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Case Study 3B: Verdana Rural Following are the excerpts of a business review meeting held on Friday 10 February

2006. The excerpts are part of a special session on people process and requirements that was organised in that meeting by Hemant. The same core group consisting of Rohit, Saurabh, Hemant, Swati and Prakash were part of the meeting. Rohit: So, Hemant, what do you expect out of this meeting? Are things alright? What are people thinking and feeling? Hemant: Things are fine. People are generally excited about the direction that our company is taking but theres also a wee bit apprehension about the future in terms of their own growth prospects. While they have no doubt that they will grow, they are more interested in the nuts of bolts of growth-specifically Whats in it for me? Im sure we can answer all that in time; but the purpose of todays meeting is to get a better fix at what we are looking at. I felt that if we all put our heads together, we should be able to paint a near vivid picture of our future organisation which in turn will help us identify challenges and thereby put in place appropriate strategies and initiatives to counter these. Rohit: Fair enough but that is a tall order! Considering the limited time that we have, you dont expect we should complete the process today, do you? Hemant: No I dont. But as they say Well begun is half done! To start, can you give the team a very brief macroeconomic overview of our business? Rohit: Well, nothing has changed much since the last time we discussed this in Nov 2005. The overall business outlook looks pretty positive and our Group Finance Dept also does not anticipate any problem in financing our growth plans. Our revenue model also looks fairly attractive and do-able at present; about competitor plans...well Saurabh can you brief the team about our competitor movements? Saurabh: Sure, as we all know, we are pioneers in this domain space and as yet no major corporate competitor has so far entered the market. However, TBA Holdings Ltd, has announced plans similar to ours but in slightly more urban locations than ours. Nothing much has started on the ground though, it is only conceptual at the moment; I hear they are on a recruitment spree to hire top management talent from potential competitors. Another agri-input company GeoCare Farm Inputs has also started something similar and they are very close to 3 of our existing outlets. That hasnt affected our sales so much but you never know what will happen later! So far they have focussed on agri-inputs only. Thats about it as far as competitors are concerned. Rohit: Given the current economic boom, retail seems to be the in thing. So we should not underestimate our future competitors. Even the current unorganised ones may respond in ways that we never anticipated. I somehow feel that we must be more aggressive than our stated plans. I must add that at my last meeting with the Group Vice Chairman, he felt that our entry into the non-agri and fuel segment which we had planned in April-May 2007 was a little too late. He was categorical in stating that we must target the festive season beginning Aug 2006. I know thats stretching the team, but the analysis done by Swati suggests that this makes more sense. Looks like we have to get out of our comfort zones! Are we ready? Saurabh: That definitely changes things but not too much. Just that we will need to start work right now. We have about 6 months. Should be possible to change the architectural plans of centres that have not yet hit construction yet but as for existing ones, we will have to make some sort of temporary adjustment and make it more pucca as we go along. We could also start with a limited range of SKUs. Prakash: I agree; this will also give us some sense of the market and we could use this understanding to further refine our offering and expand our range. At least we could use the festive season as some sort of test market. Rohit: Thats a risk though. If our existing customers do not like our offer-product, price, range etc, I dont think they will ever come again and that will affect the agri product sale as well. Our brand could take a beating and our future competitors who are waiting in the wings will jump in at the opportunity by learning at our cost. Still,

