Managing Business Transformation at Nirula's

Apr 7th 2009

By Ajeet Chauhan

In assessing the challenges of mergers and acquisitions, the first issue that companies need to focus on
are aspects related to culture. One of the main problems with a merger or an acquisition is that, for all
or some employees, there is not commitment to the new organization. Very few of them form an
immediate bond with the new organization and its management as; they were not involved in the
decision making for the future of the organization.

Besides culture, other big contributors for a successful merger or acquisition are: the actual realization
of the expected value of the transaction, the unexpected costs and the poor management of human
resources.
In merger and acquisitions, an enormous amount of work needs to be done in a short time by large
number of people, so identifying cultural issues early becomes important because it influences how
people make decisions and communicate them.

The years 2006 and 2007 were marked by a spate of mergers and acquisitions all over the globe in both
developing and developed countries. In this backdrop, Malaysian private equity Navis Capital Partners
and Samir Kuckreja acquired Nirulas in July 2006.

This was a turning point for Nirulas: The Company had a strong brand legacy in Northern India and had
its store presence at strategic locations. However the organisation required a transition to a significantly
higher level of business performance and organizational health to allow the company to move toward
national and international expansion.
As per Hewitt research, 66 percent of mergers and acquisitions do not enhance share holder value
because cultural and people integration is not addressed effectively. The new management team in
Nirulas focused on involving and engaging the entire organization and its people to achieve business
transformation.

Challenges Post Acquisition

The company's flagship restaurant changed more than just the address since its acquisition by Navis
Capital Partners and Samir Kuckreja. Navis had clear objectives for acquiring Nirulas: Leveraging the
brand was crucial but the aim was to spread the restaurant chain across India and then scaling it further
to international destinations. The vision was to carve a niche in the Quick Serve Restaurant (QSR) space
by becoming the first Indian-Multinational fast food chain providing a variety of vegetarian and non-
vegetarian options under one umbrella.

Post acquisition, the new management had numerous and complex challenges to overcome in all levels
of the organization.

From Big Brother to Red Tape. Nirulas had reached an organization phase called large entrepreneurial
venture . This period is normally characterized by the use of formal monitoring systems for achieving
greater coordination with top management as the Big Brother. Yet most coordination systems
eventually get stretched and result in the next phase in the evolution of an organisation: the crisis of
Red Tapism. This crisis occurs most often when the organization has become too large and complex to
be managed through formal programs and rigid systems.

The Silent Majority. A cross-sectional analysis done post acquisition reflected minority groups in both
extremes (positive & engaged and negative and actively disengaged) and more of the majority of
employees were in a neutral (need to be led position).

Better Management = Higher Profits. Post acquisition, Nirulas had to leverage on technology to improve
profitability. The organization required improved process documentation, more accurate inventory
management and tighter controls on restaurant activities.

We are in the same boat, Brother. The previous organizational design was unable to maximize
collaboration and teamwork. The organizations and employees objectives were not effectively aligned.

The Game Plan

Navis Capital Partner and Samir Kuckreja were determined to increase employee engagement and
profitability in a structured and sustainable manner. The new management team had to focus on turning
around the organization and getting every employee to imbibe their KARMA, a new set of Core
Organisational Values:

Kartavya (Responsibility & Ownership)

Atithi Satkaar (Customer Centricity)

Rishtey (Belonging & Caring)

Mahatvakansha (Passion to Excel)

Antaratma (Integrity & Fairness)



The game plan for such a task had to address multiple levels as part of a complex program, it had to
work on short and long-term performance goals and it had to affect all the employees - not just
management.
With this in mind, the Mission & Values cascade plan was devised at four levels:

Mission, Values & Strategy

The new management team crafted Nirulas Mission for the future:
To give joyful moments to generations through delicious and affordable Indian and International
choices in fun-filled and friendly environment by innovative and passionate people

To achieve this Mission, the team felt the need to identify the Core Values of the organization. While the
Mission was created top-down, defining the new values could only be done through a bottom-up
approach. The entire organization had to be involved in enunciating them and ensuring that they were
manifested in all organizational activities.

All employees were engaged in identifying the core values, first by participating in a values
questionnaire. Secondly, the shortlisted values were discussed and explored through Focus Group
Discussions involving key supervisory staff. The chosen values and their interpretations were decided
upon by this group.

Thereafter the HR team found ways to cascade the Mission and Values through innovative formal
mechanisms like the in-house magazine (Team Talk) & SMS. Informally, a team of employees across age,
gender and designations acted as change agents in various locations. This group used the
organizational grapevine to disseminate positive information and their opinions on the organizational
Mission and Values.

To permeate and sustain the cascade of the new Mission and Values, a new cross functional group was
created. This cross functional team was called the Value Leaders group. Each leader emerged as a
natural choice from various informal working groups. The Value Leaders were entrusted with the job of
giving formal and informal guidance to all other employees within his/her circle of influence on value
dilemmas.

