By Suman Layak Hiring a teacher is often a smart move. About four years ago Hemmant Jha, a professor at the Institute of Design in Chicago, US, was preparing to accept the final presentations by groups of students who had worked on Indiacentric products and ideas. Some students not related to the course walked in and requested to be allowed as audience. In this audience was a scion of an Indian business family — Navroze Godrej. Navroze is the son of Jamshyd Godrej, the chairman of Godrej & Boyce Manufacturing Company Ltd (G&B). A student-group working on an idea for a lowcost washing machine and hoping to pitch it to Navroze requested him to join in. In his 20s at the time, Navroze ended up chatting with professor Jha. It was momentous. In two years Navroze got Jha, an engineer specialising in design, to shift base to Mumbai and head the Innovation Centre of G&B at Vikhroli, an eastern suburb of the city where the Rs 32,000 crore Godrej group is headquartered. Navroze had been working on innovations at G&B before he left for Chicago. His team had come up with the ‘ChotuKool,’ a box-type battery-powered cooler and, later, the ‘Goldilocks’ locker, a box to store away everyday-use valuables. Navroze, however, wanted to make a bigger, more fundamental impact on the 118-year-old company set up by his ancestors. He wanted to hasten change within a manufacturing giant with standalone revenues likely to touch Rs 10,000 crore in 2015-16. G&B builds everything from locks to rocket launchers, from cupboards and air-conditioners to satellites, and yet struggles with indifferent growth (in 2014-15, net margins were in single digits, with G&B showing a profit of Rs 511 crore on revenues of Rs 8,269 crore. This profit was considerably boosted by sale of investments worth more than Rs 300 crore). All about Radical Business Even as a Godrej, a member of the promoter family, Navroze needed something more to effect a radical change. This urge took him to the Institute of Design — a small design school within Chicago’s Illinois Institute of Technology. The school, set up in 1937, is inspired by the Bauhaus of the early 1900s, the German art school that combined art and industry and greatly influenced European architecture and design. Navroze thought it best to bring back one of the professors from Chicago with him along with his degree. For Jha it was not an easy shift, but he is determined to make it work. ( Jha’s family is still back in Chicago and he keeps flying back to the US to see them.) At the innovation centre, Jha (a master of architecture from Yale) seems to be recreating the atmosphere of a Chicago design school. Large white boards dominate almost every room, each covered with long lists and post-it notes. Every room is a different project. One such room is a work-in-progress on waste, and the white boards on the walls list out all the several 100s of items that G&B discards as waste: metals, plastic and chemicals. Enter Jha’s room (Navroze says very few are allowed in) and it looks like a mix between a design studio and a warehouse. There’s a touch screen that changes colour depending on hand gestures. Beside the entrance are a couple of giant refrigerators — part of a project to make the best in the world. An old Godrej-made office table gets pride of place alongside some special glass imported from Germany. On his work table (also made of factory waste) lie various discs made of compressed brass shavings and a hand-crafted square of interlocking metallic rings with the flexibility of cloth. As Jha sheds light on all the items lying around, he also lets on that G&B is ready with the first radical new business idea. All he adds is it cannot be tried out within G&B but will be incubated as a separate company soon. In a Cocoon of Legacy Navroze feels this one is just the first among many ideas in the works. Some will be put to work within the company. A bunch of employees are already working on their own ideas at the G&B Innovation Centre, funded by G&B, trying to produce a prototype that can be taken ahead. It’s called the Sprint programme. Navroze’s efforts to find new opportunities for G&B and, as he puts it, “ensure that we do not lose sight of changes in industry that can make us obsolete” are not a battle of his own. His father and chairman of G&B, Jamshyd Godrej himself, has led the effort to break the company out of its century-old mould. The mould is also almost a protective covering; it provides a financial cushion and also discourages bold moves. Till this day G&B remains the holding company of the Godrej Group, owned by the entire Godrej clan and some family trusts (see “Who owns How Much of G&B”). The company, in turn, owns all the other listed Godrej entities like Godrej Industries and Godrej Consumer Products with a total market capitalisation of four listed entities (including Godrej Properties and Geometric Ltd) at around Rs 60,000 crore. The Godrej Group, led by Adi Godrej, 73, the eldest of the three cousins in business (brothers Adi and Nadir, and their cousin Jamshyd), is united and yet divided in a unique way. Adi and Nadir, 64, manage Godrej Industries and its subsidiaries. Adi’s son Pirojsha and daughters Tanya and Nisaba also work with Godrej Industries. These companies are also known as GILAC or Godrej Industries Ltd and Associated Companies. Jamshyd Godrej, 67, manages the holding company G&B and his son Navroze now works there as head of strategy and innovation. Another cousin of the senior generation, Rishad Naoroji (an environmentalist), and Jamshyd Godrej’s sister Smita Crishna are not involved in the business. The five (Adi, Jamshyd, Nadir, Smita and Rishad) and their families hold almost equal stakes (8-10% each) in G&B. The two parts of Godrej, G&B and GILAC, operate from separate buildings. GILAC offices have moved into a spanking new building called Godrej One. G&B’s operating businesses remain holed up with the paraphernalia of a holding company. There is no plan to formally restructure the group. G&B and GILAC collaborate on specific business areas like realty and also on overall group communication issues like branding and public relations. The working members of the Godrej family meet every Thursday for lunch, points out Jamshyd Godrej. The younger generation sometimes also meet among themselves and collaborate. Navroze had worked closely with cousin Tanya Dubash for the relaunch of the Godrej brand almost a decade back. Before that, when Navroze was initiated into the business, he spent a week each at almost all Godrej factories and locations in India. So nothing is disturbing this status quo in a hurry at the Godrej Group. Adi Godrej told ET Magazine that he does not see any restructuring at G&B “at this point” and no change in the holding structure in “the near future”. Jamshyd also rules out listing the company and says he can’t predict the future holding structure of the Group. He says: “There is nothing hard and fast or cast in stone about how we do things in the future.” With consolidated revenues — which include revenues from Godrej Industries, Godrej Consumer Products and Godrej Properties — exceeding Rs 26,000 crore in 2014-15, G&B would be among the largest unlisted manufacturing entities in India. Jamshyd Godrej points out that being the holding company has its advantages as dividends (of some Rs 103 crore in 2014-15) flow in. Credit rating and research agency Crisil has upgraded G&B’s long-term rating to positive from stable last August on the back of a jump in the share prices of the subsidiary companies. (Crisil notes that the value of G&B’s holdings in group companies went up from Rs 8,180 crore in March 31, 2011 to Rs 24,300 crore in July 31, 2015. Since then the value has dropped by 10%.) In Search of Nimble Feet and Wings The problem with G&B is, however, that it has just one growth engine, its consumerfacing business of consumer durables or appliances, which bring in 31% of sales. The note by Crisil says that while consumer durable grew at 29%, the furniture business grew at a much more modest 10%. The fastgrowing appliances business, however, is a low-margin one. On the other hand the highmargin security solutions division saw indifferent growth and lack of orders, leading to an overall 14% growth in the consumer facing business. The industrial products division, however, underperformed on account of general low capital spending. G&B has high technology manufacturing capacities for the defence sector and also builds rocket launchers and satellites for the Indian Space Research Organisation (ISRO). Jamshyd Godrej points out that things move really slowly in these high-technology areas and no amount of effort by the company can get them a larger chunk of revenue until the government machinery moves. He is no fan of the nuclear liability law either as it stands today (in early February, the Modi government ratified a global regime called the Convention on Supplementary Compensation for Nuclear Damage that gives a free pass to nuclear suppliers in India; this makes the Indian government liable in case of an accident. Over the last five years (between 2010-11 and 2014-15), G&B’s standalone revenues have grown at a compounded annual rate of 10.55%, and its profits have grown even slower at 5.13%. Growth may not be quick, G&B still operates within a comfort zone. The Crisil report notes that the growth and margin constraints faced by G&B at the moment are well offset by its increased financial flexibility created by the increase in the value of its investments — mainly in Godrej Industries and Godrej Consumer Products). Interlinking Changes G&B is eager to step out of this comfort zone. For starters, it is shifting manufacturing out of Vikhroli in Mumbai, where it owns 3,500 acres of land, to Khalapur and Pune in Maharashtra, Dahej in Gujarat and Chandigarh. Around Rs 4,000 crore is being invested in new manufacturing facilities in Khalapur and Dahej. While Khalapur will be manufacturing Interio branded furniture and forklifts, Dahej will be for heavy process equipment. Godrej says with a shore-based plant in Dahej it will be easier to ship these equipment than it is from the Vikhroli factory. In ten years, if the goods and service tax comes into force, Jamshyd Godrej sees the company having 20 manufacturing units spread across the country. Godrej sees the consumer-facing businesses of furniture and durables growing fast over the next few years. He is betting that the opening up of the banking sector will create new businesses for G&B’s security solutions business. Shifting out of Vikhroli is also key for G&B as it converts more and more of its 3,500 acres of land into real estate. It cannot do much with a large portion bordering the Thane creek that, apart from having G&B’s jetty for barges, also has mangroves growing on it. “When my grandfather and father and uncle bought this land, the intention was to preserve the mangroves,” says Jamshyd Godrej. However, it is slowly redeveloping the factories that stand on either side of the railway track in Vikhroli. One such factory has just been converted and launched as a residential project called Godrej Trees. As Godrej Properties, a company under GILAC, develops more land at Vikhroli, it adds to the revenues of G&B. Exports is another focus area for Jamshyd Godrej and he wants at least 25% of the revenues to come from exports — of exports of consumer durables and