Ganesh Rao : HRP/FLAME/VRVL 3B

thats the downside of the first movers advantage and given the limited time we have, I think you may have a point. Just that we need to give our best. What resources in terms of people do you think you will need to meet this new development? Also how will supply chain look like 5 years from now? Prakash: We have done some preliminary analysis of the range and assortment of each of the four additional categories with the help of the freelance consultant Shishir Gautam. However at this stage, I think we will need some domain experts full time on our rolls for each of the categories. They can begin with doing market survey in the areas that we are likely to do business and then get on to do buying based on the range plan that we will develop jointly with Shishir. This will also help us finalise our price-points for each of the SKUs. I will give Hemant a brief Job Description for these new Buyers. I would ideally like them in place by latest 01 May 2006. Also since our volumes of agri product buying will go up, I will require at least one more buyer on the agri side at approx the same time. Hemant: Will all these Buyers report to you? You will then have 8 Buyers reporting to you. Also Shishir will not be there forever. You also have a team of three working on the SAP implementation. I feel thats a lot on your plate. Rohit: I agree. It might be better to put someone in charge of Agri Buying; we have some experience in this. It doesnt require your day to day intervention. You would then get more time to focus on the new categories and give them a fighting chance of success. Just as an aside, do you think the Ops Mgr can do this job? He has an agri background and he understands sales and products well. It might be good change for him. Prakash: Sure, but I still feel that we need to monitor both very carefully and at this stage I would like to do that personally. As for the Ops Mgr I havent thought about it. Maybe Saurabh has some views; we can discuss later. I have given some thought to the structure though. Eventually we would be organised more along the lines that FMCG companies are. We would have different Category Managers who would handle each categorydecide range, assortments, additions and deletions , selling prices, discounts etc who are supported by their own team of Buyers. Also when volumes and SKUs increase there will be a lot of back office work- creating Purchase Orders, following up with vendors, ensuring merchandise flow etc. As of now the Buyers are doing this, but I think it will eat into their productive time if they continue to do it, leaving less time for Buying. For the present I will require about 3 of such transaction staff who will help the Buyers. Going ahead, although it will be difficult to estimate, I feel a team of 2-3 staff per category should be adequate. Rohit: But what about distribution? Prakash : At this stage we can continue with the practice of directing vendors to despatch products directly to outlet. The Buyers do it currently. But going ahead, I think we should not be completely dependent on this channel; we should create our own inventory base which we can control. Typically retail chains abroad have Warehouses or Distribution Centres which service a cluster of outlets using owned /hired transportation. I foresee that we will need to set up DCs soon. My guesstimate is that every 20-25 outlets will require a DC; of course this depends on geography etc but thats just a guess. Also typically each DC may employ 6-7 people including the manager, receipt and despatch officers, an accountant and labour. However we will need to commission a study to understand the details. Of course we will need a Logistics Manager at Head Office to whom the DC will report and who will also interface with the Category Managers. Rohit: Hmm..I think Logistics will turn out to be a very critical and important part of our business...that along with IT could very well be the backbone of our business process. Many other of our upcoming businesses can leverage this. Indeed if we do this well, we could even think of making this a profit centre by servicing other companies as well. But thats just a thought. Saurabh...how do you think operations will pan out? Saurabh: The way I see it, apart from increasing the numbers of people who are employed in survey and land buying, we should move to a regional or zonal structure. Each of these regions/zones should have primary accountability for retail sales, customer management, footfalls. Each of the regions can be headed by a Regional Manager; my guess is that about 35-40 outlets should form a region. I know this is a lot of span, and I was

