Wednesday, July 2, 2014

2014 - Infosys - Chairman AGM Speech - Measuring Productivity of Individual Software Engineers

In his AGM speech, Mr. Narayana Murthy stated that Infosys has developed a system to measure individual productivity of software engineers to provide them an assessment to act as motivating device to improve productivity.

Hear it on video

2013 - ITC Chairman AGM Speech - Building World Class Brands for India

Chairman Speaks - 2013

Webcast of Chairman's AGM Speech
ITC: Creating  Enduring Value
Building  World-Class Brands for India

Speech by the Chairman, Shri Y.C. Deveshwar, at the 102nd Annual General Meeting
on 26th July, 2013

It gives me much  pleasure to welcome you to the 102nd  Annual General Meeting of your Company.

I am sure you share my sense of satisfaction at yet another year  of robust growth of your Company. This performance is even more heartening  given the challenging circumstances in the global economy and the slowdown in  India.

It also bears testimony to the robustness of your Company's strategy  of pursuing multiple drivers of growth. This portfolio of traditional and  greenfield businesses has built a strong foundation to power the ITC of  tomorrow and create enduring value for the Indian society.

As in earlier years, I would like to first present to you the  highlights of your Company's Triple Bottom Line performance for the year gone  by.

ITC: Triple Bottom Line Performance

Gross Revenue for the year grew by 19.9% to over Rs 41,800 crores.  Net Revenue at over Rs 29,600 crores was primarily driven by a 26.4% growth in both  the non-cigarette FMCG as well as the Agri business segments. Profit before tax  increased by 20.1%, crossing the Rs 10,000 crore milestone, while Net Profit  grew by 20.4% to over Rs 7,400 crores.

The non-cigarette segment net revenue has grown 14-fold from about Rs  1,360 crores in 1996 to nearly Rs 19,500 crores in FY13. As a result, 58% of  net segment revenue of your Company is now from businesses other than  cigarettes.

Apart from being the country's leading  FMCG marketer, your Company is also the clear market leader in the Indian  Paperboard and Packaging industry, a globally acknowledged pioneer in farmer  empowerment through its wide-reaching Agri Business, the second largest Hotel  Chain in India and a trailblazer in 'green hoteliering'. Your Company's wholly-owned  subsidiary, ITC Infotech, is one of India's fast-growing IT companies in the  mid-tier segment. This portfolio of rapidly growing businesses considerably  enhances  ITC's capacity to generate growing value for the Indian economy.

Your Company is also one of the most influential stocks in the Indian  bourses and has created substantial value for its investors over time. Market  capitalisation, which stood at Rs 5,570 crores in 1996, has multiplied 50 times to around Rs 2,90,000 crores.  Total Shareholder Returns, measured in terms of increase in market  capitalisation and dividends, have grown at a compound annual rate of nearly 27%  during this period.

It is also gratifying that your Company's exemplary sustainability  initiatives continue to receive accolades and global recognition. ITC has been  ranked No. 1 as the 'Most active in CSR' for two successive years in the  Nielsen Corporate Image Monitor. The Bombay Stock Exchange recently instituted  two indices titled 'GREENEX' & 'CARBONEX' evaluating several green  operational parameters, including carbon performance. It is a matter of pride  that your Company has been assigned the highest weightage in both the indices.

ITC continues to be the only enterprise in the world of comparable  dimensions to be carbon, water and solid waste recycling positive. These global  environmental distinctions have been sustained even though your Company's  operations have grown substantially over the years. Your Company has been water positive for 11 consecutive years; carbon  positive for 8 years now and solid waste recycling positive for the last 6  years.

New benchmarks are being  attained with renewable energy constituting over 41% of ITC's total energy  consumption. This is a remarkable achievement given the scale and spread of  your Company's units. Several factories as well as 5 premium luxury hotels and  the ITC Infotech Park in Bengaluru, meet 100% of their power requirements from  wind energy. The iconic ITC Grand Chola, unveiled in Chennai last year,  achieved the distinction of being the world's largest LEED (Leadership in Energy and Environmental  Design) Platinum certified hotel in the New Construction category. It was also  awarded India's first 5 Star GRIHA (Green  Rating for Integrated Habitat Assessment) rating by the Ministry of New and  Renewable Energy. This is yet another laurel for ITC Hotels, reinforcing its unique  position as the greenest luxury hotel chain in the world with every hotel in  the chain being LEED Platinum certified.

Your Company's businesses and the associated value chains today  support sustainable livelihoods for more than 5 million people, representing  some of the weakest in our society. I am sure this large-scale and meaningful  contribution of your Company to the national goal of sustainable and inclusive  development gives you justifiable pride and a sense of great satisfaction.

A proud moment this year was the global recognition from one of  the world's most respected publications. Based on ITC's consistent triple  bottom line performance over 15 years, the Harvard Business Review in January 2013  ranked your Company's Chairman as the 7th Best Performing CEO in the world. I  would like to take this opportunity, on behalf of the Board, to thank you and  all stakeholders of ITC, including every member of Team ITC, for the unstinted support  throughout this eventful journey. Your collective commitment provides the  inspiration to attain newer heights of success for your Company in the future.

India's economic challenges

Five years after the outbreak of the global financial crisis, the  world economy continues to remain fragile. The Indian economy demonstrated  remarkable resilience in the initial years of the contagion but finally lost  ground last year. GDP growth slowed down to a 10-year low of 5%. There was a  marked deceleration in agriculture, industry and services. Dampening sentiment  led to a cut-back in investment as well as private consumption expenditure -  two principal drivers of growth. Inflation remained at high levels fuelled by  the pressure from the food and fuel sectors. The large fiscal and current  account deficits continued to cause grave concern.

