The CEO Factory book Notes and Summary

Thanks to Tamizh Selvan D for recommending and giving me this book, the CEO Factory, to read. The CEO factory is written by Sudhir Sitapati (former Executive Director of Hindustan Unilever Limited (HUL), Foods and Refreshments). HUL is the company behind Dove, Lifebuoy, Clinic Plus, Surf Excel , Brooke Bond, Bru, Lakme and numerous other brands that we use on a day – day basis. 

The origins of Unilever:

Hindustan Unilever is the child of two parents, the British Lever Brothers and Dutch Margarine Union merged to create Unilever in 1930. Lever employees were given free housing, medical care, schools and pensions. Port Sunlight is an early example of a factory city, (similar to Tata’s Jamshedpur). William Lever introduced Indians to Sunlight and Lifebuoy as early as 1888. Overseas units were to be run not by expatriates in London but by the local teams. This led to Hindustan Unilever Lever Ltd in 1956. Being strongly Indian and also strongly western at heart is the HUL way of management.

Middle Class:

HUL persists with leaders even when they face difficult circumstances and it is not dependent on the deal you closed last month or last quarter’s performance. It is building for the long term. ‘Even the tallest trees were saplings once and needed nurturing’.  The Indian Middle Class culture is the HUL way. The Hunger to grow and an inborn conservatism in costs. At HUL you have to complete a certain number of years before being considered for the next work level. This has broadly worked very well for the company and the HR function is integrated into the organization (also prevents the anointment of early superstars). The author writes that not just HUL Alumni, but also their kids too become CEOs very often. There is a culture of meritocracy. HUL like the TATAs do not pay bribes. Integrity is their core value. The author writes that to succeed in India in the long term, you have to be honest. 

Marketing:

CEO’s need to understand marketing and need to be marketers. Instead of spending time in air conditioned rooms or spreadsheets, one needs to be visiting customer locations. The key of marketing is to define the problem. Be clear on what problem you are trying to solve. Spend a lot of time trying to get more deep into the problem you are trying to solve. It is also about understanding customer needs. The author writes that most human beings tend to want the same things and behave surprisingly in a similar manner. For example , if you show an ad to someone, if they say that the ad will resonate with the target audience and does not resonate with them in particular, it means the ad is not good enough.  When a brand becomes successful, you create extensions (new products). The author writes that if we are lucky , the extension will fail, however if we are unlucky it may kill the mother ship. We got to be careful when it comes to creating new extensions.

Media Spend:

The author also gives some advice on media spend. He writes it is better to spread across multiple platforms than just focus on medium when it comes to advertising (e.g television, print media , banner advertising). He also writes about advertising in cinema halls (during intermission at movies). Vicco Turmeric does it well and HUL soon caught up.  The author writes that Whispering to many is better than shouting to a few. When it comes to Ad films, it is important to provide a brief to the ad agency and let the agency execute with the director of their choice. It is important to sit down and make sure to get into the details, (e.g the dress that will be worn during the shoot) and more and if everything resonates with the brand.  The author suggests not to go to the shoot and let the team handle it. After all the planning , execution, if the ad does not resonate with the brand, the author suggests not to air the ad. 

Product Culture:

Sudhir also writes about Product Culture and it needs to be across all disciplines. This way the different teams can collaborate well with each other. The R&D Team will also have marketing insights and vice versa. This is also the entrepreneurial culture Sudhir writes early in the book. At HULl, the leaders also made frequent visits to rural India to learn more about the customer’s needs and wants. For example, when they were working on a detergent powder, women in rural India were using it from bathrooms which were not lit that well (less light). They made the detergent powder more white and it made a difference to sales. The organization needs to be obsessed with products. No matter how great your product is in the laboratory, the consumer experience matters. From the time it reaches the customer, the packaging and how they use it is what will determine the success of the product.  At HUL they also run a test blind test. They remove packaging from HUL and competitors’ products and have customers use it. The HUL product needs to be clearly better and if the consumers are not able to differentiate, they go back to R&D and make the product better. Sudhir writes that CEOs should also be Chief Product Officers.

