Quarterly Journal on Management
From the publishers of THE HINDU BUSINESS LINE
Vol. 2 :: No. 2 :: August 1998
A first generation entrepreneur, K. Raghavendra Rao, Managing Director of the Chennai-based Orchid Chemicals and Pharmaceuticals, can today afford to look back at the rate of growth of his company - its turnover rocketed from Rs. 43 crores in the first full year of its operations in 1994-95 to Rs. 253 crores last year - with a lot of satisfaction.
He spoke to Praxis on length about his vision, management style, work environment he has created for his employees, and most of all, the team effort put in by the core group in the Company, which are all responsible for Orchid's impressive performance.
Q. You are a first generation entrepreneur. How was it in the beginning? Did you face major problems from financial institutions or other bureaucratic hassles in setting up a venture like this?
A. Frankly speaking, we did not have any major hassles in establishing this unit. Dissatisfaction comes when there is a big gap between expectations and reality. We didn't expect too many great things from the administration or the bureaucracy, because we are Indians though we might have spent some time abroad. We know how things work here.
Coming to specifics, since we were determined to be a 100 per cent EOU, the licensing procedures were centralised in Delhi. We applied to the secretariat for industrial approvals and we got them quite quickly.
As far as credit is concerned, we went to a leading institution like the IDBI. I believe in going to the right institutions, talking to the top persons straight away, putting our cards openly and making a professional presentation.
Q. Is access to the top people always there?
A. I could get my appointments and meet them without any references. I just called up their secretaries, fixed up meetings, went with my team and made a presentation and they could see that except for us not having had any ownership in a company, we had all the other attributes as a team in terms of project management, product identification, successful establishment and running of companies in our previous endeavours. Those factors were given a lot of value by the institutions and they gave us the loans.
Q. Will you define the `we'?
A. We are a team of five people who have been working together in our previous endeavours in India and abroad.
Q. How did your career progress before you started Orchid?
A. I identified my entrepreneurial skills only when I went to Standard Organics in Hyderabad. That was my first exposure in pharmaceuticals. In 1986-88, I thought it was in me to establish and successfully manage projects. But I come from a middle class family and we don't have any liquid assets or property. So I thought of going abroad, selling my services at a better price and coming back to put up a project in India.
I did my commerce from Andhra University, where I was a gold medalist. Then I went to IIM in Ahmedabad, majored in finance and then, I did my ICWA and Company Secretaryship. My initial exposure was in Kwality Ice creams in Bombay (1979-81). I was one of the team members who turned around a sick unit in Ahmedabad.
But it was a small family owned organisation and there was nothing much to learn or contribute beyond a certain point there. Next I joined Ashok Leyland in Madras where I stayed for four years. .. till end-1985. Here, I was given many opportunities compared to other professionals, but even though the company was big I found I was not growing compared to the potential I thought I had.
Though I had worked for a big company and a small company, I had not reached anywhere in my own estimation. So I said I'll join a medium sized organisation and try to grow with it. That is why I went to Standard Organics in Hyderabad, joining it in its nascent stage as Project Manager and going on to become Vice President, Finance and Operations. I was given a free hand and it was a good experience but my middle class background prevented me from starting anything big. So I decided on going abroad to sell my services.
Q. Where did you go?
A. Oman, where I joined a small group called Al Buraimi group. His one line definition was to become big. I joined in November 1988 as the company's first qualified person. It wasn't a typical 9 to 5 Gulf job or a desk job of a glorified accountant with a lot of money. I joined with a challenge. I was then only 28 years old. As Oman did not figure in the United States' quota list for exports, we started the first garment unit which is the biggest garments company - Al Buraimi Garments - in the Gulf even today. We exported more than USD 25 millions worth garments.
Then we set up a pharmaceutical unit, which produced and exported USD 25 million dollars worth of drugs to 25 countries. As the area was a transit point, we put up a five star hotel, and a steel plant followed. In four years we put up four projects, taking the group from an annual turnover of less than USD 2 millions to over USD 80 millions.
Q. If it was such a big challenge, why did you leave?
A. Why did I go in the first place? I went to make enough capital to come back and do something. All said and done, I was No. 2, not No. 1. I didn't belong to the country. Ok, I was given a BMW, a big villa with servants, was travelling first class everywhere, and was de facto chief operating officer of the entire group and on the board of all the group companies as a Director. I had a tax free income of over USD 10,000 a month with several incentives.
But I did not lose sight of the objective for which I went there. My mission having been completed earlier than I thought, I returned in mid '92 to establish Orchid Chemicals and Pharmaceuticals.
