Green Hills East Africa
by: Anantha Narayan Agasthya
Green Hills International has several factories in Africa. This is a study of one of the factories – of what happened when practical management insights and leadership capabilities were applied to real life, real business situations. There were no definite prescriptions in such contexts. Multidimensional changes through determination, energy, persistence and goal-oriented economic decisions and actions, which can guide other decision makers in similar situations, were demonstrated.
The scenario in 1994 was dismal. Net borrowing was 2 Million Dollars. Dividends had not been declared for 14 years. The management was, to say the least divided - between a government-managed company and the private multinational company each with its own agenda. There were 265 employees who had a low productivity of about $1000 a month in sales value. Each employee worked for his individual gains and even management staff showed little leadership. Customers did not think much of quality of the products and only accepted them as an also ran company. Stocks of non-moving materials had piled into, not months, but many years. On the whole it was a typical example of a mismanaged or non-managed company, so bad that there were no funds to repair the leaking roof.
Tom arrived on the scene and was given 6 months to decide whether he would close down the plant or turn it around.
The scenario seven years later in 2001 showed net cash balance of 650 Million Wiggets. During this period, the company had invested over 750 Million Dollars out of its own internal revenues.
The company had increased sales by 80% with a work force of nearly a third of its strength in 1994. The sales per employee had climbed to near over 3 Million Wiggets per month. The company had carried out a project to modernize a critical line and invested Wiggets 240 Million. It had managed a payback period of 17 months.
The customers had a positive view of the company’s ability to service them. The workforce had a higher level of commitment measured in terms of lower absenteeism rates.
The study is presented to briefly explain how the transformation was planned, managed and achieved.
The purpose of the study is to remove the veil of secrecy behind such successes and to show the rigor of the challenges faced. It is hoped that the study will enable more managers to bring out such successes and the insights that are gained through such experiences.
Green Hills EA was a 47year old company in an East African country. A holding corporation of the government owned 60% of the shares of Green Hills EA. Green Hills International, with its regional headquarters in UK, held the remaining 40% of the shares. The company had specialized lines of production for manufacture and supply of packaging materials for a wide variety of industries. A board of directors consisting of representatives of the two partners directed the affairs of the company. Green Hills International was responsible for technology transfer and support, management and purchase of key imported materials. The company had a General Manager representing Green Hills International. Green Hills International carried out financial reviews based on the Group practices and procedures.
The company conducted its business in a bureaucratic manner consistent with the practices and requirements of a Parastatal corporation. Salaries and perquisites were aligned to the national regulations. The Board of Directors met every two months to review the performance and gave directions to the General Manager. Green Hills International reviewed investment opportunities for new product lines, and expansion or modernization of manufacturing facilities.
Situation in 1996:
Sales per annum Wiggets Million Profit (Loss)Wiggets Million Employees Number Variable costs (%) of sales Fixed costs (%) of sales
2000 (84) 265 65 39
Green Hills EA had a net negative cash flow of Wiggets7 Million per month. The company had a long-term debt of Wiggets180 Million which was due for repayment.
The General Manager spent his time between attending to his office and sailing on the beautiful Indian Ocean coast.
By the end of 1994, Green Hills EA had committed the “sins of management” and found itself in the following scenario:
· High overheads
· Poor condition of physical infrastructure
· Obsolete and non-moving inventory
· Low utilization of machinery and work force
· Excessive workforce and poor commitments to organizational well being
· High customer overdue and doubtful balances
· Low customer goodwill
· Fragmented management
The company financially had
· Low cash
· High external borrowings
· Long period of loss making operations and
· No dividends for the shareholders.
The significant problems we face cannot be solved by the same level of thinking that created them
Leadership challenges require quantum jumps and not administrative prescriptions for problem solving
The beginning of change:
As Albert Einstein said: “The significant problems we face cannot be solved by the same level of thinking that created them”.