Pricing:

The author writes about discounts and it never works in recruiting new users or consumers to buy the product. When a competitor drops the price it is important to drop your price as well to retain market share. Before the price increase of a product, HUL spends on advertising and builds more equity for the product. Having a good distribution system in place is the key.The author also recommends not to overstock a commodity. There will be price fluctuations and we will be left with a lot of inventory.

Sales:

When writing about Sales, the author calls it a cost centre and not a revenue centre.e.g Pipes do not quench thirst, water does. Pipe is the sales system and are just enabler. Visibility of products at shelves in the grocery store drive sales. It is also a marketing function.The author writes about trade price point. This is a price point where the wholesalers and everyone involved makes money. If the wholesaler does not make enough profit, he will not push the product and it brings down the volume of sales and in turn affects revenue. The author writes that sales teams should not be rewarded for bringing in revenue, instead of creating enablers of revenue. Working till midnight to achieve sales quota is ok, however what happens the days that follow? The author recommends cutting glory-seeking behavior in sales teams.

Respect for Money (Costs):

It is important to bring down costs and be cost-conscious. There are a lot of factors that add on to costs. Cut the ones that are not necessary. Improve efficiency and in turn, reduce costs further. There is always room for improvement. HUL fixes the profit first and costs are variable. The author also suggests that we should spend money only on things that customers are willing to pay for.  The respect for money is a key value system in HUL. Volumes are the biggest drivers of costs.  The author also recommends producing close to market wherever possible to reduce costs further. As of March 2018, HUL declared 143 people earning over Rs. 1 Crore. Pay Well to your key people, however, make sure you drive productivity. Another example quoted in the book, Pay 6 people, the salary of 8 and get them to do the job of 10. 

HR Lessons:

The author writes about HR being the secret weapon for HUL. Some of the core principles at HUL include getting them early, training them well, building careers, encouraging diversity. Reward performance and instill values. The author writes about investing time on training students during internships and giving them the exposure needed. The early hires are also given a broad range of exposure and business understanding. Drive from the employees is the key to success. In terms of recruiting tips, candidates who are vulnerable and admit their mistakes are usually great at values.  HUL invests a lot in training. They allow trainees to live the life of the lowest-ranking company function in every large department. The author also writes that getting to the office early is a good trait. (You never know what you will find. Once the employees have spent seven to ten years in HUL, there is usually a broad consensus on where he/she has top potential and one or two leaders invest serious time and effort on the employee. One favorite quote or leadership lesson from P.L Tandon, the former chairman.  ‘Working Life is like a play’ – When the curtains are drawn, never come back to the stage unless you are specifically invited. Encouraging diversity helps a lot. The author writes that HUL could do better at this and is improving. Especially when the product serves women, it is great to have women leaders. Rewarding performance and promotions by merit, metrics, and not biases is also a key.  When it comes to letting go, one has to be ruthless in decision-making on poor performance, however, at the same time needs to be empathetic(if it means covering for a few months or job assistance) and not hurt the self-esteem. The author also writes a story of letting go of a person. They wanted to let go of a person on Friday for ethical reasons and decided to do it on a Saturday instead of a request from the employee. However, on Saturday, the employee met with an accident and the HR had a question on what needed to be done. She called her boss and he promptly replied ‘ Employee is our employee till he is our employee’ They took care of the expenses and the employee passed away. All the benefits were given to the employee’s family. 

Values and Purpose:

The values of a company are tested through tough times. Very few companies sustain it. The author writes that Courage is the ability to to take the right decisions even in the face of high risk. The author also writes about how an employee was on a 1993 Indian Airlines flight, it crashed and one of the HUL employees was dead. The company stood by his family and took care of and started his wife on a pension. Not just that, one of HUL’s directors directly wrote to employees’ families and was there throughout. 

My Take on the book:

Thanks Sudhir Sitapati for writing this book. Prior to reading this, I was not too familiar with HUL and how it operates. However your book was an easy and great read. It taught the values that need to be imparted into a leader and how a company needs to be run. I enjoyed reading your book. Thank you for writing.