It is imperative that India regains its growth trajectory of 8-9% sooner  than later. This is crucially important given the need to create gainful  livelihood opportunities for the millions living in poverty as also the large  contingent of young people joining the job market every year. Therefore, the  core challenges that constrain high rates of growth must be addressed  comprehensively and speedily. Foremost among them is the urgent need to contain  and find a longer-term solution to deal with Inflation, the Fiscal Deficit and  the Current Account Deficit. The Government has announced several policy  measures in recent times to tackle these challenges. It is hoped that investor  and consumer sentiment would get re-ignited to put the country once again on a  high growth path.

To my mind, one of the  most critical problems hindering India's growth prospects is the unsustainable Current  Account Deficit. The persistently large deficit reveals that the country is yet to  attain international competitiveness in several segments of its economy. This  is starkly manifest in the composition of India's trade basket. Imports are  largely of high-value added goods and services, while exports comprise mostly  commodities or relatively lower-value added products and services. It is a  matter of concern that even the non-oil, non-gold imports have risen so sharply.  For long-term macro-economic stability, it is desirable that the trade account gets  balanced on the strength of the competitiveness of Indian goods and services in  the export markets rather than on capital flows to finance the deficit. Competitiveness  will create the conditions for higher value-added exports and reduce reliance on  a falling rupee. Similarly, it can contribute to a larger degree to import  substitution to stem the over-dependence on high value-added imports.

Therefore, it is very  clear that the only sustainable solution to tackle the large Current Account  Deficit is to create extreme competitiveness in higher value-added goods and  services. That  is indeed a daunting task but one that holds the promise of transforming the Indian  economy into a high-value creating engine of growth to service the domestic as  well as export markets.

It is my belief that  tomorrow's world belongs to those who create, nurture and own intellectual property. Such assets form a  superior basis for sustaining competitive advantage over the long run. The  large current account imbalance also reveals the paucity of domestically owned intellectual  property assets. This in turn creates an over-dependence on foreign  intellectual property to service even the home market. As a consequence, there  is an increasing outflow of payments to overseas entities on account of charges  for the use of their intellectual property resident in patents, trademarks,  copyrights, industrial processes, designs and so on. These transfers are over  and above the large deficit on account of merchandise trade. This over-reliance  on foreign-owned intangible assets constitutes an in-built source of future unsustainability  of the current account imbalance. Therefore,  creation of intellectual property assets is a vital pre-requisite for attaining  international competitiveness.

The Indian Global Market: Dominance of Foreign Brands

In recent times, several media reports have drawn attention to the  extraordinary increase in royalty payments to overseas entities. The ET  Intelligence Group in one such report brought out that royalty payments by  Indian arms of top MNCs have trebled over the past 5 years. The report points  out that in FY12, 306 listed companies paid royalty and technical fees  aggregating almost Rs 35,000 crores. A similar analysis by Business Standard of  75 BSE500 companies reveals that these firms paid out royalty equivalent to 32%  of their net profits in FY12.

It is perfectly legitimate that owners of intellectual property seek  returns for the use of their assets. However, these media reports have highlighted  that the sudden surge in payments took place following the removal of the ceiling  on royalty payments in December 2009. These reports seem to suggest that a  substantial part of this increased outflow was on account of payments made by the  Indian subsidiaries to their overseas parent for the use of brand names  established several decades ago. It was further indicated that this spurt in  payments did not reflect any noteworthy value-addition from technology transfer  by the foreign entities. These media articles also expressed concern at the  adverse impact of this huge outflow on minority shareholders and on the  exchequer.

Reflecting on these reports, it must be said that the concerns  expressed are not without merit. At the core of this issue is the increasing  consumption of foreign-owned brands by a rising population with growing per  capita income. These range from run-of-the-mill to high-end luxury products. A  closer look, however, reveals an unnerving picture. Today, even for items of  daily consumption, the brands consumed by millions of households in India are  predominantly owned by overseas enterprises.

The list is large and  unending. Be it baby food, baby care products, home care & personal care  products, toothpastes, toothbrushes, shaving creams, razors, breakfast cereals,  snack foods, tea, coffee, cosmetics, soaps, shampoos, detergents, dish  cleaners, beverages, ice creams, chocolates, confectionery, non-generic pharmaceuticals,  washing machines, music systems, personal computers, laptops, refrigerators,  mobile phones, televisions, cameras, air conditioners, apparel & fashion  accessories, stationery products, toys, console games, sports and fitness  equipment, luggage, diapers, sanitary napkins, burgers and pizzas, automobiles  and many others, including even packaged drinking water, the leading brands in  the Indian market are the property of foreign enterprises. Every time these  products are consumed, value flows out of the country to pay for trademarks  used, licences provided, services consumed and so on. With rising aspirations  and growing disposable incomes, this outflow has the potential to increase  exponentially over time. These foreign brands have so much been a part of the daily lives of  Indian households, and for so long, that most people would genuinely think that  they are Indian brands. A majority would have no inkling that every purchase  would send value out of the country to the foreign owners.

This unenviable situation is indeed a disheartening reflection of  the competitive capacity of India's home-grown brands. Despite so many years of  Independence and the country's multi-dimensional strengths, it is a sad augury that  we do not possess globally competitive brands created by Indian enterprises.  True, there are worthy exceptions. Indian consumer brands such as Airtel, Amul,  Bajaj, Godrej, Hero, Mahindra, Reliance, Tata, amongst others have found a  pride of place in Indian households. Yet these examples are few and far  between. For the most part, India's market space has been abdicated to  foreign-owned brands.

