Strategic Disengagement

When Mohandas Pai quit Infosys in April last year, it came as a shocker to many. Mohandas Pai had a long stint at Infosys and as the CFO, he played a strategic role in transforming Infosys into one of the world’s most respected and widely known software services companies. Mohan was an integral part of the Infosys team that enabled the first listing of an India-registered company on NASDAQ and the first sponsored secondary offering of American Depositary Shares by an Indian company. He was voted ‘CFO of the Year’ in 2001 by IMA India. He won the ‘Best CFO in India’ award from Finance Asia in 2002, and ‘Best Chief Financial Officer in India’ in the Best Managed Companies poll conducted by AsiaMoney in 2004. Hence when Pai left Infosys, many rumors were floated. Although both Pai and the Infosys management denied any differences, Pai’s decision was largely seen as a discontent over the company’s strategy in choosing the CEO of the company. The idea of musical chair for the top post open only to the founders of the company, saw other deserving aspirants like Pai losig hope. “Pai should have been in line for the COO's post but the prospect of waiting out Shibulal's term with no guarantee that he would be elevated in his mid-50s to the CEO's post might have been the trigger for the decision.” Losing a seasoned player like Pai was definitely ‘no gain’ for the company.

Something similar is now blowing over HUL. The exit of three of the eight executive directors in the last 18 months, as well as managerial-exits at other levels has begun to ring alarm for the company. The FMCG giant once considered the ‘impregnable vault of top-notch talent, is now beginning to look vulnerable’. The exodus of top executives of HUL is being linked to the strategic changes affected by the Unilever CEO Paul Polman. Paul, the first outsider to assume the company’s CEO position in the last 77 years, besides consolidating the HUL business into our divisions, has brought about some changes like –

• Centralizing much of the decision-making globally.

• Forcing company to consider outside talent for every senior management role.

• Roles have become fewer, more functional, and narrower.

• Longer tenures for managers, at every level including CEO.

The impact of such changes have been reportedly –

• Lesser operational freedom for managers.

• Managers feeling stifled with paucity of growth options.

• Internal candidates unsure of their career progression.

• Global posting no longer attractive.

The company on its part claims such changes to be a part of their talent management strategy and an effort to invest in young, diverse and high-potential individuals. But even that does not explain the curbing of managerial freedom in decision-making, decline in growth opportunities even though the company is growing and career opportunities losing their panache. A competitor is reportedly netting many HUL executives.

Many years back when Indian public sector banks rolled-out VRS (voluntary retirement scheme) to allow the mediocre to have an honorable and attractive exit route, it ended-up losing its most talented employees, instead. The loss of the PSU banks, was the gain of many foreign and private banks entering the Indian scene at that time. The proposed ‘golden handshake’ turned out to be a ‘thorny-handcuff’ for the banks that were left grappling with loss of intellectual capital, high customer discontent and a stronger competition from the new players (whom they help unknowingly).

Does this mean strategic changes are not required? No, at times changes have to be affected at a strategic level, however a good strategy shall never lose its connect and sight with its people (especially talent) and with its priorities. Besides such changes should never lead to an advantage for the competitor, when in the first place that was meant to be a competitive advantage for the company itself.

Cases for Strategic Disengagement?

Great, Good & Gone!

‘Small’ one year toddler of my neighbor was playing with a ‘big’ toy car of my son. She was trying her best to push the car out of the flat into the wings of the apartment. She succeeded in pushing only the first pair of wheels out of the door but the rear pair got stuck and would not come-out despite her best attempts. She then decided to board the car and although she succeeded in sitting on the top of it after quite an effort, she could not only manage to face the rear of the car. The she tried to push the car-out again. The car, however, would not budge from its place. I was really impressed by the little girl’s valiant efforts and instinctively wanted to go and help the ‘angel-faced’ in her efforts. For me, it would be just a matter of a slight finger-push to the car to roll-it-out into the gallery. But then I thought, would she really appreciate my help? I may help her out of the parental ego of patronizing but that would take away the pleasure of performance and achievement out of her. There would be absolutely no incentive to her after my help. And, then suddenly, she managed to pull the car into the gallery. Both she and the car tumbled into the gallery rather than a smooth drive. But as she gathered herself up on her feet again, she had a winning smile on her face. I am glad, I did not help! On her part, the cute Barbie-like girl, learnt to perform and the joy of performing forever!

Performance is a powerful engager. For most organizations the key lies in creating a true culture of performance that acts as a powerful engagement tool.

Just last week, Biscuit maker Britannia Industries pink slipped 42 executives in a single day, at the same time rewarded the top performers with bonuses as high as 150%. This is not a surprise to those who know that at Britannia this is part of the ongoing performance management process, which differentiates employees into three categories - the great, good and under-performers. Each year, under-performers (usually 20 to 30) are put on a performance improvement plan and progress is consistently and carefully monitored. In those cases, where the level of performance continues to be below the acceptable benchmark and there is no noticeable improvement, employees are transitioned. The Rs 4,600-crore Britannia, which has 250 managers, has been growing at strong double digits every year for the last four-five years. In future as Britannia faces tough competition from rivals like ITC, Kraft and Parle and as it forays into a new category of cereals, the Industry experts believe that companies like Britannia are bound to get tougher on performance expectation from employees.

Britannia’s ‘great’, ‘good’ and ‘gone’ performance management policy is justified because it truly rewards the performers and motivates them to perform even better in future. The notion of treating everyone equally is flawed. That can never happen and companies like Britannia have understood and implemented them well. More than anything it helps in fostering a culture of performance that acts as a powerful engagement tool for those who do! In sharp contrast most of our government set-ups have followed a performance management policy that has never segregated performers from non-performers. Hence there was no incentive to perform. I read in the newspaper that even the government is now considering performance-based incentives to employees. Hindustan Lever Ltd (HUL) and Procter & Gamble (P&G) rewarded their India -CEOs with hefty hikes for robust growth at their respective operations. ‘Unilever for its part recorded a 15% growth in sales from emerging markets as against just 5% in the developed world. P&G's three companies India — P&G Home Products, P&G Health & Hygiene and Gillette India — registered double-digit growth in the last fiscal year.’ Both companies believe in paying for performance and paying competitively to all its employees.