouraging enough for HLL to roll
out a second phase. The HLL board fully backed this: Dont worry about the
risks right now. Learn, explore and push the frontiers. There is a clear focus on
experimentation.
Let the model mature: Any business model must be given enough time to mature--
after all, the existing retail model was developed over many years. However, HLL
has to resist the temptation to merely test the model for up to two years, allowing
groups to learn without pressuring them for results. This could have the effect of
hiding flaws in the model. Identifying the cut-off point is key, and being upfront
with the board is an essential part of the process.
New ways of judging financial success: As long as the company is prepared to re-
examine the traditional price-performance relationships of products, the poor
can be a very profitable market. Providing that it is accepted that traditional high
margins do not work in this market, the markets scale and volume potential will
make the difference in terms of profitability.
Areas of influence: The micro-credit model gives HLL a market advantage in
terms of access, attitudes, and awareness.
Informal sector vs. formal sector: The informal sector is a much cheaper option
than the formal sector. It is possible to work with an informal cost structure while
creating benefits and positive externalities for which no one has to pay. It is also
possible to have a certain degree of cost sharing, for example, the government
provides training and infrastructure for the MACTs.
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Cons
Unclaimed costs and value differentiation: Transport is a problem--who picks
up this cost? The SHGs are reluctant to travel to the MACTs to buy. This
substantial cost will eventually have to be covered by the MACTs.
Exaggerated expectations: Apart from the fact that the SHGs have no time for
brand communication, it is clear that these women are not the best possible choice
as brand communicators--another set of skills is needed. The projects initial
phase rightly concentrated on turning the women into entrepreneurs, but to the
detriment of their development as skilful brand communicators. Although it
initially seemed that the women had to play both roles, it is apparent that this will
have to be taken over by an animator/communicator who can carry out
demonstrations at the haats. The scaleable model may be based on whether the
MACTS have the critical mass to support, for example, at least one animator for
every two MACTS. One solution would be for the MACTs to take on the cost of
the animators by increasing the margin on products--a threat to the value
differentiation and to this models viability.
Low levels of transaction: A considerable upsurge in transactions is required to
ensure the models success. There is no guarantee or evidence that this will occur.
Given the tiny budgets available for acquiring the kind of merchandise offered by
HLL, the level of transactions might not increase substantially enough to make a
difference.
5. If the company were to propagate this model, what do you think is needed
in order to ensure success?
Make the MACTS the primary route of business: Strengthening the MACTs is
a key element to this businesss viability. The MACTs regard the distribution of
HLL goods to SHGs and others in the village as a good prospect and the venture
is attractive as a business proposition. The SHG cooperative could take on the role
of an operating unit.
Internal HLL support: It will take time to develop and mature, and it is only
with internal support that the patience required for this will be forthcoming.
Outreach: More work needs to be done on propagating the model to other NGOs
and other local governments.
Plan and strategy: A carefully construed rollout plan needs to be presented.
Training in enterprise management: The group leader and perhaps one other
key member are the driving forces in a group. The rest are mere passengers with
little to no involvement. Consequently, the business tends to evolve into an
individual enterprise. Some SHGs will be more successful than others, and will
have a strong leadership that will help them to perform better--rapid identification
of and support for these success groups is key.
Learn as you go: Learning needs to be carefully distilled and communicated as
the project progresses, both internally and to partners.
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Production capacity: Enrich the model by boosting production capacity in the
regions. Combining competitive local production with the SHG model will be an
unbeatable solution, as it will lower distribution costs considerably and ensure the
maintenance of a price differential.
6. Has HLL already rolled out a truly sustainable business model even if the
environmental dimension has not been considered? Which aspects of this
sustainability solution have a local character and would not work
elsewhere?
Multiple dimensions of sustainability: Sustainability is complex and companies
may decide to cope with this complexity by emphasizing fewer aspects per
initiative. Other projects may emphasize the environmental dimension to achieve
a broader sustainability success.
Global versus local approaches to sustainability: This discussion can elaborate
on the role of women (lack of opportunities, education) in India, and aspects of
logistics found in developing countries. Would the set-up exploit this situation, or
actually add value in the sense of sustainability? This is a crucial question often
raised when referring to sustainability in developing economies. What would be
the projects second phase repercussions, and would they be found elsewhere as
well?