Be that as it may, apart from a re-examination of the merits of  the revised policy currently in force, this issue also needs to be looked through  a different lens altogether. Instead of  bemoaning the huge outgo in terms of royalty or other payments, it is much more  important to align national and corporate energies to create world-class Indian  brands. Domestic enterprises must build globally competitive brands that  can compete with the best in the world on equal terms. In the first instance, such  brands by gaining larger franchise in the Indian global market would reduce the  outflow on account of consumption of foreign brands in India. Over time, such  world-class Indian brands can aspire to win global markets generating an  additional flow of wealth into the country.

Need to Build Innovative Capacity and World-Class Indian Brands

World-class brands lend a huge intangible value to products and services  enabling them to command a premium and loyalty from consumers. Truly  world-class brands are an asset that transcends cultural, geographical and  sovereign borders to continuously enrich their owners. Moreover, successful  brands reflect the innovative capacity of the countries of their origin. When a  country's institutions build world-class brands, they enrich their economies. For  example, the net sales of Samsung is equivalent to 20% of the GDP of South  Korea. A successful global brand is a  badge of honour for the country it belongs to, and a sustained source of wealth  creation.

The mission to create  world-class brands in India must therefore assume the fervour of a national  movement. Such world-class Indian brands will help create, capture and retain larger  value for the Indian economy. In addition to spurring investments and growth, such brands can  become a force multiplier for inclusive and sustainable development. By serving  as market anchors, these brands can lend relative stability to drive the  competitiveness of the entire value chain of which they are a part. This in  turn can further empower the weakest in the economic value chain and generate considerable  sustainable livelihood opportunities so critical for our country.

Progressively, world-class Indian brands can contribute increasingly  to import substitution, value-added exports as well as larger value-capture  from global markets. This will transform the country from one dominated by  foreign brands to a player of substance in the global arena. One dreams of a day when Indian brands  become household names across the world, standing for superior R&D,  impeccable quality and enduring trust. This is not only a matter of national  pride but an economic pre-requisite if we are to gain equitably from a  globalised world. There is no reason  why the collective might of India's genius cannot rise to this challenge of  making India globally competitive.

Despite outstanding entrepreneurial talent, there is no escaping  the fact that India cannot boast of globally competitive brands barring a few  exceptions mentioned earlier. The moot question therefore is - why is it that the  country has not been able to create brands that are in a position of leadership,  even for domestic consumption? Building world-class brands is a gigantic task,  especially where international brands have had an overwhelming head start and a  learning curve spanning multiple decades.

Creation of a new generation of world-class brands demands  tremendous staying power with substantial investment commitments over the long haul.  It requires deep consumer insight, continuous nurturing of Research & Development,  differentiated product development capacity, brand-building capability, cutting-edge  manufacturing, and an extensive trade marketing and distribution network. Above  all, it demands a determination to succeed against all odds. It is perhaps for  this reason that some successful Indian brands, built during a relatively  protected pre-globalised period, had to succumb to the might of international  players, post the opening up of the Indian economy.

It is noteworthy that the developed countries of the world dominate  their domestic markets with their own brands. These brands create tremendous  value for their countries by serving both domestic and global markets. Closer  home, South Korea and Japan offer a case study of how world-class brands were  built as a national priority. India can take a leaf out of their books to  create a nurturing environment that supports the efforts of domestic  enterprises engaged in building world-class brands.

ITC: Aspiring to Build World-Class Brands for India

Your Company is inspired by the vision to create world-class  brands for India. Over the last few years, it has strived relentlessly towards  the realisation of this super-ordinate goal. The mission is to create unique products, born out of deep consumer  insight, to win growing consumer franchise and build world-class brands that  would progressively dominate the Indian global market.

In my earlier addresses, I have expressed ITC's aspiration to be  the No.1 player in the FMCG sector in India, without taking into account its cigarette  business. This is evidently an audacious aspiration and one that may not  necessarily be realised in my own lifetime. I, however, wish to place ITC  firmly on the path to such accomplishment. I am confident that sooner than  later, your Company's aspiration will be realised on the strength of the collective  passion that has ignited Team ITC in the pursuit of this goal.

You, the shareholders, can draw confidence from the promise  visible in the early successes registered by your Company. Significant consumer  franchise has been gained in a relatively short span of time for a range of consumer  products. Your Company's new FMCG businesses  have gained considerable traction with top-line having exceeded Rs 7,000 crores  in the year gone by. This growth has been rated by a recent Nielsen Report  to be the fastest among the consumer goods companies operating in India. With your support and all going well with a  conducive environment, it is within the realm of possibility that your Company  can achieve a turnover of Rs 1,00,000 crores from its brands in the new FMCG  businesses by 2025/30.

Indeed, the journey has just begun and there are many miles to go.  The progress is encouraging and bodes well for the journey ahead. Your  Company's brands such as 'Aashirvaad' and 'Sunfeast' have already garnered  annualised consumer spends of over Rs 2,000 crores each. 'Aashirvaad' atta is  the clear market leader in its segment. The 'Sunfeast Dark Fantasy' brand has  also emerged as a market leader in the premium cream biscuits category. In the confectionery  business, your Company's brand 'Candyman' is the leader in its operating  segment. ITC's 'Kitchens of India' brand leads the gourmet cuisine Ready-to-eat  packaged foods market. Within a short time, your Company's instant noodles  'Yippee!' brand has moved to the 2nd position rapidly gaining market share. In  addition, the 'Classmate' brand of notebooks and scholastic products has  notched up a consumer spend of Rs 1,000 crores while 'Bingo!', 'Candyman' and 'Vivel'  are estimated to have attracted consumer spend of over Rs 500 crores each.