Ganesh Rao : HRP/FLAME/VRVL 3B

thinking if we could have Cluster Managers for every 10 outlets. In fact we could even promote some of our best Outlet Managers as Cluster Managers. I think we will have to do it soon as soon as any one State reaches the desired number. Other than that I think processes like Land Buying, Survey, and Construction should be centralised. We may soon require a Construction Manager. Hemant: Any change you foresee in the store? Saurabh: I think we will need 3 salesmen in the consumer goods section since agri and consumer goods are kept displayed separately. We will also need a separate cashier for the section. Also each Fuel Filing station will require a Supervisor and Cashier along with the fuel attendants. As far as agronomists are concerned, I am getting feedback from the stores that they are not occupied all the time. I am now thinking of reducing the number to 3 for all stores that have completed 12 months of operation. New ones can begin with 4. The small stores can be manned with 1 Manager, 1 Agronomist, 1 Cashier and 2 Salesmen. We will review this as we go along, but I think we can budget with that. And yes..Rohits suggestion of the Ops Mgr being fit for Agri Purchase..I hadnt thought of it. I was thinking more in terms of promoting him to Cluster Manager in the next 5-6 months. But we can debate that later. Hemant: So far we have been taking Agri qualified people with 7-8 yrs of experience in the Agri-Input industry as store managers and paying them approx Rs 3-3.5 lacs . Those with 2-3 years experience we take them as agronomists. Given our huge intake later, I feel that we must target freshers from Agricultural universities or campuses. I feel about 20 % of our overall Agronomist intake should be from campus; thats roughly one in each store. They are cheaper ( about Rs 5000 gross salary p.m compared to experienced agronomists today whom we pay Rs7000-8000 gross p.m), easier to train and we can also give them some career direction. Mind you, the overall costs of agronomists will go up in the near future when demand for them goes up if plans of TBA or GeoCare materialise. Also agri-input companies from where our agronomists typically apply are also getting protective of people and are making counteroffers. Saurabh, I also think we will need to broadbase the specifications of the store manager. If the store is to sell general stuff, what use there is to ensure that the SM is an agri-graduate? Lets look at non-agri graduates too with some sales experience. That will widen our pool of supply of eligible candidates. We could have a mix of both. We would need managers; not mere experienced salesmen; we could train them in functional knowledge in retail as well as managerial fundamentals-managing people, material, time, environment and delivering on top mgmt expectations. They may be more expensive but I think it may be worth it. Saurabh: That makes sense. But we also need to think about what future we can offer them. Given their experience and education, they will be more attractive to our competition. Swati: Hemant, I think you will face a similar problem in getting good quality accountants and cashiers. I have been interacting with these people personally and I find their quality not upto the mark. The good ones you know leave for better opportunities in the cities or for higher pay (we pay them about Rs 6000-7000 gross p.m which I feel is insufficient to retain the good people but enough to retain the duds). The quality of education offered by local colleges in rural areas leaves much to be desired. I would rather take smart people -not necessarily toppers -and put them through a rigorous training program for a month and pay them depending on their performance in the training evaluation as well as their performance on the ground. I do not mind going to campuses but lets also target rural coaching centres who train people in computers. Its absolutely essential that the cashier knows how to operate one. We cant waste time teaching them and we cant teach them computers at our expense! Also as Saurabh suggested the regional structure, I would feel that we would need a Regional Accountant at every region . All accounts cant be centralised at HO. That would be a nightmare. In addition I think we will need 3-4 more people at HO to look at Accounting, Budgeting, Bank Reconciliation, Taxation, MIS etc. Hemant: Adding to that I feel that to speed up hiring, we would also need to have a HR representation at every region. I also feel that most of our field staff (agronomists etc) should be local or rather adjoining districts. Not so the store manager though. Also as the region expands, personnel and administrative issues will multiply. Speedier resolution can be facilitated by the regional HR person. We could probably avoid unionisation of

Ganesh Rao : HRP/FLAME/VRVL 3B

labour too by implementing good Employee Relations practices. Of course all policy related decisions will be taken at HO. At this point of time I will need to double the strength of the HR team at HO and dedicate one resource to Induction and Skill Training. Rohit: Im afraid time is running out now. We could recommence discussion on the subject sometime next week. But going from what Ive heard, I think a few things stand out. We will need to move to a regional structure simply because we are expanding geographically. We have not debated how much centralisation or decentralisation of activities we will do. Maybe it will be better to centralise and keep control over things until we get the hang of it and then decentralise. I dont know. We need to discuss the ramifications of each. Also how much of representation should service functions like HR, Accounts, IT, Logistics etc be given in the Regional structure. What about regional buying then? Should all these functions report to their respective heads at HO or to the Regional managers? If we do give representation whatever the reporting, we will need to set up regional offices for people to sit. Thats a cost. This HO of ours also will be inadequate in about 18 months from now I feel! Listening to Prakash , I am coming around to the view that Category Management along with Logistics and IT are critical functions. They have a direct impact on profitability and as such I feel this should report to the CEO sometime in the near future. In fact each of the Categories is likely to emerge as a Strategic Business Unit. We could discuss this the next time we meet. We havent also discussed Marketing as yet.

Ganesh Rao : HRP/FLAME/VRVL 3B

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