In the boardroom of the regional office of Green Hills International in UK, the regional management team was divided on what they should do with Green Hills EA Ltd. The majority and vociferous camp wanted an outright sale of the company. Two members of the team believed in the future potential of the company, once the sins of the management were removed.
But who would be the right person for the difficult job?
The big QUESTION????
At the next meeting, a member volunteered to attract a former colleague of Asian descent –Tom- to take on this job. He was confident that if Tom could not correct the sins, no one else could. They gave him 6 months to decide whether to close down the plant or revive it.
This marked the beginning of the change and the rest of the story traces the significant steps that enabled Green Hills EA to turn around.
The key to change is in setting directions and goals and being consistent to these goals in practice
Deeds matter more than words.
Setting the goal
Management is about managing – not being managed.
Tom took up the position of General Manager of Green Hills East Africa. He had a good knowledge about the company’s products and processes. He had an Indian acumen for numbers and the ability to take hard decisions. Tom’s first steps were to collect data and listen to all the stakeholders without necessarily agreeing with them.
While Tom started to cut his way through the thorns of loss-creating history and pulling out the hidden sins from the cupboard, he made his intentions to turnaround the company clear to all the stakeholders by his deeds. He identified the people who added value to the processes and supported all good intentioned actions. He developed a WIN-WIN relationship with key stakeholders. The was not very easy as Tom had to bridge the gaps in cultural thinking and language between his Asian approach, the multinational management systems and the East African social and cultural and bureaucratic milieu that created dependency relationships.
The first step was to allow non-moving inventory to be declared truthfully and provide for the losses. Together with this move, a signal was given that indiscipline at work would not be tolerated. When workers went on strike without notice, Tom did not hesitate to close down the factory.
In brief, Tom’s communications through his actions were clear that he had come to manage the company and not to be managed by circumstances. Such clear actions must have created tacit supporters and also many hidden enemies. The goal was that the company should make profits.
The Market and Customers-Product-Capacity-Market Share Analysis
Decisions on markets, customers, products and capacities and types of leadership are crucial for success. There are no ready-made prescriptions and roadmaps.
Success of a commercial enterprise depends on how well it succeeds in its markets. The analysis of the product mix, capacities and market share in each product line is shown in the table below to show how Tom started to analyse the business potential.
Product Capacity (Annual)
A) 48M 100% 50% Starting to take market share
B) 8.4M 30% 100% Starting to take market share + Alternative Technology giving customers a choice
C) 1.5M 50% 75% Starting to take market share + Alternative Technology giving customers a choice
D) 600M 16% 12% Imports from South Africa and other developed regions offering better quality and prices.
E) 15M 50% 100% Starting to take market share + Alternative Technology giving customers a choice
The figures alone do not speak enough. Tom met customers to understand their perceptions. One common feedback that Tom received was that Green Hills East Africa’s prices were high and quality was not consistent.
The feedback gave the clues for action areas – that product D could be a good opportunity, if customers could be satisfied on quality.
Tom identified the key stakeholders who would support strong and hard decisions as:
· Green Hills International
· Board of Directors
· Loyal and honest staff
Generation of cash and reducing costs were the key issues that would draw the attention of the stakeholders. Tom identified the key customers of Product D, who would be required to be satisfied and focussed on the quality problems that dissatisfied them. He used his technical expertise to identify the causes of the problems. He involved Green Hills International’s technical personnel to bring the machine manufacturers to help them improve the capability of the machines. As Product D was a low volume product until then, the managers had not paid adequate attention to develop the required infrastructure for controlling quality. Tom installed the required infrastructure and trained the staff in understanding the customer’s needs, and controlling the key quality parameters.
These actions were followed by the preparation of a list of long-term actions that were required to meet the challenges of increasing volumes. The list included investment plans of over Wiggets 640 Million. Tom also prepared the list of short-term investments in repair of roofing and offices. Renovation of his office and replacement of his car were lower down on the priorities.