The consumer response to your Company's Personal Care brands such  as 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel' and 'Superia' show promise. The  recently launched skincare brand 'Cell Renew' and the 'Engage' brand of deodorants  have both been well received. ITC's apparel brands 'Wills Lifestyle' and 'John  Players' have garnered an impressive consumer franchise in a market replete with  foreign brands. One or the other of your Company's apparel brands is available  in nearly 2,500 outlets spread across the country.

India is perhaps the only country in the developing world where  domestic world-class cigarette brands nurtured by your Company have been able  to outclass any foreign brand by a long margin. The threat from foreign brands,  however, is growing due to the exponential growth of contraband cigarettes induced  by the high rates of Central & State duties imposed on domestic manufacture.

The leadership of our cigarette brands provides the basis for the  cash flows that are enabling the creation of world-class Indian brands in  multiple consumer segments. They are also the basis for building the  capital-intensive Hotels and Paperboards businesses. Along with Packaging, Information  Technology and Agri Businesses, these together constitute vital assets that  enable your Company to contribute to all the three sectors of the economy - namely,  agriculture, manufacturing and services. These assets have also enabled your  Company to be a net earner of Foreign Exchange. In the last decade, ITC group's  foreign exchange earnings exceeded US$ 5.4 billion.

ITC Brands: Anchoring  CSR and Environmental Sustainability

Your Company's brands anchor the competitive development of value  chains extending to the country's rural areas and backward regions.

Brands such as 'Aashirvaad', 'Sunfeast', Yippee!', 'Bingo!',  'Kitchens of India', together with your Company's Agri Businesses and the ITC e-Choupal initiative, have empowered  over 4 million farmers. The ITC Choupal  Integrated Watershed Development initiative provides soil and moisture  conservation to over 1,20,000 hectares. The ITC Choupal Livestock programme has provided Animal Husbandry  services to over 8,00,000 milch animals, thereby strengthening the dairy value  chain and creating livelihood opportunities. The ITC Choupal Women's  Empowerment programme, has benefitted more than 40,000 rural women, and is  supported by the Agarbatti value chain powered by ITC's Mangaldeep brand. These  deep rural linkages, nurtured over the years, have remarkably enriched the rural  eco-system in areas where your Company operates.

ITC's brands in packaged consumer goods as well as education and  stationery products anchor the ITC  Choupal Social and Farm Forestry  initiative. This programme has greened over 1,45,000 hectares, providing  more than 65 million person-days of employment opportunities to poor tribal  communities and farmers. Renewable plantations enable your Company to offer the  greenest paper and paperboards manifest in its stationery brands such as 'Classmate'  and 'Paperkraft' and in the packaging of branded consumer goods.

'ITC Hotels', with its credo of Responsible Luxury, is a  world-class brand that has redefined the fine art of green hospitality,  contributing to the nation's tourism landscape and as a multiplier of  employment opportunities. Its cuisine excellence is legendary with globally  acclaimed branded restaurants, such as 'Bukhara', 'Dum Pukht', 'Dakshin',  'Peshawari', 'Royal Vega' and 'Pan Asian'. Your Company's contribution to the  tourism sector is further enhanced by brands such as 'WelcomHotel', 'Fortune'  and 'WelcomHeritage'.

ITC: Building Innovative  Capacity

The ability to innovate and create unique products based on deep  consumer insight is at the heart of gaining sustainable consumer franchise. Product  development based on cutting-edge Research & Development, ownership of  unique intellectual property, development of proprietary technology and  know-how are the levers that can move the markets of tomorrow. Recognising  this, the dedicated state-of-the-art 'ITC  Life Sciences and Technology Centre' has been expanded and nurtured over  the years as an integral part of your Company's endeavour to be in a state of future-readiness  at all times. A large pool of highly qualified scientists with global exposure  is engaged in finding solutions which we hope will enrich consumer experience  in many ways. Your Company takes pride in its fraternity of scientists, who are  deeply charged by the inspiration to build a new India. They are indeed  contributing to a national cause of building intellectual property in India,  sowing the seeds for tomorrow's world-class brands and the basis for the  country's progress in the future.

Need for a Balanced Policy Framework

Your Company's progress towards building world-class Indian brands,  though impressive, is still in its infancy. The challenge of Indian brands  gaining an equitable share of even the domestic middle-class consumer spend  looks daunting. With the progressive rise in per-capita income, and 10-15  million youth coming into the job market every year, consumption of branded  goods will grow exponentially in the coming years. Given the overwhelming  dominance of foreign brands in the domestic market, and with the removal of the  ceiling on royalty payments, this can further aggravate the current account imbalance.  Such a source of imbalance would be intractable as it would flow directly from  domestic consumption linked to consumer preference and habit. It is therefore  imperative that the policy framework is reviewed with an added objective to  create an environment that helps build and nurture world-class Indian brands in  every consumer segment of the domestic market.

It is my belief that the removal of caps on payments such as royalty  was well intentioned. It was with the objective to create conditions for the  inflow of technology, know-how and investment in areas critical for India's  growth and development. There should certainly be no restrictions or Governmental  intervention in transactions between two unrelated parties carried out purely  on a commercial and arms-length basis. However, such limitless freedom can be  misused as an instrument of tax avoidance between two related parties and thus pose  a significant risk to the Indian exchequer and to the Current Account balance.

