There is no chance of Adi Godrej resting on his laurels.
The septuagenarian chief executive of the 117-year-old Godrej Group might oversea a vast multinational, employing 28,000 people in an empire spanning a host of sectors including consumer goods, precision engineering and property, but one thing is very much at the heart of the Mumbai-based conglomerate’s philosophy: expansion.
Astonishingly for a group whose seven largest companies turned over a total of $4bn last year, it said in 2011 that it wants to grow its business 10 times in 10 years, something called the “10 by 10 plan”. That will require a compound annual growth rate of revenues of 26%. Adi is confident it can be achieved by a combination of organic and non-organic growth.
The non-organic part will be realized through another plan, the “three by three” strategy, which involves acquiring businesses in three continents – Asia, Africa and Latin America – and in three consumer sectors: household products, hair-care products, and personal wash products.
Ambitious? Yes, but Godrej has good form. It was one of the first consumer groups to see the benefits of cross border emerging market-to-emerging market business. It has recently acquired consumer goods companies in the three continents it has targeted – such as Megasari in Indonesia, hair care product companies Rapidol and Kinky in South Africa – and other consumer businesses in Chile and Argentina. “We specialise in providing consumers in these markets with good-quality products at a very affordable price,” says Adi.
Godrej has also expanded into new sectors, with the most spectacular in terms of growth in recent years being property. “Property is a big area for us,” says Adi. “India is an under-housed country and our brand name is very well known in the local market which helps us enormously. It’s our fastest growing business currently. Consequently, in 10 years’ time, property will be one of our largest businesses in terms of revenue if not the largest.”
How do they do it? One way that Godrej invigorates growth is through effectively measuring performance. Adi stresses the importance of the Economic Value Added measurement, which Adi reckons helps drive growth and innovation. “EVA is net profit minus the cost of capital, which is both equity and debt,” says Adi. “This is our major financial metric.” A large part of the group’s staff remuneration is based on EVA. “This encourages new processes and innovation within the group.”
“Obviously, being a third and fourth generation family business, we aren’t like a start-up, or even a first generation family business when it comes to being entrepreneurial,” says Adi. “But by using EVA it helps us to prompt this type of thinking across our businesses through its method of incentivising staff through financial reward.”
Will all this growth mean that the Godrej group becomes too large to be a family firm? It doesn’t seem so. Adi’s three children, Pirojsha, Tanya and Nisaba, all work at Godrej, and many other members of the extended family are also employed. Concerns about nepotism are assuaged by rules such as one saying that only shareholders who are professionally qualified can join the business.
Most family members who take a board position normally take a strategic role. “They sit in between all our various businesses where they help to coordinate the group through things like managing the brand, human resources and/or helping with innovation,” says Adi.
The 72-year-old downplays the inevitable question of who will replace the chief executive and chairman. “We talk about succession at all levels of the company, meaning that every succession is important, not just who replaces me,” he says.
Of course, like any large family firm, Godrej also employs many non-family senior managers to head up the various divisions of the group. In effect, there is a loosely defined executive function for senior managers, who head up many of the divisions, and a supervisory role for family members, who have strategic oversight.
This means that in many ways Godrej has an informal structure based on the system favoured by so many successful German family businesses, with non-family senior managers sitting on an executive board and family members on a supervisory board.
There has always been a deep commitment to workers’ welfare at Godrej, which Adi says has helped to underpin the company’s success. “My grandfather, father and uncle placed a lot of emphasis on building housing and schools for employees, which have paid good dividends. Making sure your employees are properly taken care of is a strong lesson we’ve learnt from previous generations,” he says.
But Godrej isn’t just getting results because of its excellent staff welfare. The company was among the first to introduce 360-degree evaluations of everybody in the company. This, says Adi, helps to identify talent early on and to ensure high-fliers have opportunities.
Interestingly, Godrej has also bought a number of other family-run businesses. “We don’t intentionally go out to acquire family businesses, but family-controlled companies have an affinity towards us,” says Adi. “They like us because we aren’t a big faceless multinational. “And they prefer to sell to a company like us, because we are a family business and we can preserve their plans and are less ready to cut jobs.”
It’s a philosophy that balances respect for people and a desire for profits. The evidence so far suggests that it works.