HR Restructuring - The Coca Cola & Dabur Way

Abstract:

The case study 'HR Restructuring - The Coca-Cola and Dabur Way' looks at the human resource restructuring exercises taken up Coca-Cola and Dabur in the late 1990s. The case essentially brings out the different circumstances that led to the restructuring and the repercussions of the exercise. The case is designed to make the students appreciate the diverse circumstances that led to the HR restructuring exercise at Coca-Cola and Dabur. Besides understanding the necessity of restructuring an organization's human resources, the students should understand the contrast between the restructuring at the two companies. At the end of the case-discussion, the students should have grasped the following issues:

How Coca-Cola's problems led to a massive organizational restructuring exercise, with HR as the focal point. Dabur's endeavor to become an FMCG major, which necessitated organizational restructuring with HR changes as the pivotal aspect. The details of the restructuring exercise. The case is intended for MBA/PGDBM level students for their Human Resources Elective.

Issues:
HR restructuring exercises by Coca Cola & Dabur, circumstances that led to the restructuring of HR, results of those exercises

"We had grown but we hadn't structured our growth."

- Dabur sources in 1998.

"Three major strands have emerged in Coke's mistakes. It never managed its infrastructure, it never managed its crate of 10 brands, and it never managed its people."
- Business World in 2000.

The Leader Humbled

It all began with Coca Cola India's (Coca-Cola) realization that something was surely amiss. Four CEOs within 7 years, arch-rival Pepsi surging ahead, heavy employee exodus and negative media reports indicated that the leader had gone wrong big time. The problems eventually led to Coca-Cola reporting a huge loss of US $ 52 million in 1999, attributed largely to the heavy investments in India and Japan. Coca-Cola had spent Rs 1500 crore for acquiring bottlers, who were paid Rs 8 per case as against the normal Rs 3. The losses were also attributed to management extravagance such as accommodation in farmhouses for executives and foreign trips for bottlers.
Following the loss, Coca-Cola had to write off its assets in India worth US $ 405 million in 2000. Apart from the mounting losses, the write-off was necessitated by Coca-Cola's over-estimation of volumes in the Indian market. This assumption was based on the expected reduction in excise duties, which eventually did not happen, which further delayed the company's break-even targets by some more years.

Changes were required to be put in place soon. With a renewed focus and energy, Coca-Cola took various measures to come out of the mess it had landed itself in.

The Sleeping Giant Awakes

In 1998, the 114 year old ayurvedic and pharmaceutical products major Dabur found itself at the crossroads.

In the fiscal 1998, 75% of Dabur's turnover had come from fast moving consumer goods (FMCGs). Buoyed by this, the Burman family (promoters and owners of a majority stake in Dabur) formulated a new vision in 1999 with an aim to make Dabur India's best FMCG company by 2004. In the same year, Dabur revealed plans to increase the group turnover to Rs 20 billion by the year 2003-04. To achieve the goal, Dabur benchmarked itself against other FMCG majors viz., Nestle, Colgate-Palmolive and P&G. Dabur found itself significantly lacking in some critical areas.
While Dabur's price-to-earnings (P/E) ratio1 was less than 24, for most of the others it was more than 40. The net working capital of Dabur was a whopping Rs 2.2 billion whereas it was less than half of this figure for the others. There were other indicators of an inherently inefficient organization including Dabur's operating profit margins of 12% as compared to Colgate's 16% and P&G's 18%. Even the return on net worth was around 24% for Dabur as against HLL's 52% and Colgate's 34%...

Restructuring the Mess

The Coca-Cola Way In 1999, following the merger of Coca-Cola's four bottling operations (Hindustan Coca-Cola Bottling North West, Hindustan Bottling Coca-Cola Bottling South West, Bharat Coca-Cola North East, and Bharat Coca-Cola South East), human resources issues gained significance at the company. Two new companies, Coca-Cola India, the corporate and marketing office, and Coca-Cola Beverages were the result of the merger. The merger brought with it over 10,000 employees to Coca-Cola, doubling the number of employees it had in 1998.

Coca-Cola had to go in for a massive restructuring exercise focusing on the company's human resources to ensure a smooth acceptance of the merger. The first task was to put in place a new organizational structure that vested profit and loss accounting at the area level, by renaming each plant-in-charge as a profit center head. The country was divided into six regions as against the initial three, based on consumer preferences. Each region had a separate head (Regional General Manager), who had the regional functional managers reporting to him. All the Regional General Managers reported to VP (Operations), Sanjiv Gupta, who reported directly to CEO Alexander Von Bohr (Bohr)...