As I have stated earlier, a long-term sustainable solution is to  build India's own Intellectual Property in all important spheres ranging from  pharmaceuticals, consumer goods to services. As things stand today, tax accrual  to the Indian exchequer can be significantly reduced by virtue of ownership of brands  overseas. This is due to the considerable difference in Withholding Tax on  royalty payments and the rate of Corporate Income Tax providing an arbitrage  opportunity. This unintentionally incentivises the foreign-owned brands as well  as the development of intellectual property overseas.

The policy framework  should be such that encourages the flow of technology, know-how and investment  into India and yet prevents misuse as an instrument of tax arbitrage between  related parties.

The last Budget tried to bridge this lacuna by raising the  withholding tax to 25%. In effect however, in almost all cases, this higher  rate of withholding tax is not applicable due to the much lower withholding tax  enshrined in the tax treaties. As a consequence, the potentially growing  adverse impact on tax collection will need to be bridged by an additional  burden that Indian enterprises will have to bear, further constraining their  ability to build world-class brands.

It is vital that the policy environment incentivises the creation  of Indian brands. For example, since  foreign brands entail a royalty outflow, a similar percentage of turnover of  Indian brands should also be admissible as a deductible expense for the  computation of corporate tax to create a level playing field for domestic  enterprises. These resources can then be deployed for the development of intellectual  property in India as well as for brand building purposes. In fact, a larger  deduction should be admissible for new brands for the first 10-15 years of  their existence.

It goes without saying that the most durable solution to manage  the Current Account Deficit lies in making the Indian economy globally  competitive in value-added goods and services. As stated earlier, the future will indeed belong to those who  have the foresight and endurance to create unique and differentiated  intellectual property assets.  It is primarily  by developing such a repertoire of intellectual property and brands that  sustainable wealth and livelihood opportunities can be multiplied in the  country.


The journey to create world-class brands in India by domestic  enterprises will remain extremely challenging. Multinational Corporations have  the benefit of vast resources that lend staying power over the long run. Yet it  is important not to relent, and not to give up. India's abilities are second to none and have been celebrated across  the world. It is now important to harness these energies to create world-class  Indian brands that will bring pride to our country.

Your Company has left no stone unturned to move ahead on this  journey based on the strength of its convictions, its proven capability to  create winning brands and an abiding vision to put Country before Corporation. It  is indeed fulfilling to witness the growing franchise for your Company's young  brands, and to know that these vital brands have created much larger value in  the form of sustainable livelihoods and environmental replenishment. This exemplary triple bottom line  performance, to my mind, is the most enduring contribution of your Company to  our Country and to society at large.

The aspiration to create world-class Indian brands is your  Company's commitment towards creating Enduring Value for our nation - a  commitment that is now proudly expressed through the new tag line that adorns  the ITC logo. I hope that every time this logo is seen in your Company's  products and services, in the physical infrastructure manifest in its assets,  and in the social initiatives that span across the country, it will remind our  stakeholders of ITC's timeless commitment to create Enduring Value and of our  resolve to always put India First.

As we  move towards new horizons, I draw strength from Team ITC and from their  dedication to take your Company to even greater glory in the coming years.

As I  conclude, may I on behalf of the Board and the employees of your Company once  again thank you, our valued shareholders, for your continued support and  encouragement.

Thank you, Ladies & Gentlemen.

2014 - HUL Chairman's Speech at AGM - Building a Future Ready Organization

Building a Future Ready Organisation

Harish Manwani - 2014

Building a Future Ready Organisation was the subject of the speech, delivered by
Mr Harish Manwani, Chairman, Hindustan Unilever Limited,
at the Annual General Meeting held on 30 June 2014.


Section One: Introduction

We live in an increasingly interconnected world that is changing
faster than ever before. In fact, change is ‘the new normal’ and if
anything the pace of change in future will be even faster than it
is today.

Take connectivity for instance. It took almost 50 years after the
invention of the telegraph before the first telephone was
invented. It was another 50 years before we saw the television.
But in less than half the time it took to move from the telegraph
to the television, we witnessed the rise of computers, the
invention of the mobile phone and the advent of the Internet.
Now we have the power of the telegraph, telephone, radio,
television, computer and Internet all in one device that can fit in
our palm.

The pace at which these technologies have been adopted in
India is unprecedented. The spread of mobile connections is a
telling example. The first mobile phone call was made in 1995.
In less than 20 years, mobile connections are now all pervasive
and have in fact far surpassed landline connections, a service
that started more than a century earlier.

Last year, I had spoken about the volatile, uncertain, complex
and ambiguous, or VUCA world, we operate in. This VUCA
environment marked by continuous and dramatic change


poses opportunities and challenges for businesses. It requires
companies to change the way they operate and constantly
reinvent themselves.

The list of those who failed to reinvent themselves and
succumbed to the VUCA environment is long and instructive. The
Eastman Kodak Company is just one on that list. The iconic brand
that was synonymous with photography in the era of darkrooms
and films actually invented the first digital camera, but later filed
for bankruptcy after failing to fully respond to the sweeping
changes of the digital era.

On the other hand, there have been companies that have
continuously innovated to meet the requirements of our fast-
changing times and thrived. For example, Apple and Google have
grown and cemented their leadership positions on a wave of
innovations. Innovations like Google Glass, a wearable
computing device and Google Fiber, an Internet service with a
speed of 1Gbps are already looking ahead to meet consumer
needs of the future. Apple’s latest offering of the iBeacon allows a
phone to direct a driver to the nearest open spot in a parking
garage or the shortest line at a food counter in a crowded theatre.