Q. And your team came with you?
A. In all these endeavors - both Oman and Hyderabad- I had a team of five; Mr. M.N. Reddy our Deputy MD is technical person, Mr. Bhaskar Raju is financial controller, Ms. Edna Braganza is the Commercial Manager who takes care of purchase and Sales, Mr. Chandrasekhar is our Company Secretary and Mr. Mani our Projects Manager.
Q. Why did you decide on pharmaceuticals?
A. I had exposure in chemicals, ice cream, hotel, steel, garments and what not. I chose pharmaceuticals for two reasons. One, I feel this industry will be there as long as human beings are there because it is directly linked to the health of human beings. Medicines and diseases can change but problems pertaining to people's health will always be there... and X medicine or Y medicine will be required. So, as an industry, its longevity is that of humanity.
Two, this industry has the highest of versatility. With a bit of modification you can do many types of different products. The flexibility and versatility of bulk manufacturing is not there in any other industry.
Take, for example, a hotel. It can only be a hotel. If tourism drops, the hotel occupancy reduces. In a steel plant, if the construction activity comes down, there is nothing much you can do to modify the plant to make something else.
A classic case is of Standard Motors.. they imported dyes and casts for manufacturing the Standard 2000 car. When it failed due to its low fuel efficiency, the company had to fold up because those assets could not be used for making any other product or project. It is a one-to-one correspondence. If it works, it works. Like the form, fill, seal technology of IV fluids. You cannot do anything else except form a bottle, fill a fluid, fix it up and seal it. It is a single product, single machine, single orientation.
Q. You felt the challenge was greater in this industry?
A. Challenge as well as opportunity, flexibility and versatility. Products may come and go, technology may come and go, but still, as an entity, as long as you keep your working capital climbing, your product climbing, your chemistry climbing, by changing the parameters a little bit, you can keep making many products with the same equipment.
Q. When you launched Orchid, your turnover Rs. 5 cores in 1994, now it has gone up to 243 crores. That is a phenomenal growth in four years. How did you manage it?
A. Financial numbers are a reflection of certain steps we took. We never had targets like in four years we should be a Rs. 200 crore or Rs. 500 crore company. Numbers are important but more important is the direction a company should take. We give this direction through certain policy decisions in terms of product choices and the market presence that we must have.
The numbers which followed were a result of this direction. There is no big point in trying to achieve somehow Rs. 100 crore turnover and have an EPS of only Rs. 10. Then, the direction of the company is wrong.
Having made this broad statement, let me get into details. How and why we did what we did. Within pharmaceuticals, we chose to be in cephalosporin rather than a range of products because we thought focus would help. I'm not saying this is the best strategy in the world. There are companies which have succeeded by doing something of everything. Each Company has its own philosophy and strategy. I cannot judge who is right and who is wrong.
Q. Talking about philosophy, was it evolved by your entire team?
A. I take a lot of inputs from my people and we move as a group.. in the first six months none of us took any money from the company as a salary except a limited amount for household expenditure. So, we have a lot in common in terms of outlook, lifestyle and behaviour.
Each position is occupied by a qualified person, because he has the ability to occupy that seat and not because he is related to me. None of them.. either at the Board or operating level is related to me.
Q. In most such cases, the family members automatically follow with their savings, and go on to become Directors, etc. How come Orchid has not gone in for this?
A. Even before Orchid was born we were a set of professional people who had come together, established companies and made them successful. I wanted to replicate the same thing in Orchid. We wanted to prove that a set of professional people can come together like this.
Q. At any point of time, did you have to say `No' to a family member who wanted to invest in Orchid in a big way?
A. There was no such thing. Yes, the financial background of our family has not been that good, and no one has been in business. Not that someone came with tons of money and I refused it.
Q. Would you like to talk about your personal stake in Orchid? Do you sometimes feel threatened that the Company is doing so well and there may be a take over threat and you should increase your stake in the Company?
A. True, the intention to increase the stake is there, but it has to be backed up by money also which we don't have. We are reasonably content with the holding that we have now.
Q. What kind of holding do you have?
A. Our group has 38 per cent.. and we do have right thinking individuals and institutions who will be with us, I suppose and hope. All this put together comes to a little more than half, so I feel we are on a safe wicket.
Coming back to the rate of growth, first we said we'll start with products we know and which are off-patent products. We became the biggest producers of cephalexine in India and one of the biggest in the world. But we needed to add more products and differentiate between what is in Orchid's hands and what is not, and concentrate on something which we can control.
Things like international prices and competition were not in Orchid's hands. But what we could control was addition of new products and markets, as well as becoming the least cost producer in the world.