furniture — up from 14-15% at present. On the day Jamshyd Godrej spoke to ET Magazine, G&B announced the acquisition of an ecommerce portal called IndiaCircus. com, which sells memorabilia and gift items designed by artist Krshnaa Mehta. It dovetails well with G&B’s Interio offering. Historically, both sides of the Godrej Group have been circumspect acquirers of companies, and G&B’s last acquisition was a coffee dispensing business based in Europe, more than a decade back. It may be fair to add that Jamshyd Godrej is taking a leaf out of Adi Godrej’s book, and diversifing G&B the same way Adi did with GILAC. “We are trying out a lot of things,” he offers. One of those efforts is to take the company’s products online. Navroze says that while Interio furniture products are already available online on various ecommerce marketplaces, the plan is to build an ecommerce platform for the company itself and take it online some time in the latter part of 2016. He acknowledges there’s some catching up to do. “We are barely scratching the surface. Aerospace and defence technologies can have many applications. The question is how do we take our existing business capabilities and maximise these.” Jamshyd Godrej, chairman of Godrej & Boyce (G&B), often shies away from the limelight, letting Group chairman and cousin Adi Godrej be the public face of the soaps to security conglomerate. Edited excerpts from one of the rare interviews with the man: The Godrej Group is divided into Godrej Industries and G&B. G&B also remains the holding company. Do you see this structure being changed? This structure has evolved over the years. What happens in the generation to come is not something that you and I will be able to predict now. Everyone in the family owns the businesses jointly. There is no hard and fast rule about how we do things in the future. The family is very supportive of business and keen on the social perspective and philanthropy. There is this huge tract of mangroves that we protect in Vikhroli. Our large housing colony provides housing for our employees; we have a school system; our hospital. The family has been involved in a lot of things well beyond industry. That’s also a core value for the company. Will any part of G&B go public? G&B is not interested in listing. It will depend on our capital needs. I do not see any need in the short and medium term. Do you see the role of G&B being separated into a holding and a operating company? It is a historical issue with us that the holding company is also an operating company. But there are many benefits. We get dividends from the subsidiary companies. I don’t think there is any such thing that a company has to be a purely holding company. There are hybrid solutions all over the world. What about succession planning within the group? If something was worked out it would have been announced. Again succession planning is a part of the processes that we all have to undergo — whether it is inside a business or in a family. These are things that have to be done and they will be done. From which areas do you see growth coming for G&B? Our traditional businesses are strong and will continue to grow. Just look at locks and safes and think how the banking industry is expanding. If anything they will keep growing and growing. However, our market shares are already very high. On the other hand, the high technology areas like defence, nuclear and aerospace are never going to be very large because they are totally dependent on what the government spends in these areas. It also involves a lot of exotic material. Getting them to India is a challenge. My guess is that it will take a decade at least for it to settle down and move ahead. That is why we always look at new areas and sometimes we have to incubate them outside G&B if we have the prototypes. We will try different things and we are trying out a lot of things. At 33, Navroze Godrej, as head of strategy and innovation, has taken on the daunting task of reorienting the century old holding company of the Godrej Group, Godrej & Boyce. In this interview with ET Magazine, he speaks about his goals. Edited excerpts: How do you define your goals as head of strategy at G&B? We have to always think how we can stay relevant and in touch with the world. It is important to not lose sight of the changes and look for the next avenues of growth, within our current businesses as well as new technologies. What all are you working on at the Innovation Centre? At the innovation centre we work on a host of things right from handicrafts to aerospace technologies. We have a very mixed team of 60 people. We have defined six pillars on which we will work as we try to decide our course for the next 100 years. They are: security, lifestyle, wellbeing, connectivity, productivity and energy. How does it work out in a century old company? As a manufacturing company we are extremely well divided in silos. However, that is not how the world is or that is not how a consumer thinks. We are trying to create a startup culture here at the centre within G&B. We are having a separate incubator for ideas that do not have a place in the existing businesses. How did you choose this course for yourself instead of running one of the businesses at the Group? In my first project for the group I worked with my cousin Tanya on the Godrej brand. It was a more front-end project. However, I realised that I want to work a little earlier in the process at the product development stage. I worked with our furniture business and completely repositioned and rebranded it and launched the Interio stores. I wanted to go beyond, work on disruptive innovation and started this innovation centre with five colleagues.