Section Two: India at the forefront of change

In developing countries like India, the last couple of decades have
been marked by momentous change. Over the last 20 years, GDP
per capita in India has nearly tripled from USD 517 to USD 1415.
Poverty levels have halved from 45% in 1994 to 22% in 2012. In
spite of recent economic challenges, India is poised to become
the third largest economy in the world by 2030. About 25 years
ago, only 3% of India’s 600,000 villages enjoyed telephone
services. For urgent communication, people would rely on what
was commonly known as the ‘taar’, the telegraph service. Today,
there are over 875 million mobile phone subscribers in India and
the ‘taar’ is history, with the telegraph service shuttered last year.
In fact, today the penetration of mobile phone is higher than any
traditional media in many rural areas.

This connectivity is allowing India to leapfrog. It is increasing the
productivity of our farmers by providing easy access to
agriculture-related information, eliminating intermediary non-
value adding players and opening opportunities for micro-
enterprises, thus fundamentally improving everyday life for
millions of people. It is therefore not surprising that the country’s
digital and e-commerce market is booming. In fact, in 2013, the
Indian e-commerce market grew at a staggering 88% according
to a survey by The Associated Chambers of Commerce and
Industry of India. With the growing penetration, accessibility and
affordability of smartphones, over 25% of the total Internet
transactions in India are done via mobile devices.

Companies that have tapped into this evolving class of Internet
savvy consumers experienced unprecedented growth. Case in
point: five years ago, Bengaluru based e-commerce website,
Flipkart, began as a start-up with an investment of just
INR four lakh and today, reportedly generates USD one billion in
annual sales. The success of such e-commerce portals is
spawning an online retail revolution in India.

Technology and easier access to information and knowledge
have opened up employment opportunities resulting in a new
wave of people entering the consumption cycle. We are
witnessing a significant increase in the earning power of
consumers at the bottom-of-the-pyramid as they join the
increasing middle class population in India. The traditional
socio-economic pyramid is rapidly transforming itself into a
diamond with a burgeoning middle class and a decreasing
number of low-income consumers. This is increasingly true of
India and many other developing economies and offers huge
opportunities for business.

A company that is future ready will not only be able to seize the
opportunities these changes present, but also protect itself from
the challenges of the VUCA world.

Section Three: Building a future ready organisation

Being future ready means having the vision and the capabilities to compete in the world of tomorrow, and having a larger purpose to remain relevant to society.

At Unilever, we have a five-pronged approach to remain future ready – first, embracing technology and inclusive innovation that meets the needs of consumers across the socio-economic pyramid; second, committing to sustainable and responsible growth; third, building future ready talent and capabilities; fourth,
values-led and purpose-driven leadership; fifth, creating an agile and inclusive work culture.

a) Technology and inclusive innovation 

India is a vast nation with widespread socio-economic diversity.
Technology and innovation allow us to anticipate and better serve
the needs of the many different Indias. There are huge
opportunities in meeting the needs of the rising middle class as
well as the aspiring low-income consumers.

The urban middle class consumers are changing the way they
shop and buy. These consumers are researching brands and
products, comparing prices across multiple locations and are
open to ordering from anywhere, anytime. These consumers are
ready to try new products and services and are willing to spend on
brands that match their aspirations.

In India, to be truly future ready, one has to leverage technology to
cater not only to the rising middle class but also to consumers at
the bottom-of-the-pyramid. As the late Prof C K Prahalad and
Dr R A Mashelkar put it, the way forward for companies is inclusive
innovation. An enlightening example would be that of Aravind Eye
Care, an organisation that has dramatically altered eye care in
India by bringing the price of intraocular lenses down to a tenth of
international prices and making cataract surgeries affordable for
low-income consumers. Today, the company markets its products
in more than 130 countries. Similarly, Arunachalam


Muruganantham, a social entrepreneur from a village near
Coimbatore, has invented a low cost sanitary pad making machine
which can manufacture sanitary pads for less than a third of the
cost of conventional commercial pads. Low-cost business models
are thus changing the way we serve millions of consumers.

At Unilever, the approach of developing innovations with consumer
price as the starting point is at the heart of our inclusive innovation
strategy. In Hindustan Unilever Limited (HUL), we have
institutionalised a ‘challenge cost’ mindset where the target price
for consumers drives innovation in each segment and category.
This has helped us to develop several new market segments in
Home Care, Personal Care and Foods. Pureit is a more recent
example of this approach.

Pureit addresses one of the biggest technological challenges of
the century – that of making safe water accessible and affordable
for millions. It provides one litre of ‘as safe as boiled’™ water at a
running cost of just 28 paise without the hassles of boiling, the
need for electricity or continuous tap water supply. Pureit has
emerged as the largest selling water purifier brand in India and
has now been introduced in several other countries, protecting 58
million lives globally.

Reaching up and reaching wide
We continue to leverage advancements in technology and
connectivity to strengthen our collaboration with customers in
modern trade and simultaneously expand our distribution reach in
deep rural areas. We call this reaching up and reaching wide.


We identified modern trade as a key growth driver over a decade
ago when the channel was still at a nascent stage in India and
invested in technology and capabilities to strengthen our
partnerships with customers.

We launched a state-of-the-art Customer Insight and Innovation
Centre that provides us with a platform to collaborate with our
customers and co-create marketplace ideas to win with
shoppers. We have improved upon our service delivery standards
by leveraging technology for demand sensing. We have deployed
a collaboration tool with most of our large modern trade
customers which has helped us achieve an all-time high on-shelf
availability in these stores. The Best Supplier of the Year award
bestowed upon us by key modern trade customers is a
recognition of our partnership and the value that these initiatives
have added to their business.

