M.S. BANGA says that HLL’s new simplified structure allows brands to get more attention from senior people

Customer management is the new motto inside Lever House. In his fifth floor office, non-executive chairman M.S. 'Vindi' Banga is keeping a close eye on this attempt to redefine Hindustan Lever's famed sales and distribution system. "We are trying out several new ideas in channel segmentation. In the next five years, the effects will be transformational. I'd reckon we would have the next generation of customer or channel capability."

Simply put, Lever's distribution advantage - or its ability to reach millions of consumers through a hugely fragmented trade structure - is now no longer a source of competitive advantage. Many of its competitors are able to come close or even match it on product availability. So Lever is now upping the ante at two ends: urban and rural. "At urban towns, we are addressing modern self-service formats as a concern (instead of operating in different divisions)," says Arun Adhikari, managing director (home and personal care). For the rural markets, Lever is no longer relying on conventional channels to expand coverage. For instance, Project Shakti, which relies on self-help groups consisting of women entrepreneurs, is expected to connect HLL directly to one million people.

But what everyone is watching is how Lever tackles the middle piece - which accounts for the bulk of its sales. HLL is now junking its one-shoe-fits-all strategy for its trade partners. It will now finely segment chemists, paanwallas, large family grocers and kirana merchants. "Channel segmentation will enable us to offer each of them different terms of trade, promotions, credit and service levels," says Adhikari.

Remoulding Lever's mammoth sales and distribution system is no easy task. No competitor has the same level of complexity. The new customer segmentation model is, therefore, a priority in the flurry of sometimes tough changes that Banga and his team pushed through in the last four years. Says Banga: "Good companies become great through a series of initiatives done over time, consistently. There are no shortcuts to transformation. It is pain-ful, but must be done to keep companies alive to tomorrow's challenges, not just today's challenges." This transformation was, perhaps, overdue. To compete effectively now, Lever has to discover new sources of competitive advantage. Not just in distribution, but across the entire value chain.

Consider how the transformation has been sequenced. Four years ago, Lever took the decision to simplify the company. "We had a very large number of businesses, almost like a conglomerate. We decided to focus on our branded business and get out of all other business. Within that, we said we would focus on just a few brands," says Banga. Earlier this year, Lever went one step ahead and merged all the different business units into two large divisions: home and personal care (HPC) and foods and beverages (F&B). "The advantage is that these divisions get us enormous scale," says Banga.

Four years ago, Lever moved to a new frame-work of category management. With its brand port-folio whittled down from 110 to 30, resources were no longer spread thin. "Very senior people, who are on the operating management committees of the two divisions, now manage just a handful of brands each. So our brands are getting an extraordinarily high degree of attention from senior people who understand the value of brands. These people put the strategy together, so that the elements are well coordinated and the parts fit together," says Banga.

As he sees it, Lever's front-end will remain extremely focused on consumers. But at the back-end, the two big divisions will provide the scale to drive down costs substantially. To reduce the complexity, next-generation information technology will power the supply chain system. "We are moving to continuous replenishment, almost like an auto-ordering system, which will drive the supply chain all the way back and enable us to reduce inventory," says Adhikari.

Coupled with all this is a big change in the Lever culture. "We have de-layered the organisation, created a much open environment where people are encouraged to speak up, put across their point of view, hold their point of view, discuss and debate. At the same time, there is a premium on speed of action. We want people to move quickly and to work as a team, rather than as brilliant individuals," says Banga. Despite initial hiccups, Lever's new sustain-able, profitable growth model is well on its way.