That investment in goodwill is now about to pay off. On April 1, 2001, not only will Godrej Soaps' debts and fixed assets (factories) be demerged into Godrej Consumer Products Ltd and Godrej Industries Ltd, its employees too will be divided - a critical part of the demerger. The total number of employees at Godrej Soaps is 2,650 people. Of this, 1,000 people will go to Godrej Consumer Products Ltd and the balance will be part of Godrej Industries Ltd.

The idea behind the demerger was to focus on consumer products so as to enable this business to grow better independently. Consumer products contributed about 47 per cent to Godrej Soaps' turnover of Rs 787.4 crore-chemicals account for another 42 per cent-last year. The consumer products division of the company-with a turnover of Rs 382 crore-is a profitable business which deals in toilet soaps, hair colour and toiletry products. Leading brands in the consumer products business are Cinthol, Ganga, Fair Glow, Nikhar, Color Soft and Kali Mehandi, among others.

Now, hopes the Godrej management, that the early communication strategy will minimise the pressure on the formation of the two new companies. Psychologically, they have been preparing for this day. "A demerger is different from a merger. A merger involves the coming together of two cultures. In the case of a demerger, it is not very difficult to manage people issues as in the case of a merger," says Godrej Soaps executive director (corporate personnel) Mr CK Vaidya.

Demerger challenges
Typically, anxieties and worries are heightened in the case of a merger-where two different cultures mingle-or a takeover/acquisition, where employees, who are part of the company that has been acquired, feel uncertain about their jobs.

Nevertheless, as in the case of any merger or acquisition, the handling of people issues came into sharp focus in the Godrej Soaps demerger. The company's HR department made sure that a continuous dialogue with employees - such as informing employees about all major developments with regard to the demerger through personal letters - was undertaken.

"Clear communication at all times helped the company to avoid any case of anxiety. We informed the employees that it would not in any case upset the salary they take home and the perks or perquisites they enjoy at the moment. This has put to rest any anxiety that could have cropped up in the minds of the employees," Mr Vaidya added.

Structurally, there is no change and the same head office houses the two divisions. Hence, physically at least the companies will more or less continue to exist as they currently do. However, there may be certain instances, at a later date, of shifting of employees so as to facilitate the two companies to operate as independent entities. By then, feels Mr Vaidya, employees would have fitted well into the moulds of their respective companies and would willingly follow the change.

"Employees have been divided on the basis of what areas they currently operate in. I was part of the consumer products division under Godrej Soaps, and will thus be part of Godrej Consumer Products Ltd. There is no confusion in the minds of people as to which company they will go to, and thus no anxieties," says Mr Girish Korde, marketing manager (consumer products division) at Godrej Soaps.

Though as part of the demerger, factories and people will be divided, certain critical departments such as HR, Finance, IT and Corporate Personnel will continue to be common, albeit for a short while, for bringing about a smooth transition without any hiccups. "We did not want the newly demerged consumer products company to carry any baggage or flab along. We wanted the people to get over the trauma," adds Mr Vaidya.

Demerger deconstruct
Under the demerger, the Valia factory - which is entirely the chemicals factory - will go to Godrej Industries. The Vikhroli factory, which is mainly a chemicals factory but also has some soap production, will go to Godrej Industries, and it will do soap manufacturing on a contract basis for Godrej Consumer Products. The Malanpur factory which is a soap manufacturing factory will go to Godrej Consumer Products. And the Silvassa factory which is entirely a hair colour factory will go to Godrej Consumer Products.

To tackle with the complex manpower issues that could arise from the split, an apex committee-under the chairmanship of company chairman Mr Adi Godrej-was set up last year to facilitate the demerger. There were eight members on the apex committee including Mr Godrej. A number of sub-committees, and smaller committees under the sub-committees, were set up in every department and division. While the apex committee met once every 1-2 weeks, the other sub-committees met as per their requirement.

"The biggest concern that everybody had was, how would do we operate on April 1? How do we run the factories - what packaging material, what logo, what wrappers are to be used, sales tax registration, etc? These are all concerns which have been taken care of," said Mr Vaidya.

The sales and operations department geared up to oversee the inventory situation at the company. This department monitored the inventory levels every three months so as to keep it to the barest minimum at the time of the demerger. Old stock had to be exhausted to the extent possible. It was also decided to have a common employee Provident Fund so as to avoid the teething problems.

The day after the demerger
This is not the first demerger at Godrej Soaps. In 1992, Godrej Agrovet was spun off from Godrej Soaps into an independent company. "The demerger of Agrovet was a rather simple one as the factories were not in Mumbai. However, since we had gone through a demerger earlier, there were some learnings. It enabled us to bring about a smooth transition in the current demerger," says Mr Vaidya. Godrej Agrovet operates in the animal feeds business and is a market leader.

The big challenge after the demerger of course is going to be the day after. Accordingly, the company is in the process of drawing up an HR plan to identify characteristics or traits that are required in people for their development in both the new companies. Consumer Products was a successful business for Godrej Soaps, and it was imperative to make it independent through the demerger, so as to enhance shareholder value.

Among the common characteristics that have been identified for both Godrej Consumer Products Ltd and Godrej Industries is, creativity. "Both businesses need to develop and succeed. For chemicals, an individual will require a deeper understanding of chemical technology and cost implications are more important. For an employee at Godrej Consumer Products, there is a need for a deeper understanding of better customer experience and even better product improvements. Based on these, we are trying to work out a plan which will enable employees of each company to inculcate these characteristics," says Mr Vaidya. These practices are expected to be formulated in the next six months.

The consumer products business by nature is very different from chemicals. While the former is driven by brands - and thus marketing and creativity play a key role - the latter needs to focus more on costs.

The recruitment process - which is common for the Godrej group - will remain unchanged. Other HR policies on rewards, performance management and best practices will continue as earlier. Godrej has been following continuous improvement through Kaizen - they have a Kaizen Appreciation Forum, where employees share their improvements at the work place. The chosen best are then rewarded at the forum by the chairman to motivate them. These best practices will be adopted by each of the two companies.