In 2013, we used technology to expand our direct distribution
reach in both urban and rural markets. By GPS tagging retail
outlets, we were able to identify and prioritise the geographies
that presented an opportunity for direct distribution expansion.
We now service over three million retail outlets directly helping to
further improve availability and access to our products.

We developed new low-cost distribution models that use
technology to leverage the increasing penetration of mobile
phones among small retailers. Taking orders through telecalling
saved time and cost, and enabled us to reach outlets
which were outside the purview of our traditional distribution


model. Through Project iQ, a technology-based analytics
capability, we enabled sales people to make shorter and more
effective sales calls.

Similarly, to strengthen our reach in deep rural areas, we
deployed a low-cost mobile IT solution that enables thousands
of our Shakti Ammas (rural women entrepreneurs) to take and
bill orders, and manage inventory in real time. This has made
the Shakti Ammas more productive and helped them to further
enhance their incomes.

Digital marketing
The Internet is changing the way brands engage with
consumers. There is a blurring of lines between advertising and
editorial; between ‘paid’ media in conventional channels and
‘owned’ and ’earned’ media in emerging digital channels.
Mobile, social media and big data are transforming the very
nature of marketing.

We were early in recognising this trend as a game changer. We
have not just significantly increased our investment in digital
media but are also innovating to increase our impact in this
space. Last year, we launched the ‘Media Lab’ which helps our
brands deliver engaging brand experiences in an effective
manner across Internet enabled mobile devices and platforms.

Drawing on the insight that Bollywood-related searches are
among the highest online content sought by users in India, HUL
has launched Bollywood Buzz on YouTube. Our brands are able
to effectively deliver brand messages to consumers by creatively
weaving in brand content with exclusive pre-release film content.

Another example of our brands leveraging digital to effectively
engage with consumers is the ‘BeBeautiful’ initiative. HUL beauty
brands have come together to develop and launch ‘BeBeautiful’
as an online beauty expert platform. The recent vlogging (videoblogging)
campaign by ‘BeBeautiful’ has been a tremendous
success achieving 20 million video views in just six months.

Perhaps the most exciting initiative has been the launch of ‘Kan
Khajura Tesan’, a mobile marketing initiative aimed to help our
brands engage with low-income rural consumers in media dark
areas. ‘Kan Khajura Tesan’ has been globally recognised with the
prestigious Lions Gold awards at Cannes Lions International
Festival of Creativity this year.

b) Sustainable and responsible growth 

As the less developed economies grow, demand will rise
dramatically; but we live in a world with finite resources. Large
numbers of people still remain out of the modern day economic
system — we still have one billion people going to bed hungry
every night, 2.8 billion people short of water and 2.3 billion people
living without access to basic sanitation.

We are convinced that businesses that address the needs and
aspirations of consumers as well as social and environmental
challenges will thrive in the long term. This is the foundation of
what it means to be future ready.

Unilever’s journey towards building a future ready organisation
gained momentum and direction in November 2010 when we
launched our ambitious Unilever Sustainable Living Plan
(USLP). The Plan aims to double the size of our business while
decoupling our growth from our environmental impact and
increasing our positive social impact. This thinking lies at the
heart of our business and is now being firmly embedded across
every part of the organisation.

i) Brands at the forefront of social change
We believe that every brand should serve a purpose in the life of
the person who buys it. This belief has been at the forefront of
how we build purpose-driven brands and we continue to leverage
them to create positive social impact. For instance, Lifebuoy now
runs one of the largest handwashing programmes in India.

Last year, we launched the ‘Help a Child Reach 5’ campaign in
Thesgora, a village in Madhya Pradesh, known for having one of
the highest rates of diarrhoea in India. The campaign aims to
eradicate preventable deaths from diseases like diarrhoea by
teaching lifesaving handwashing habits, one village at a time.
The results have been tremendous, with a staggering 86% drop
in the incidence of diarrhoea in Thesgora. The campaign is now
being rolled out to villages across 14 countries.

Another example is Domex, our leading toilet cleaner brand,
which launched the Domex Toilet Academy last year with an aim
to assist in eradicating open defecation by providing access to


improved sanitation. Our water purifier brand, Pureit in
partnership with Population Services International has been
working towards providing safe drinking water at a minimal cost
to families in rural areas.

ii) Enhancing livelihoods — sustainable agriculture
Being future ready also means caring for your environment and
investing in sustainable supply chains. We are working with
smallholder farmers to help them implement sustainable
methods while significantly improving their crop yields. We help
them adopt good agricultural practices like drip irrigation,
nutrient management, pest and disease management. In 2013,
80% of the tomatoes used in Kissan ketchup were from
sustainable sources. We already source 100% of our palm oil
from sustainable sources backed by GreenPalm certificates.

In fact, we have integrated our sustainable sourcing initiatives
into the business through our ‘Partner to Win’ programme. This
not only enables our supplier partners to ensure sustainable
sourcing across their value chain but also secures our sourcing
needs for the long term. As Unilever, we are already sourcing 48%
of our global raw materials sustainably and are committed to
make this 100% by 2020.

To address the impact of depleting water resources on food,
energy and livelihoods, we set up the Hindustan Unilever
Foundation (HUF) in 2010. HUF partners with NGOs, government
agencies and members of the local community. It currently runs


projects that have a cumulative and collective water conservation
potential of 100 billion litres by the end of 2015. We expect to
generate more than two lakh person days of employment in more
than 180 villages across India. Furthermore, we expect that the
increased water conservation would help lead to a 10% rise in
crop production in some of the project areas.

iii) Project Sunlight
To renew and reconnect our brands to the larger corporate
purpose of making sustainable living commonplace, we
launched Project Sunlight in November 2013 to motivate millions
of people to live sustainably. We hope to create a movement for
sustainable living among consumers and thus help to create a
brighter future for children.