During the first one year, one common message that Tom sent down to all stakeholders was that cost control was a fundamental business issue. He questioned all expenditure very closely. Managers from Green Hills International were uncomfortable at the low cost, but excellent hospitality they received from this miserly Asian.
This was one of toughest jobs. It was unpleasant for anyone to realize Tom would no longer approve as routine expenditure, what was until then taken for granted as a right or prerogative. Dissent brewed. But only those who could convince Tom of the appropriateness and magnitude of the expenditure would get his approval. He had to rely often on his common sense approach and personally check whether the rates applied were reasonable.
Some examples will present a clearer picture:
· Monthly parties for staff were stopped, as it did not improve commitment of the staff.
· Members of the Board of Directors were not given the sitting fee, if they were not present at Board’s Meetings.
· Material suppliers could no longer take the company’s purchases for granted. Tom even challenged Green Hills International’s purchasing acumen and with his knowledge of costs and suppliers. Alternative low-cost suppliers were brought in. In two years, the costs of materials as a percentage of sales, in Green Hills East Africa, were the lowest among all factories in Africa.
· Tom did not replace people who retired.
· He saw the procession of persons coming into the company dispensary daily and brought in an administration system to identify the immediate family members of the staff. Many employees were used to bringing in other relatives as family members as there had been no control.
· The city water supply system was irregular and yet they charged the company for their services. He obtained an approval from the head offices for extraordinary investment in a bore well and withdrew the services of the city water supply. The pay back was less than 8 months.
· Tom reviewed non-moving stocks and personally worked on finding alternative methods of reusing them.
· He withdrew transportation of goods to customer using company’s own trucks and reduced the products prices to ex-works prices. This reduced the cost of maintenance of trucks, which was also a point of leakage. This was an example of a WIN-WIN situation for both the company and its customers.
And the list goes on.
All these actions directly added to the bottom line in small and big measures and the stakeholders started seeing the changes in the financial figures.
A typical dialogue with the regional boss of Green Hills East Africa would give a sample of how there were many tensions:
When are you going to paint the inside
walls of the factory?
I don’t have cash to run my business
and pay my suppliers.
Where is the money to paint?
When are you going to reduce the
I understand that it can be done in 2 months.
A key task of the manager is to juggle with priorities and decide what he should focus on and what he should leave for a future action
If I do it in two months and repent for the rest of our lives, would you accept it? Whoever has told you about the two-month schedule is obviously not responsible for the consequences. I need to do my homework as many issues are involved. Leave it to me.
The clarity in thinking and the commitment to results, seen in the achievements and the turnaround in the bottom line, were the only strengths that allowed the boss to give him an opportunity to succeed or fail.
Winning in the market place
The were two main policies adopted:
When the customer wants something, go all out to give it, even if you lose marginally. Look for volumes. Of course, choose the customer who will pay in time.
Listen to the customer’s real problems and solve them as your own. If the customer criticizes correctly, accept it and work for continuous improvement. If he is wrong, train him to understand and build a relationship, where the customer understands your problems as much as you understand his problems.
Customers started realizing that here was a supplier who did not run away from problems. Considering the fact that the customers were financially strong and big, and that the local staffs of Green Hills East Africa were not familiar with the technology of Product D, the pressure and strain to satisfy customers with the above approach appeared to be very heavy. That was the price to be paid for gaining market share. It further gave valuable insights into the customers’ needs and priorities. Tom led from the front and held the hands of the local staff to learn at their own pace, but satisfied the customers at the pace the customers wanted.
The approach also gave strength to fight hidden corruption in the customers’ ranks. Therefore, when quality and price were right, he could fight for market share, appealing to the sense of fair play among the top management of the customers.
Thus inching his way into being an acceptable supplier on quality, he moved into the realms of getting orders. This phase was not any easier. There were capacity bottlenecks and he needed to replace the old machinery. The capital expenditure approval process in a multinational company can take many months. Will customers wait? They had a choice of importing from other countries.
