The CEO Factory

1. Hindustan Unilever: A CEO Factory with Middle-Class Values

The CEO Factory is a step-by-step guide to building a great consumer-driven organization.

Middle-class soul. HUL's success stems from its quintessentially Indian middle-class culture: hard-working, frugal, aspiring, and humble. This ethos permeates every aspect of the organization, from recruitment to daily operations.

Meritocracy and entrepreneurial spirit. The company fosters a culture of meritocracy, where performance and potential are rewarded. This is balanced with an entrepreneurial mindset, encouraging managers to take ownership and go the extra mile.

Global and local expertise. HUL managers are equally comfortable in dusty Indian villages as they are in corporate boardrooms in London or Rotterdam. This unique blend of local insights and global perspective gives the company a competitive edge in the Indian market.

2. Marketing is Business: Understanding Consumer Needs

Marketing to us is a total operation, more than mere selling. It has a wide band of activity, from product development to consumer satisfaction.

Consumer-centric approach. HUL's marketing philosophy revolves around understanding and fulfilling consumer needs. The company invests heavily in consumer research and insights to drive product development and marketing strategies.

Brand building. HUL excels at creating strong, memorable brands that resonate with consumers. The company focuses on building a few rich associations for each brand, making them easily recognizable and trusted by consumers.

Key marketing principles:

• Focus on category development rather than just brand growth
• Use broad segmentation instead of over-segmenting the market
• Position brands clearly to own specific associations
• Avoid over-extending brands into unrelated categories

3. Advertising: Be Famous Before Being Persuasive

Being remembered is much more important than being persuasive.

Salience over persuasion. HUL's advertising strategy prioritizes making brands famous and memorable rather than focusing solely on persuasion. This approach drives sales by ensuring the brand is top-of-mind when consumers make purchase decisions.

Enjoyment and branding. Effective advertising, according to HUL, combines two key factors: enjoyment (making ads that people like to see) and branding (being able to recognize the brand without seeing the logo).

Advertising best practices:

• Brief creatives simply and insightfully
• Use the "goosebump test" to judge creative output
• Focus on reaching a wide audience rather than targeting a narrow segment
• Choose media based on cost-effectiveness rather than preconceived notions

4. Product Development: Get the Product Right, the Brand Will Follow

Product is the most important P in marketing. Product obsession must start with the CEO.

Consumer needs first. HUL's product development process starts with a deep understanding of consumer needs. The company invests in both evolutionary improvements and breakthrough innovations to meet these needs.

Output-focused design. Instead of focusing on specific ingredients, HUL designs products based on the benefits consumers seek. This approach allows for more flexibility in formulation and cost optimization.

Product development principles:

• Create a product and innovation culture throughout the company
• Test extensively before launch
• Persist patiently with promising ideas
• Obsess about delivered product quality, not just design quality

5. Pricing Strategy: The Art and Science of Value Creation

Fix the price and the profit you want to make; the cost is the target you have to achieve.

Value-based pricing. HUL focuses on determining what consumers are willing to pay and then works backwards to achieve the desired profit margin. This approach ensures that products are priced competitively while maintaining profitability.

Price-pack architecture. The company maintains a portfolio of brands at different price points to cater to various consumer segments and remain resilient during economic fluctuations.

Pricing principles:

• Price discounts do not recruit new consumers; they only increase consumption among existing users
• Access (smaller pack sizes) is more important than affordability (lower price per unit) for low-income consumers
• Discount very large packs and small packs, but by no more than 20%
• Adapt pricing strategies for volatile market conditions

6. Sales Management: Building a Cost-Effective Distribution System

Sales is a cost centre and not a revenue centre.

Availability focus. HUL's sales system prioritizes making products available in as many outlets as possible, rather than pushing for depth of sales in individual stores. This approach ensures wider reach and better inventory management.

Rotation over margin. The company focuses on how fast products sell (rotation) rather than the profit margin per unit. This principle drives better returns on investment for distributors and retailers.

Sales management best practices:

• Measure input metrics (e.g., bills generated, visibility execution) rather than output metrics (sales)
• Discourage glory-seeking behavior in sales teams
• Build a fact-based culture rather than relying on anecdotes
• Maintain high integrity standards in sales operations

7. Cost Management: Relentless Pursuit of Efficiency

As long as costs exist, savings are possible.

Continuous improvement. HUL approaches cost management as an ongoing process, constantly seeking new ways to optimize operations and reduce expenses. This mindset permeates all levels of the organization.

Leverage and creativity. The company focuses on leveraging scale to drive down costs and encourages creative solutions to reduce expenses without compromising quality.

Cost management strategies:

• Design products for output (benefits) rather than input (ingredients)
• Extract more from fixed capital through debottlenecking and efficiency improvements
• Reduce operating costs through innovation and courage
• Optimize distribution by producing close to markets or raw material sources
• Focus advertising spend on media reach rather than production costs
• Pay competitive salaries but drive high productivity

8. HR Practices: Nurturing Future Leaders

Take a break for a month, come back and complete the one-year management training stint. After that feel free to leave, but like a mountaineer who takes a break while climbing, quit only after you've climbed the peak.

Early responsibility. HUL's management trainees are given significant responsibilities early in their careers, often starting with field roles in sales or manufacturing. This hands-on experience builds leadership skills and business acumen.

Career development. The company focuses on building well-rounded leaders through a combination of breadth and depth in experiences. Early career stages emphasize breadth, mid-career focuses on depth in a specific area, and senior management returns to breadth.

HR best practices:

• Recruit for character and calibre, judging candidates on judgment, drive, and influence
• Provide extensive management training across various functions
• Encourage diversity in thought and background
• Set simple, measurable, and actionable performance goals
• Reward performance objectively while considering potential for promotions

9. Values-Driven Leadership: From Great to Good

Values are the cement that binds an institution together.

Purpose beyond profit. HUL's success is built on a foundation of strong values and a sense of purpose that goes beyond financial performance. This ethos is embedded in the company's brands, businesses, and people.

Living the values. The company's core values - action, courage, caring, and truth - are not just slogans but are deeply ingrained in the organization's culture through storytelling and real-life examples.

Key values in action:

• Action: Bias for swift, decisive action, especially in times of crisis
• Courage: Willingness to take calculated risks and stand up for what's right
• Caring: Demonstrating empathy and support for employees and communities
• Truth: Maintaining high standards of integrity and transparency in all dealings

By consistently living these values, HUL has built a reputation as a trusted institution that delivers sustainable growth while making a positive impact on society.

Last updated: October 2, 2024