This team designed and deployed a matrix structure in the organization to address the issues of
collaboration and alignment of personal and organizational goals/ KRAs (Key Result Areas). The entire
workforce was mapped according to the job roles. Functional experts were also identified and trained to
take on coaching and mentoring roles. Policies and processes were tailored to the new situation of a
growing enterprise and new policies were added where clarity was needed. The focus was also on
defining inter-departmental SLAs (Service Level Agreements) and tracking these to streamline
operations.

Excelling at Execution

Changing behaviours and stretching performance: The HR team designed a series of interventions to
align performance with rewards at three levels:

Firstly, Nirulas introduced new pay-for-performance components at all supervisory levels in the
organization. From the team lead at a given outlet to the department heads, 6 to 8 percent of
employees salary was tagged to achieving of financial goals for that specific unit (EBITDA, year-on-year
growth, internal audits, etc).

Secondly, salary reviews for all employees were based on a Balance Score Card performance evaluation
process.

And thirdly, the company implemented a reward and recognition program that was aligned to reinforce
the core values of the organization. The reward program named Thoda Action Ho jaye (Lets get on to
some action) has engaged and excited all levels of the organization, where employees get approbations
that can then be redeemed through gift items.

Focus on operational efficiencies: The managements focus was to increase revenue by delivering guest
services that increase customer loyalty and satisfaction. They unveiled the mantra to Leverage
Technology to Serve the Guest Anywhere, Anytime. Nirulas launched a Delivery Order call centre so
they could consistently deliver services to guests without interruption. The call centre helped in dynamic
load balancing and redirection of calls in the event of an outage or failure. They also handled
fluctuations in call volumes efficiently and effectively. This improved service in turn and lead to
increased up-sell and cross-sell rates.

Measure what you treasure: To mitigate non-conformance risk, the management created a governance
fabric through Internal audit teams. A team of internal auditors were created to assess performance,
report non-conformance and highlight opportunities for improvement using automated audit and
management reporting tools. Another major step was to improve cost efficiency by implementing a new
POS (Point of Sale) system which helped give a new level of control over restaurant operations, boost
profits and fine-tune inventory management. Currently, ERP (Enterprise Resource Planning) is being
implemented in Finance, Production, Purchase and Logistics departments and is expected to bring
business process improvements in those functions.

Engaging the Workforce towards Results

Align people through communication: The new management team believed from the beginning that
ongoing communication was key to maintaining morale and creating emotional connection with the
organization. Many initiatives were created to communicate the new mission, values, culture, decision-
making processes, performance management processes, etc to each employee. It was not easy. What
appears self evident helping an individual perform to his or her best - actually involves understanding
individuals basic motivations to perform, instilling processes & systems to align and manage
performance, and creating a conducive environment of fairness and transparency.

Build Capability: One of the biggest challenges for the new management team was knowledge
integration. There were sets of people who had a vast gamut of knowledge but had no incentive in
sharing it. A conscious program of initiatives was designed to break that wall and to move knowledge
from where it resided to where it was needed. This challenge was overcome by rewarding and
recognizing learning and sharing as a core value for capability building. Employees were given the
opportunity to share knowledge and were recognized for this, creating an environment of pride and
respect for sharing.

Driving Innovation: Nirulas wanted to focus on driving innovation in products and delivery while
keeping in mind the nostalgic and emotive connect of people with the taste, services and practices from
the traditional brand. Employees were involved in the process of innovation through a wide variety of
approaches and techniques (tap ideas through working sessions, training programs, observation and
evaluation, etc). Additionally, the reward program also promoted and appreciated employees that
brought the most innovative ideas based on the existing knowledge base. Training and development
programs were used to show people how to become more self-directed in their approaches to learning
on their own, and to fostering the development of others in the organization.

Measuring Results

Measuring employee satisfaction: Nirulas design and implementation of an employee survey from 2008
has shown that the approach to caring and engaging employees has been well received and is giving its
results. The management team realized that one of the effective ways to minimize and eliminate the
source of an employees grievance is by having an open communication between the employees and the
heads. An open door policy was introduced to facilitate upward communication in the organization.

Measuring organization Results: The transformation success is being measured in the drive of EBITDA,
the year on year growth and the expansion plan achieved. The following are the successes of the
transformation:

The flagship outlet at Connaught Place, New Delhi was re-launched with a fresh and vibrant look;

Nirulas has opened 27 new units since acquisition;

The company ventured into new regions like Jaipur, Meerut etc.;

Created new formats like Fuel station units, Express etc.;

Launched Indias first live Ice Cream Museum.

The idea of a perfect acquisition indeed appears utopian and to sail through it successfully is symbolic of
a good leadership and glimpse of visionary thought. Every acquisition is in itself unique, and the odds are
steep in all cases. The art of making it work lies in being able to start right, well before the combination,
plan with precision, and ensure a relentless clarity of purpose and concerted action in the actual
integration and post-integration stage. Nirulas journey to excellence and growth is an inspiration for
many companies undergoing similar business transformation, but the journey for growth and
profitability continues in each of Nirulas locations every day.