A hard decision was taken to lose on margins temporarily, to gain on market share. Many managers would hesitate to increase the variable costs by 10%, when the company is making losses and financial managers would not approve such heresies. It is here that his keen insight and confidence in his capabilities gave the company a quantum jump of 25% in market share. The premise was that the increase in volumes and better utilization of men and machines would offset the temporary loss of variable costs.
A wavering on this issue could cost the company a loss of market share for one year. A delay of one day in taking the decision would result in a miss by a month, as the ships are scheduled to leave Japan with the raw materials once a month to Africa. There were no firm orders from customers. There were no forecasts written down. It was pure Asian instinct for numbers and the close relationship that had developed with the customers that gave him the strength to decide. He had communicated his ideas and obtained approval for his decisions from his regional boss. But only his head would be on the guillotine when the budgets were not met.
In the market place calculated fearlessness counts.
The decisions that Tom had to take was:
Order 300 tons of raw materials for delivery to another plant in Africa, where the bottleneck processes would be completed and the materials would be delivered for further conversion to his plant.
There were no orders, only a continuous feedback from customers that showed improved confidence in doing business with Green Hills East Africa
There were many more such tests. A customer’s planning had gone haywire. They needed a product in 24 hours. Problems of capacity compounded by changes in schedules adversely affected efficiencies. Tom was there on the floor to ensure that the order was executed and delivered in time. The customer realized a great benefit of local purchase. Shorter lead times and lower inventory could reduce their costs. Tom’s high-speed response to a customer’s problem became the selling point for Green Hills East Africa. This selling point set the trend for displacing the strong competition from the developed regions.
Building up credentials and generating support form other stakeholders
Step 3 referred to an investment of over Wiggets750 Million. It explained the methods by which cash and profit started improvements. But in a phase of high volume growth and investment, liquidity and cash flow are critical. Tom analysed cash flow and convinced Green Hills International to give him credit.
Tom then pressed on reducing overdues from customers. He analysed customer profiles and withdrew credit for those customers who had cash flow problems.
Tom had to tackle an outstanding Wiggets180 Million long-term loan under an aid package. The government offices did not have the records of repayments and there were disputes on the amount due. The choice that was given to Green Hills East Africa was clear- reschedule or close down operations. The government officials were under pressure to generate revenue and repay loans. They were hostile to those who could not repay. Tom was associated with his “Asian” origins. They would not trust him. Green Hills International gave him the authority to negotiate rescheduling of the repayment or close the factory. Faced with hostility from the officials, he placed the keys on their table and asked them if they could manage the repayment? The officials realised that their demands were unrealistic and they agreed to reschedule the repayment.
Tom met the obligations of the repayment schedule and even paid the last instalment three weeks earlier. He proved that he kept his promises and that his aggression in the face of hostility was because, he could not make promises where he would fail.
Simultaneously Tom targeted on reducing the excessive workforce. He studied the background and the legal issues relating to redundancy of workforce. He prepared his presentation on the business scenario and the product mix of the company. By then, Green Hills East Africa had 180 people, down from 265 two years earlier. He proposed a golden had shake offer for 40 more persons. The Union of workmen raised many issues and finally all the parties concerned accepted the proposal.
Then came the trick task of preparing the list of persons who had to be included. The exercise had to be done in the most confidential manner as any clues on some of the people would delays the whole process. Even the Finance Manager could not be trusted with the names. For a few key people, the cheques were prepared and given to the Finance Manager at the time of final announcement of names.
The level of detailing and precision on these matters and the stress caused by the fact that Tom was the only expatriate in the company at that time, show the real character and the dynamics of challenges in the situation.
Diversions and Hurdles
Recovery processes of organizations are not laboratory model case studies. The reality is in the uncertainties caused by external uncontrollable events and internal reactions that are impredictable.
Tom had to face diversions and hurdles from responsibility.
The plan to process the raw materials in another African Plant was disrupted by the adverse impact of El Nino on the transportation system. The planned supplies did not reach in time. The economy slowed down and an entire product range was affected.