Having identified these three goals we went about vigorously pursuing them. So from a single product company we are now a 13-product company. We're the biggest producer of all the 13 products in India and among the top five in the world. And we did that in four years.
Coming to geographical presence, our presence has gone up from three to 34 countries. The current year's target is 40 countries.
Q. Your operating margins have been rather high too. Any particular style of management which made this possible?
A. Our main style of management is empowerment of our employees. We empower people to manage their departments and to be accountable for their portfolios. This has really spurred them on to develop process technologies and become achievers in their own domain.
Q. So you give them total freedom to take their own decisions?
A. Yes, and I think this is the single most important thing responsible for the success of the company.
Q. You give credit for Orchid's success to the entire team?
A. Of course. One person can only dream and probably be on his own but to do things you require more than one person. One person can provide the leadership.. I don't want to say everything is happening by itself and I'm doing nothing.
Q. So what is your role?
A. My role is identifying the right people for the right job, and my satisfaction is that I am able to motivate these people to give their best. A lot of people may say that they empower or motivate people, but there should be an index to determine this.
Q. How would you define this index?
A. An external index can be how many people at the executive/senior level have left the organisation in the last four and half years of our existence? The answer is: practically nil.. perhaps one or two in a senior executive position.
Q. People don't always leave because of money, right?
A. I'm coming to that. So people leaving is one index of empowerment. What is the other? Are we paying the highest salaries in the industry? The answer is no. In spite of that people have not left. Why?
The reason is that they feel they are part owners of this organisation. In terms of actual shareholding, when they joined the company, we gave shares to all our employees at the time of the public and rights issues. And at my cost. Not because I wanted to calculate so many shares into this value will mean so much return. No. it is a question of a value system.
The person who is going to bring you coffee now, owns shares at my cost. You can spring a surprise on him by asking him this question. This provides motivation.
(The question is duly asked. He had 300 shares but had to sell them as somebody cheated him over a housing issue).
Another thing is that I myself put in a lot of work in the company. This is seen, perceived and understood by the people.
Q. Like the general leading from the front?
A. Yes. And I don't do this because I want to impress people. This is my nature and even age is on my side. (He is 38).
Q. You talked about team work and five of you vibing well together. What are the elements which make 5 or 6 different human beings click and work together in harmony? Would you say chemistry is important?
A. Definitely that kind of chemistry is required. I'm fortunate to have capable people and with the right chemistry. If suddenly one fine morning I had wanted to start Orchid, had interviewed people, collected some five disparate individuals and put them together in a basket or a room, it would not have worked. Prior to Orchid, I had dealt with many Finance Managers but I could identify only one.
And it's not only me, it has to be a two-way process. These are matters of heart, not matters of mind alone, especially in the Indian context. We are people who do things from the heart and in the process we use our minds.
My previous exposure and experience in different companies helped me in identifying the right team.
Q. There should be an element of trust also..
A. Definitely. Each one had a family and a lucrative job in the gulf. Just because I had this vision, they need not have come. My financial controller at that time was getting over Rs. 80,000 a month in Dubai. Why should he come to get one tenth of the salary.. that was his first year's salary.. of course, it has increased now. That is trust. ..we had confidence in ourselves and our capabilities and decided we'll swim or sink together.
Q. You talked about empowerment. Is the traditional structure of organisation no longer useful?
A. Yes.. and our company is quite lean at the top level. The entire Commercial department of purchase and sales, which handles Rs. 400 crores in one year alone - Rs. 240 crores of sales and maybe Rs. 160 crore of purchase - has hardly 7 or 8 people and that includes raw material and packing material purchases, domestic sales documentation, exports in different markets, etc.
Q. But how does such a small team manage?
A. They may be few, but they are highly motivated and capable people. Without fail, we have given accounts in April.
In R&D, the motivation is not in terms of the facilities or high salaries. What motivates them is that their efforts see the light of day in terms of commercial production and international marketing. That gives them maximum satisfaction. It is like a sculptor whose creation is appreciated in the world.
They get the satisfaction: Hey, I worked on this product in the lab for so many months.. I made a product which is accepted in the international market. We are able to provide that kind of satisfaction and motivation for a technical guy.
Many companies are probably not able to provide this, and hence are not able to retain top class people. At the end of five years such people should be able to look back and say: "Yes, I played my role in the success of Orchid, and will play a further role in its growth in the future. "
Do you have any faith in managements books or theses being dished out on successful management or do you regard hands-on experience more valuable?