India was one of the five key markets where Unilever launched
Project Sunlight on Universal Children’s Day last year. The
campaign got an overwhelming response in India with over four
million people joining the Project Sunlight movement. This year,
we will reach out to more people and inspire them to adopt
sustainable living practices in their daily life. The first campaign
launched this year aims to encourage families to conserve water.
We are hopeful that through such campaigns we can continue to
increase awareness among people and contribute to our purpose
of making sustainable living commonplace.

c) Future ready talent and capabilities 

To create a business that addresses the needs of the future


through technology and sustainable models for growth, we need
to nurture a continuous learning environment that builds talent
and new organisational capabilities.

We have a holistic approach towards honing our talent pipeline
and building leadership capabilities in our people. We encourage
our people to define their individual purpose in the
organisational context and help them realise it through
meaningful actions. The Unilever Future Leaders Programme
provides us a strong foundation to groom and develop talent
from the entry level itself. Large responsibilities early on in the
career, open and honest career development discussions, cross-
functional and international exposure coupled with coaching and
mentoring helps develop a strong leadership pipeline.

We are harnessing technology to prepare our employees to
succeed in tomorrow’s world. For example, we have created
digital passports that are licenses for our marketers to operate
in the future. As a part of building awareness and knowledge of
our managers on business, managerial and professional areas,
we use online e-learning solutions. In 2013 alone our employees
completed nearly 50,000 online courses.

Our initiatives such as ‘Incite’ and ‘Food’s College’ help to build
marketing capabilities required for the business to win in the
future. These initiatives have also resulted in several successful
marketing campaigns such as the Foods experiential marketing


We also believe that learning must be embedded in the
organisation at all levels. We have undertaken a host of
programmes in the space of capability building on the shopfloor.
For example, our Shopfloor Skill Upgrading Programme,
‘Sparkle’, assesses training needs, skills and the performance of
our shopfloor employees. ‘Stepping into One’ is another
programme that develops technical and leadership skills among
shopfloor employees, providing them with career advancement
opportunities into supervisory roles.

d) Values-led and purpose-driven leadership 

Ultimately, the most important asset of any organisation is its
reputation. For future ready organisations, we need leaders who
will not only build the organisational capabilities to harness
technology and new ways of working, but also instil the values to
build sustainable and responsible models of growth. These are
the leadership principles that we have embedded in our company
and they will continue to shape our future as an organisation.

More than ever before we need leaders who are values-led and
purpose-driven. These are leaders who recognise that there are
some non-negotiables in business and that building
organisational character is essential to future success.

In Unilever, we have a common code of business principles and
leadership values of integrity, respect, pioneering and
responsibility that have to be embraced by every leader in every
part of the world.


e) Agile and inclusive work culture 

In a world with easy access to information and rapid changes,
companies need to move fast to keep up. Speed is the new
currency for future ready organisations.

At Unilever, we have ingrained agility and speed in our work
culture through initiatives such as ‘Project Sunset’. This initiative
was pioneered by HUL to facilitate quick decision-making in the
organisation. It has been rolled out globally to build a more
dynamic and agile culture.

In 2013, we launched a new campaign, ‘Winning Together’, to
reduce complexity across the organisation and empower people
to maximise their potential through simplified ways of working,
cutting inefficiency and promoting a bias for action. For example,
we are driving more effective collaboration in cross-functional
teams by using project classification tools and driving
behavioural changes amongst employees. This is helping us to
increase the pace of innovation by delivering cross-functional
projects on time.

Equally, diversity and inclusion is an important aspect of our
sustainable business growth agenda and a key to building a future
ready organisation. In HUL, we refer to this as ‘Winning Balance’.

Over the last three years, we have seen a considerable shift in this
area through greater leadership involvement and engagement.
For instance, we have been able to recruit women on career


breaks through our ‘Career by Choice’ Programme that balances
personal and professional needs of talent on their return to the
workforce. In 2013, we established a Winning Balance Council
comprising male and female leaders across functions who
champion the diversity agenda in the business. Last year,
Unilever’s progress on diversity was recognised with the
prestigious global Catalyst Award.

We are on the path towards creating the ‘ideal’ work culture of a
simpler, agile and inclusive organisation.

Section Four: Conclusion

We live in an extremely volatile world that is changing faster than
ever. Products and services are becoming more accessible with
increasing connectivity and improved infrastructure. To succeed
in this world we have to develop a high capacity for
responsiveness. Organisations will have to adapt to rapidly
changing situations and priorities, tolerate ambiguity, and
develop new ways of working in order to succeed.

While technology and innovation will be the hardware that drives
future ready organisations, it is a values-led and purpose-driven
leadership that is the software that must drive sustainable and
responsible growth. It is this combination of hardware and
software that will shape the corporate winners of tomorrow.


Published by Prasad Pradhan,
Head - Corporate Communications,
Hindustan Unilever Limited,
Unilever House, B. D. Sawant Marg, Chakala,
Andheri (E), Mumbai - 400 099,
and printed by Oxford Group,
Unit no 218 / 219, Pragati Industrial Estate,
N.M. Joshi Marg, Lower Parel (East)
Mumbai - 400 011.

The speech can also be accessed at

Hindustan Unilever's website

Hindustan Unilever Limited, Unilever House,
B. D. Sawant Marg, Chakala, Andheri (E),
Mumbai - 400 099.