Suggested Teaching Questions for the B-Case
The B-case shows that the original idea clearly did not work out as planned. It
emphasizes that merely innovating a concept does not suffice. Any initial solution
is likely to evolve over the long term. Project managers, such as Sharat Dhall, the
hero of the cases, need to closely monitor what is working and what not. They
have to adopt an entrepreneurial approach and continuously cope with uncertainty
and a variety of interconnected variables. If HLL had not addressed the following
questions, Project Shakti would not have had a bright future. Suggested teaching
questions for the B-case include:
1. Would you remove the MACTs from the model?
2. What other action steps should HLL take to make the project more successful?
1. Would you remove the MACTs from the model?
Modifying the supply model with rural distributors (selling directly to the SHGs
rather than from the C&FA (cash & forwarding agent) to MACTs and in turn to
the SHGs) indeed improved margins. This also enabled the SHGs to sell to the
retail trade as well, which significantly boosted their overall sales, ensured that
retention rates climbed and provided a breathing space to start creating a direct
customer base in the village. No conflict of interest was involved because it meant
that the retailers would not have to travel to purchase stock, and the self-employed
women were there to service them. Nor did the retailers have to endure cash flow
problems by having to buy in bulk. In addition, many of the retailers were not
covered by other sources of supply. HLL could compensate the loss of local
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philanthropic work due to the abolishment of the MACTs by other means. HLL
itself became more involved in order to facilitate the loan process. In order to keep
projects alive or to ensure a projects success, project managers cannot shy away
from tough and complex decisions. In this aspect, sustainability projects are
clearly no different from others.
2. What other action steps do you recommend HLL should take to make the
project more successful?
Already indicated were:
HLL substituting the MACTs services.
HLL ensuring that the level of philanthropic work experienced by local
communities remained unchanged
In addition:
HLL could help improve the home visits: Home-to-home selling posed a
serious challenge to the initiative. The women were initially reluctant to do
this as there was a social stigma attached to going from home to home
selling products. This was recognized, and HLL started a very large home-
to-home campaign that was anchored by a company representative. He took
the self-employed women with him and approached the homes. The fact that
the company representative was doing home-to-home sales was a crucial
step as it ensured the legitimization of the activity in the eyes of both the
SEs and the village community. After the first few home visits, the HLL
team was pleased to observe that the SEs participated enthusiastically. They
were keen to get on with it. The ice had been broken and the SE was on her
way to becoming a door-to-door vendor. HLL still makes sure that its reps
make home calls as a part of their daily routine, since it helps the SE to
break through.
The womens level of literacy was never a real barrier as the project is all
about people who are self-driven, people who will invest time and effort--
there is no ideal profile. Nonetheless, HLL could enhance its training and
expand the positive impact it has on rural communities beyond its strong
focus on the process of the exchange of goods and info in return for cash.
Several local aspects, such as the dropout during the harvest, need to be at
least partly accepted, but could be addressed by special financial and non-
financial incentive programs.
The results of the decisions and an outlook in respect of the C-case can be
distributed at the end of the class.
Timing
The case could be used for a short 90-minute session or a 4-hour session. In order
to save precious time in the classroom, the instructor can distribute the A-case
beforehand. Example of a 90-minute session:
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Minutes of
the flow
Focus
0-10 min Introduction to the Indian economys development and to
Unilevers strategy
10-20 min Discussion of the opportunities and threats for HLL
20-30 min Discussion of the innovative aspects of the business model
30-40 min Discussion of the channel conflict
40-50 min Discussion of the key success factors
50-60 min Distribution of Case B/Update on recent development and
problems
60-70 min Discussion of what HLL should do now to ensure its success
70-90 min Presentation of actual results as described in the C-case;
debriefing: what lessons can be learned from the case, can these
insights be generalized?
In a half-day session, students could identify answers to case As suggested
teaching questions in teams and break-out sessions. The case could also serve as
the basis of a simulation.
Suggested Reading
For instructors:
Kotler, Philip, and Nancy Lee. Corporate Social Responsibility: Doing the Most
Good for Your Company and Your Cause. New J ersey: Wiley, 2005.
Steger, Ulrich. ed. The Business of Sustainability: Building Industry Cases for
Corporate Sustainability. Basingstoke: Palgrave MacMillan, 2004.
Galea, Chris. ed. Teaching Business Sustainability: From Theory to Practice.
Sheffield: Greenleaf Publishing, 2004.
For course participants:
Prahalad, C.K. and Stuart Hart. The Fortune at the Bottom of the Pyramid.
Strategy+Business, Iss. 26, 2002: 114.
Dyllick, T. and Kai N. Hockerts (2002). Beyond the Business Case for
Sustainability. Business Strategy and the Environment, Vol. 11, Iss. 2, 2002:
130141.
A New World Economy The Balance of Power Will Shift to the East as China
and India Evolve. BusinessWeek Online, 2005.
http://www.businessweek.com/magazine/content/05_34/b3948401.htm