Is your social strategy in place?

Despite all the euphoria about economic growth, the obstacles in India’s path remain formidable. One of the most difficult issues to tackle would be the increasing level of economic disparities. So while there are 53000 households with annual incomes of more than 1 crore, 400 million go to bed hungry. These 400 million are below the poverty line which by definition means that they do not get enough to eat everyday. The simmering violence of a hungry stomach can be explosive. And a large alienated mass of people is a potential tinder box if they are mobilised. History has shown that such disparities are socially unsustainable.

When a large section of the society is disaffected then it tends to retaliate against people who it thinks are exploiting them or the society. The consequences of such conflicts are enormous and problems become intractable. We have seen that the population of NE and Kashmir have felt alienated(though for both economic and political reasons) and it has led to a spiralling circle of violence and resentment. This has had catastrophic impact on the economic activities. Despite the best efforts of the government and parts of civil society business has not recovered in NE. We are seeing the increasing influence of the naxalites in a broad swathe of Eastern and central part of the country. The dangers of such inequality are multiplied in India because of lack of a proper justice system and endemic corruption in the law enforcement circles. The lack of justice and the unfairness around make the deprived sections more volatile and violent.

In these circumstances, it is even more threatening for the key organs of the society which are seen to be exploiting the society. So the rich landlords were the targets in the naxalite movement and the government or security forces in Kashmir or the tea gardens in Assam. In these times of increasing disparity, many people have started seeing the corporate sector as flourishing at the cost of poor people by charging high prices or making money unethically. This is reinforced by the visible lifestyles of executives and owners.

The typical response of businessmen to this would be that they need to reap the rewards of their talent and hard work. The executives also need to be paid international salaries as the country becomes more competitive and the companies need to retain talent. While these are valid reasons, the corporate sector needs to also take steps to assuage the concerns of large sections of society. This can be best achieved by being a good corporate citizen . Good corporate social responsibility can act a protection against the vicissitudes of the social dynamics and make the companies less immune to violence and subsequent losses. The steps taken today can prevent bigger disasters tomorrow. One shudders to imagine what would happen to FDI or venture capitalists if the CEO of a multinational is kidnapped and beheaded for a ransom.

Corporate social responsibility implies a) Being honest, doing everything legally
b) Fulfilling all obligations and commitments towards all stake holders(including society at large)

Sadly, many corporates in India fall short of expectations even on being ethically proper. In the past, we had examples of companies not paying the employees their providend fund dues which has fortunately got corrected. Many corporates go to great lengths to avoid taxes, duties in collusion with government officials. They shamelessly degrade the environment knowing fully well that it is a treasure to be fully protected. There are several instances of crooked businessmen not clearing the genuine dues of their business partners and associates. The consumers getting cheated by cynical manipulation of licenses with the help of politicians is an accepted practice in this country. No wonder in surveys of respectable professions ,managers and entrepreneurs still figure very low.

This aspect of corporate social responsibility should be a given. In fact, the corporate associations like FICCI and ASSOCHAM or CII should be pro-active in ensuring minimum level of ethics like watchdogs. Any member flouting or sidestepping the law should be censured by its peers. Necessary inputs and systems for getting information and acting on them should be put in place. The government has to be more concerned about this and should tighten laws for evaders.

It is also important in the era of globalisation to be ethically above reproach especially for companies which have global aspirations. The consumers worldwide expect ethical behaviour and can with the power of internet or alert citizen groups or individuals can destroy companies. . It cannot be just an offshoot of the benevolent intentions of the CEO. This also has to be in the DNA of every employee or dubious acts by sections of the company like in Arthur Andersen can lead to collapse


The second aspect of corporate social responsibility then assumes importance. It is about giving back to the society from where one draws sustenance. The Tatas have done it widely in different fields and the goodwill they enjoy today is partly an outcome of this. The benefits for business from this dimension of CSR are enormous. No government or political party in Jharkhand today can think of unduly harassing TISCO. Similarly, Infosys by the simple act of funding the expansion of the premier pediatric hospital in Bhubaneshwar today commands huge goodwill in Orissa. Fortunately, many corporates today have embarked on programmes to give back to the society.


But in India the corporates need to also go beyond the above traditional understanding of the corporate social responsibility to ensure that they actually work as a powerful force for the good of the society. Today the best and brightest join the corporate sector with idealism in their hearts. They look upto their leaders .At the top there are crooks but there are also men of iconic stature and unimpeachable integrity like Premji and Murthy. There are some top level professionals chief executives who command a great deal of respect in the society. They need to dynamically influence policy and be more engaged with society. It is in the interest of the business that they speak up on behalf of the silent masses of society. The civil society needs people who have the courage to stand up. Many arms of the society (academia or media)in the face of consumerism can wilt because many times they are not financially independent or there is a quid pro quo with the powers that be. It is on such issues that the corporate leaders of the society should stand up. Today, they have the strength to not to succumb to pressure. But they do not stand up and only seethe silently. So it is sad to see that the Gujarat riots are not censured by the corporate community in general or Gowda’s antics are being handled with kid gloves.

