Sunday, April 6, 2008

Unilever in India: Hindustan Lever’s Project Shakti

Executive Summary

HLL has enjoyed a competitive advantage as a sole provider of personal hygiene care products before the liberalization of India’s economy. However, with the entry of foreign MNC, HLL is suffering from stagnant growth and lower profit margin. Project Shakti was created to address these issues. The high growth of Shakti has created managerial challenges to the project management team. As Shakti grows, the current management structure has become inefficient to make it profitable with minimum costs. Thus, restructuring management measure is crucial to sustain Shakti in the long run and to provide HLL with competitiveness.

Challenges of Project Shakti

Rural market is already giving HLL a competitive advantage. But competitors are also tapping into the rural market with existing HLL direct channels. Thus to continue HLL competitive edge, Project Shakti is essential. Until 2004, Shakti is contributing 3.5% (pg 6 & 17: 15 x 20 / 85) towards HLL total revenues and it still has potential to continue growing. This is because personal hygiene awareness is in the increase. Shakti may be able to achieve the founder’s dream of 15%-20% of total revenues, assuming that Shakti can increase the usage rate of current consumer. However it will not achieve the market penetration of over 500 million rural population as this figure signifies that HLL will nearly monopolize the rural market with 80% penetration rate. The greatest challenges that Shakti face are costs and management control to make it profitable.

Managing Project Shakti in the long term

The Shakti system in the beginning of the project was good but not sufficient to handle the growth it had obtained. Thus changes are needed to make it more cost effective and profitable. As Shakti matures, there are a number of entrepreneurs who are more successful than the others. HLL’s RSP can organize a monthly gathering for all entrepreneurs in the same district, encouraging interaction and communication among entrepreneurs. By doing so, the experience and knowledge of the successful entrepreneurs will motivates others. This will increase the efficiency of each entrepreneur (profit increase) and also decrease the amount of time spent by RSP to visit individual entrepreneur, giving RSP more time to explore untapped villages in the same district. Thus the current 500 RSP is sufficient to manage 25,000 entrepreneurs. Also, HLL should be focus only in states with SHG movement to increase its cost effectiveness. HLL should also cultivate more successful entrepreneur from existing entrepreneur as organic growth of these entrepreneur is faster and easier to give profit. As HLL penetration to rural market is only a mere 16% (1 entrepreneur in 5 villages, pg 12), the market potential and market size is big enough to give a fair share to every player, thus the conflict between Shakti entrepreneurs and direct sales channel, if ever arise will be minimal. Moreover, a control measure can be applied by limiting the number of entrepreneur in each district thus minimizing conflict.

iShakti and Shakti Vani – survivals for Shakti

iShakti and Shahti Vani are Shakti’s initiatives created to provide rural India with access to information and social communication. Although the setting up costs for those two programs are quite high, Rs 150 million, funding is likely to be achievable because this cost occupies about 3.6% of Shakti’s revenues (150 / 3.5% x 120,000 (pg 2)) and therefore Shakti itself can finance these programs. Funding is also possibly receivable by persuading other profits centers to invest in the programs and by using the revenues of iShakti to finance Vani. Furthermore, iShakti will have high potential revenues from selling MR to the internal customers and to sell the channel to other interested, non-competitor parties, e.g: banks, insurance companies, farm equipment etc. Vani itself does not generate revenues directly, but it is a powerful tool to increase hygiene awareness in rural India, as a result indirectly increase HLL sales at long term. In short, iShakti and Vani will be workable and scalable to help Shakti success.

Social Impact and Role of Business

HLL should make a social impact on rural India. By involving in the improvement of rural living conditions, HLL can and will continue to enjoy the competitive advantages as the main company to participate in social development. The connection between business and communities will develop lifetime customers for HLL. This involvement may not be the typical role of business, but as long as it is profitable to HLL without compromising moral and legal issues, it will be a good move for HLL to increase its reputation as a socially responsible organization.

Conclusion

Project Shakti started to suffer from growing so big that the current structure needs to be adjusted. Restructuring the managing measure of RSP to entrepreneurs, focusing Shakti in selective districts and prioritizing efforts in existing entrepreneurs, Shakti will generate higher revenues with minimal increase in costs. Shakti should continue as it is providing HLL a distinct competitive edge and increase HLL’s profits and growth. Moreover, Shakti helps to position HLL as socially responsible organization.

2 comments:

puneet said...
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Maria_Rilke said...

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