The effect of natural disaster was exacerbated by the poor ability of the government and the economy, to recover and manage the bottlenecks in a short while.
Cancellation of Orders:
A key customer of Product D cancelled orders for five months, with two days notice. Materials had been ordered for 5 moths considering the customer’s volumes. Tom had to accept this situation and maintain his links by communicating and keeping his toeholds in the customer’s management.
Five months of lost business had to be recovered. That was a challenge for that year.
As capacity was built up, a new challenge arose in the form of a large competitor from a developed region. Although globalization has many advantages, in the context of an enterprise preparing a turnaround, in a poor nation recovering from the effect of El Nino and implementing a structural change, the industrial enterprises face challenges of unfair competition from other developed regions. The competitor could offer prices that were 40% lower, as his capacities were large and well utilized and the cost of manufacturing was lower, due to lower energy costs and higher productivity. In addition to these inherent advantages, the competitor had the benefit of export subsidies.
Customers took the bait and asserted their rights to order at the lowest prices. Hang local industry, if they cannot complete was the approach of their spokesman.
Green Hills East Africa lost volumes by 50%. Further investments were put on hold. Tom worked hard to convince the government officials of the dangers of closure of the company, if the business could not be supported by reasonable protection. “Protect for level playing fields, not for profiteering”, he appealed. Customers were lobbying hard to maintain status quo. The dilemma of the government to listen to the voice of the local interests or global interests or vested interests had to be resolved.
Tom gave a win-win proposal. He pressurised Green Hills International to reduce prices of raw materials and passed on the savings to the customers. An interim acceptable price was agreed upon.
In fact, Green Hills East Africa reduced Dollar prices of the products by 20% in four years through improvements in productivity, capacity utilization and all round reduction of costs.
Organization Changes-Innovations –deviating from prescribed paths
Changes in the organization are always necessary when drastic changes in the business product mix, business performance and work culture are carried out. Such changes in organizations can themselves lead to a new set of problems, if they are not controlled. In a backward economy, the effect of the sweeping changes can be adverse, as the people are not exposed to sudden changes in their working lives and they are not equipped with the abilities to learn new skills to cope with the changes.
Tom found a solution in “Multi-skilling”. He used this concept to develop their latent talents and it gave the good employees avenues for recognition.
He developed the concepts of World Class Manufacturing, in a practical manner, a little different from the textbooks that were issued with roadmaps. He knew that roadmaps generate directions, but they did not generate the horsepower to move forward. The need of the hour was to move forward as fast as possible and generate the volumes necessary to sustain the business.
Midway through the process of the developments related here, Green Hills East Africa was privatised and Tom played a significant role in the smooth and speedy completion of the process. It is debatable whether the successes at the later stages were facilitated by the privatisation. Since several of the steps taken were initiated in the pre-privatisation era, it is possible to state that changes can be made by sound management will and practices even within the framework of a parastatal organization.
The following Table will summarize the turnaround achieved in financial and related figures:
YEAR 1994 2000
Sales per annum (Million) (84) 265
Profit (Loss) (Million) 65 39
Employees Number 2000 3300
Variable costs (%) of sales 722 83
Fixed costs (%) of sales 55 23
The above figures that represent the happenings in Green Hills East Africa are based on a real life situation. They throw challenges to managers in Africa and elsewhere; as to what can be achieved in, not only business enterprises, but also other organizations - that deal with people and results that effect people and economies. The study challenges both local and corporate staff to seek extraordinary solutions to common business problems through leadership and application of management concepts. Many theories of leadership can be tested against the background of this study. There are other cultural, behavioural and management issues, which have not been addressed in this study .The author is aware of these limitations. The purpose of the study would be achieved, if it arouses interests in the issues that have been raised and in the issues that have not been brought up here.
Anantha Narayan Agasthya
Sage Industrial Management and Consultancy Service