January-June 2011 January-June Entrepreneurship + Innovation = Growth = Innovation + Entrepreneurship growth of Engine the why on Marshall Michael Sir Group Marshall 100-year-old edge cutting the on still is India in business Doing regulation, of overview An tax and legislation seat driver’s the In innovation, on Ford Bill and recession the surviving legacy family’s his maintaining A. Vellayan tells us about Murugappa Murugappa about us tells Vellayan A. future the for plans Group’s T Indian the in economy us giving is confidence” Exceptional “ growth he

Exceptional India January-June 2011 Entrepreneurship + Innovation = Growth Murugappa Group Deep roots, grand ambitions A. Vellayan, Executive Chairman of the Murugappa Group, explains why this family business is surpassing expectations — and aiming to double its turnover by 2013

he phrase “family-owned, professionally run” is still considered to be something of an oxymoron in India. But not so in the case of the US$3b -headquartered Murugappa Group. The family business handed over control Tto a professional management team in the late 1980s, when the group was led by the late M. V. Arunachalam. It’s also an exception to the rule in terms of longevity. While most Indian family businesses start showing signs of a split as early as the second generation, the Murugappa Group family has held on for more than 100 years. And it has grown: since 2002–03, group turnover has increased threefold, from US$917m. Today, it has 29 businesses in sectors ranging from to nutraceuticals. It has manufacturing facilities in 13 Indian states and alliances with multinationals such as Mitsui Sumitomo, Foskor, Cargill and Groupe Chimique Tunisien. The family holds a stake of between 45% and 65% in each business. “With professionals at the helm of affairs, the family gets Swati Prasad Swati Words: higher returns,” says A. Vellayan, Executive Chairman. The aim is to double turnover to US$7.2b by 2013–14.

International roots The Murugappa Group was founded in 1900 by Dewan Bahadur A. Vellayan leads the US$3b A. M. Murugappa Chettiar, who had set up a money-lending and Murugappa Group banking business in Burma (now ) that later spread to

Atul Loke / Panos Loke Atul Photography: Malaysia, Sri Lanka, Indonesia and Vietnam. In the 1930s, prior to