A. Coming from a management institute, deriding books, courses and lectures by celebrities may be taboo. But frankly, I feel that it is just common sense, application of mind and doing things with your heart and being honest about your attempts.
If these basic attributes are there, job oriented skills can be learnt. If you don't know how exactly to fix an equipment, you can learn it, but if you are basically not a hard working, committed person with a clear conscience...
Q. You are talking about attitudes.
A. The basic attitude and attributes if you don't have as a person, you cannot do anything. It is a total hands-on approach of applying your mind, doing what your heart says and being committed and honest. Its not only financial honesty but honesty of purpose and commitment. It is this kind of honesty which will earn you respect. Because I am the Managing Director, the peon should not salute me. He has to have respect for me from his heart.
Q. From bulk to formulations is an add on thing for your Company. Where do you see yourself going in the future?
A. Formulations will take a major share. In the current year, we expect between 5 and 10 per cent of our sales coming through formulations. This percentage is going to increase every year by about 10 per cent. More than just numbers, we will add value to whatever we produce.
Q. What about the Indian markets? Do you see space for yourself here?
A. Yes, we will enter this area too. People talk of missing buses. But I believe that buses are going every day. It is for you to board a bus. When we started Orchid and went into cephalexin we were not the first people to do so. But we are the largest in India and the third largest in the world with 18 per cent share of the world market. Before Orchid was born, for 5 to 7 years companies like Ranbaxy and Lupin had been producing cephalexine. I have nothing but good words for these companies.
Orchid came in and could capitalise on the opportunity. Probably some other company could also have done it. That kind of a bus was there and we boarded it. But within the buses you have to identify which is the faster and better bus and will take you to your destination in a safer and more economic way. These are the decisions you have to make... filter the opportunities and choose your areas.
Q. Do you think luck plays a role in such success? Being there at the right place at the right time kind of thing?.
A. But to be able to do the right things, application of mind, contacts, common sense, group thinking, analytical ability and market research are required. That plays more of a role than luck.. like fortune favouring the brave. You have a gut feeling.. you're also taking some risk; you take right decisions at the right time; you have market data to support you; you have the information back up; the team and the equipment and select the right products.
If you do all this you're considered brave by the gods and fortune follows.
Q. What kind of management style do you plan to apply in the future?
A. It will continue to be professionally managed. People should occupy their chairs because of their competence and not because of shareholding. It should be incidental that I hold shares in the company. If I am not competent to manage and direct the company as Managing Director, I should resign despite the fact that I hold 30 or 45 or whatever per cent of the shares.
If the Financial Controller does not have the wherewithal to deliver the goods, he should not be in the job. That is why none at the directors' level, none at the managerial level, none at the employee level is related to any of us. I'm not saying family owned organisations are bad.
It's like education. You may say Russi Modi was only a matriculate or Dhirubhai Ambani only an VIII standard student. I don't think those examples prove the point that people should not get educated. Similarly, just because some family owned companies are successful, it doesn't mean that all companies should be family owned.
It's much easier for me to deal with a professional chartered accountant rather than my own brother-in-law. My own comfort level increases if I have to deal with a professional. That is why none in my family or any of my close relatives are anywhere near the company. My brother is a doctor. We have three doctors on the Board but he is not here.
Q. What kind of work environment do your provide?
A. We have a value system. We have created a work environment for our employees which is second to none in the country and definitely among the best in the world. We go out of the way to give incentives. For example if a person wants to better his qualifications while working for the company, the company pays for it, and without any commitment from him that he will continue to work for the company.
I should not tie him down just because I paid his fees. If through higher education he becomes a better person, I am happy for him. If finds Orchid a good working place, he will continue to work here. There is no point in forcing him to stay here... trying to beat a raw banana and make it ripe... is never going to happen.
We have scholarships for employees' children who do well, and medical insurance for the entire family. There is no point in my calling them a team unless I treat his father's problem as good as my father's problem.
Q. For all employees?
A. Yes. We have life insurance for them too. Right from day one, we had a canteen, and there is office transport with 19 pick up points at different locations. Even though it was not mandatory by law for a new company, from the beginning we've been paying Provident Fund... and we pay bonus even though we don't come under the Payment of Bonus Act as a new entrepreneur.
Share and care is our approach. When the employees see this kind of a pro active approach from the management, they also give their best, as you said.
Q. You've been spending a lot to take of environmental pollution too.
A. Even for our employees we don't do something because we are compelled to do it, but because of our own value system. In terms of ecology. we are the only zero emission company. We want people to look at us and say this is the factory which is as good or better than any other in the world. We go beyond meeting our legal requirements.