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So corporate social responsibility which is ethical behaviour and fulfilling obligations towards all stakeholders is not just a feel-good activity to draw talent or build up reputation .For the Indian industry the significance of corporate social responsibility goes beyond the traditional underpinnings. It is a strategic necessity from several angles. The corporates need to have a sound social strategy as part of their business strategy.

Innovation and FMCG industry in India

Background

The Indian FMCG market has slowed down in growth for sometime. From a growth rate of excess of 12 percent in early 90’s, it has registered only 4.4 percent odd so in the last five years.
In the last five years , the GDP has grown by a CAGR of close to 6 percent at real prices. So FMCG business is not even growing at the pace of the domestic economy. One would have thought that in a country where penetration and consumption are still low by international standards, this industry catering to basic necessities would have registered higher growth. But in the last decade sectors like telecom and durables have grown spectacularly but not FMCG.

The reasons for the slow growth have been discussed and debated endlessly. Primarily a) The housing, telecom and durables sectors had a latent demand which ensured explosive growth. b) The easier and cheaper availability of credit supported this growth. c) The consumers started spending more on products of these sectors and had lesser money for FMCG products and so downgraded in FMCG.

To counter this, most companies have got into a battle of market share and aim to differentiate themselves on trade reach or advertising efficiency. The route to winning has been believed to be better distribution, operational improvements or outflanking the competition on pricing and promotions. However on hard evidence, these directions have delivered incremental growth and also not helped in exploding the categories.

Failure to exploit trends

In general however, the sector has been unable to exploit the key demographic and sociological trends of the last decade. Within the sector, the companies which have done so have reaped dividends.

The most significant demographic trend in the recent years has been that Indian consumer is getting younger. The average age of the population is amongst the lowest in the world. The youth has far more purchasing power than before and a different attitude towards life in the post-liberalisation era. So sectors which have captured this trend in products and communication have grown like lifestyle apparels, shoes or even trendy watches. In FMCG , Perfetti has done well growing at more than 30% CAGR in the last decade by mainly focussing on youth with hip products and edgy communication targeted at them..

The second important trend has been that families have become increasingly nuclear and urbanised. This has necessitated the need for convenience foods and saving of time. One outcome of this has been the restaurant boom. But convenience foods are yet to take off more due to issues of taste and right price rather than cultural factors. Largely, the industry has missed the bus here.

The other major trend of higher consumption potential due to both rising incomes and increasing consumer base hence has anyway not translated into corresponding growth.
Any sector or company which wants to grow spectacularly has to exploit the inherent potential in the above three defining trends a)Younger population with a different attitude b)Need for convenience and c)Increasing consumption potential. The visible and existing models of behaviour and organisation and strategy in most FMCG companies do not suggest that they are trying to ride these trends and hence it is difficult to anticipate any major change of trend in performance.




Criticality of Innovation

So the sector needs to look at significantly different ways to participate in India’s boom. It need not be dependent on the monsoons or minor price-cuts to drive its growth. These new ways should exploit the key demographic and economic trends. The companies cannot depend on existing products and communication strategies to drive their business. And only new and innovative ways in the sector can rapidly leverage these broad trends for growth.

The other industries have seen spectacular growth due to innovations which have exploited these trends. Some of them which have changed the rules of the game are a) The consumer financing boom changed the way durables could be bought b) The technological changes leading to crash in rates of calls and equipment altered the way cellular telephony is perceived and experienced.

Similarly in FMCG, innovation as played a key role in the outstanding growth of some companies. Frito lay has experienced spectacular growth with an innovative product Kurkure. The caps in sachets by Colgate, the introduction of “lite oils”, the sachet revolution by Cavincare have fundamentally altered the rules of the game and delivered spectacular growth to the companies.

But for most companies, innovation though important, is not a key strategy in performance. There is no premium on innovation. The companies remain hostage to analysis and stability. The R and D centres are not the leading edge departments. The structures do not support innovation. The cultures encourage conformity. Innovation is not on the agenda of most senior managers where as it needs to be the prime driver for their performance.

It is important to realise that the innovation will play the most critical role in rescuing the industry from lack-lustre performance. It is also important that this percolates to every level of the organisation. The processes starting with appraisals, brainstormings and feedback loops have to be in place. The innovation has to be across all dimensions starting with product development, distribution, communication, people strategies and manufacturing. It needs to be pervasive and a very powerful element in the fabric of the organisation.


It is time the industry moved to innovations as the prime platform to ride on the broader social and economic trends .