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Murugappa Group aims Key challenges for to grow market share for 95% greater pricing power By how much family businesses N. S. Rajan, Coromandel improved EMEIA People & Organization Leader, Ernst & Young Foskor’s productivity ›› “Happy families are all alike; every to endurance and long-term vitality is unhappy family is unhappy in its own intrinsically dependent on enabling the economy,” says Vellayan. “We are fortunate way,” observed Leo Tolstoy in Anna coexistence and growth of both family to be operating in the part of India that is Karenina. This also rings true for family and organization. No family has been able growing faster than 8.5% a year.” businesses. Family-owned businesses to consistently provide all the competent The group is working towards creating have been key drivers of every economy. managers needed to fuel growth. The Some go on to become world-class criticality of the human resources entry barriers through a presence in a multinationals, while others are on the function is underlined by company growth greater proportion of the value chain. road to perdition. Inherent characteristics theories that reflect positive correlations “This will give us a better understanding of family businesses have often proved to among size, complexity and professional of our businesses and the ability to take be sources of competitive advantage. human resource management practices. advantage of opportunities and react On the other hand, these very Family businesses must invest time and faster,” he adds. features also make such enterprises effort to attract, retain and motivate Through this strategy, Vellayan hopes vulnerable, beset by challenges requiring the best available talent on the path of to garner a sizeable market share careful mitigation. growth through responsible ownership to in seven key businesses: fertilizers As enterprises evolve and pass through ensure continuity. (), abrasives the complex stages of growth, much Intellect is the new form of property (, or CUMI), depends on the interplay of the three and must be used effectively. This means finance (Cholamandalam Investment and overlapping elements: family, ownership disseminating the vision and values to Finance Company), sugar (EID Parry), and management. In the early days, create a sense of shared purpose. This the Japanese invasion of Burma during brought in more professionals with a better engineering (Tube Investments of India), all these circles stay nested together will ensure that professional managers “We are fortunate World War II, it moved its assets back to understanding of the industry and fostered cycles (Tube Investments of India) and with minimum conflict. As the company are empowered, robust policies are India and started operations from scratch. an appetite for risk within the group. Today, general insurance (Cholamandalam MS progresses, there is a need for infusion of institutionalized and meritocracy is to be operating With time, more family members entered nearly 40% of the remuneration of top General Insurance Company, a joint venture capital and advisory support, providing enabled. There must be a culture of the business. The third generation saw management is performance-linked. with Mitsui Sumitomo of Japan). “Unless entry to external stakeholders, who now equity in which employees are valued. in the part of India six family members in the business, while we have a larger market share, we do not co-own the enterprise. An effective system of succession the fourth generation had seven. The fifth Efficiency drive have ample pricing power,” says Vellayan. With accelerating growth, planning, a hallmark of good governance, is also imperative. This requires the active generation, which is now entering the The strategy is paying off. In 2005, South For each of the seven key businesses, professionalization is imperative, and that is growing management starts becoming a shared involvement of the board, which works group, will probably have 10 members Africa-based Foskor invited bids to improve the group has a strategy in place. For responsibility. Success of a family closely with the current family owners in the company. “They don’t get to head the performance of its phosphoric acid instance, in fertilizers, Vellayan feels there faster than 8.5% enterprise requires the recognition of the to identify potential successors through businesses just because they are family,” business in return for a 2.5% stake that is a need to be more aggressive in areas interdependence of these three elements, a consensual process. The business says Vellayan. “Many are required to take would get converted into sweat equity (and such as pesticides and farm mechanization. a year” with clear delineation of roles to ensure historian Gita Piramal aptly observed: up jobs outside before joining the group.” grow to 16.5% if Foskor’s performance In abrasives, CUMI needs to look for corporate longevity. “A trader thinks of today’s profit, an In the late 1980s, the group sought improved). Coromandel Fertilizer, a international consolidation possibilities. “Generational drift,” resulting in industrialist looks at tomorrow’s balance the help of Dr. Ashok Ganguly, the then Murugappa company, bid and won. The Murugappa Group is not a major player ownership fragmentation, affects sheet, but a legend thinks of the next Chairman of Hindustan Lever (now “Our team put a three-year performance in finance, and Vellayan hopes to grow this long-term survival, with only 30% of generation.” Murugappa Group provides Hindustan Unilever), to devise a new way improvement plan in place, which resulted business more aggressively in southern family-owned businesses successfully a good example of how to separate of assessing the family business. He created in a 95% increase in productivity,” Vellayan India. Similarly, in sugar, EID Parry needs to passing to the second generation, ownership and management, create the Murugappa Corporate Board, which had says. As a result, Coromandel acquired a look beyond southern India. 15% to the third generation and just future leaders through mentoring and three external directors, three executive 14% stake in Foskor for only US$6m. Alongside the growth strategies, the 5% to the fourth generation. The key enable a professionally run enterprise. directors and two family members. This is perhaps what the group knows group is focusing on brand building. Today, external directors assess all family best: bringing about efficiencies. That’s Recently, it launched its new logo. With members and the family has shifted from why its target to double its turnover seems growth, it has become increasingly difficult More information ownership to trusteeship. While the family achievable. Nearly 70% of this growth will to draw talent. “Through the new logo, we To learn about how Ernst & Young can support your business in harnessing does play an entrepreneurial role in the be organic, while the rest will be achieved seek to create a sense of pride among our human capital and enabling effective succession planning, email N.S. Rajan at group businesses, implementation of the through greenfield operations, tie-ups employees,” says Vellayan. That should be [email protected] or speak to your local Ernst & Young contact. strategy and achievement of goals is left and acquisitions. “What is giving us the easy, given the group’s track record and the to the professionals. As the group grew, it confidence is the growth in the Indian freedom it gives to its professionals. E

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