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Saturday, March 12, 2011

Lessons from a Rs 12,000 crore man(Mr Pankaj Patel, MD-Zydus Cadilla)

In the concluding lecture of the IIM-A guest lecture series, we had Mr Pankaj Patel(of Cadilla Healthcare Ltd) present his life experiences. For those unaware about the company, it is India's 5th largest pharma company, with FY11 sales of $1BN, with a FY16 revenue target of $3BN(!). It has delivered on its earlier promiises and the market rewards it with a valuation of $3.5BN(close to Ranbaxy's market cap). This lecture held a special interest for me because my study group had presented(to our class) our understanding/critical evaluation of the company's strategy. I naturally wanted to assess the accuracy of that evaluation. And then, Mr Patel is a technocrat with more than 50 research papers to his name(for more about him read this Nov-10 cover story in Businessworld).

From his talk, the following were the highlights/impressions I got
  1. Practical/Numbers driven:- Like most Gujaratis(and I'm not being racist merely complimentary), Mr Patel believes in the adage of performance/bottomline. So his vision statement itself contains the revenue target. His explanation is that unless he holds himself accountable, how can he expect the other company staff to be accountable for achieving that target.
  2. But taking a long term view eschewing shorttermism:- Giving the below examples, Mr Patel cautioned against the tendency to be too greedy. He said that taking a long term approach worked.
    1. his 1997 JV with Bayer(which broke down and was again revived in 2010)-where he had parted amicably without extracting the pound of flesh(break up fee)
    2. The 50:50 Zydus-Nycomed JV(yielding Rs 60Cr dividends/yr), where he had allowed royalty to the foreign partner(unusual in the pre 2005 era) expecting gains post 2005
    3. Waiting 2 years to assemble a team in USA for organic growth instead of rushing into a value destroying acquisition.
  3.  Paying attention to small details to change people's mindset:- The examples for change management were really mind blowing such as 
    1. Changing the target currency from INR to $. He said that that was to make the whole company think in terms of $ and expand their mindset
    2. Renaming the company's conference rooms as 'London, Paris,New York' and those locations where Zydus planned to expand/locate itself
    3. Using a 1 fingered salute to remind people about the $1BN target(!). This allowed the people to slowly internalize in the concept of $1BN. Tagline of 'healthy billion' also used.
    4. Playing a motivational video before every company event/meeting, which leveraged the emotional anchors of independence struggle, daring to dream etc. 
  4.  Culture is everything:- Following a small firm 'string of pearls' acquisition strategy where they pay reasonable prices for small firms, align those people to Zydus's mindset and then focus on understanding the market. This approach is slow and steady but it works. For example, they are among the top 10 in France but another Indian MNC entering late is lagging despite hefty acquisition. 
  5. Co-existing with competition:- Giving the example of the USA generics market, he said that Zydus voluntarily decided to just take 20% of the market(where it could have taken 80% due to cost advantage) because it did not want margin erosion later. He contrasted this approach with the present view of 'killing the competition'. He explained the importance of this philosophy in the pharma industry where  JVs/alliances are the norms wherein you compete with your allies in some segments and partner with them on the other. 
  6. Proactively building organization capabilities(few example of initiatives).
    1. Disha:- Therapy marketing training-where salesman learns how to sell more than 1 brand to serve the purpose of chronic treatments.
    2. Phoenix:- Brand building
    3. Prism:- Procuring better
    4. Delta:- Globalize
    5. Sphinix:- reduce manufacturing costs.
  7. Strong performance review/leadership development:- Every quarter, the top 100 leaders meet to review the performance. During that session, a reputed business thinker is called in to present his views.
  8. Big picture/risk taking/out of box:-Many of the initiatives like respecting patents, building infrastructure, investing in research and entering certain markets, were far ahead of their time. For instance, while deciding to enter into the virgin territory(of France), he carefully picked a high growth soft spot of generics where a rising tide would lift all boats. This careful analysis, coupled with some big picture thinking like India shifting to product patent regime post 2005 and India losing cost competitiveness eventually so better focus on productivity, helped Zydus Cadilla to withstand the vagaries of time. 
While I still doubt the R&D based target(due to some spending issues), I admire the zeal and passion of Mr Patel. After listening to him, I understood why he's worth so much. And that was a learning in itself.  

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