News reports indicate that the Aditya Birla group has begun a management- restructuring exercise to cut down unnecessary layers to enable quicker decision-making. A five-tier management structure is being envisaged for now, though the ultimate aim is to achieve a four-layered structure wherever possible. The structural changes will help group companies to respond to changing market realities better.

The group has been involved in a process of metamorphosis for quite some time now, and some of its past decisions include fixation of a formal retirement age for group executives and putting each of the group's businesses under a separate business head. The group's cement business, for example, is headed by MC Bagrodia. While the fixation of a retirement age will create opportunities for younger managers, the newly started practise of putting each business under a separate head needs to be examined further.

Group companies Grasim and Indian Rayon are involved in diverse businesses and a number of these activities -- cement and textiles, for instance -- are common to both of them. Considering that the shareholders of these companies are by and large different entities, having one business head for cement or for textiles is anomalous. By definition, Grasim and Indian Rayon are competitors and therefore, each of these companies ought to formulate their business strategies independently. As it is, the group does not score high marks on transparency, and practices such as these would make matters worse.

There is merit in designating one individual as in-charge of one business rather than several businesses, as was the case earlier. It enables the person to carry out his job more effectively as the benefits of specialisation accrue to him. The problem, however, appears to be that these persons are being asked to head businesses that transcend the boundaries of a particular company.

The group has, in the past, considered reorganisation of its businesses by transferring all cement units to Indian Rayon and all textile operations to Grasim, but abandoned the thought after finding that the process was fraught with too many difficulties. Perhaps an easier way out would be to merge Grasim and Indian Rayon, which would lead to the creation of a powerful conglomerate and then introduce division-wise reporting in the interests of transparency. Of course, high stamp duties would still be a problem.

Procter & Gamble

0The 31.65 per cent jump in Procter & Gamble's (P&G's) net profit to Rs 440.68 crore for the year ended June 1998 is indicative of the fact that its product range has moved up on the value scale, like most other FMCG companies. This has occurred largely through packaging innovations and focused marketing. The improvement in P&G's margins is clearly reflected by the fact that sales growth has been a mere 13.70 per cent. More importantly, the bottomline growth has been despite a dip in the other income component from Rs 9.49 crore to Rs 7.80 crore.

During the twelve-month period, net sales increased from Rs 387.58 crore to Rs 440.68 crore, thanks largely to a 43 per cent jump in exports and strong performance in its core businesses of feminine hygiene and healthcare. The improved performance is reflected in the 17 per cent rise in operating profits. Operating margins also improved, albeit marginally, from 16.49 per cent to 16.98 per cent. Analysts say P&G seems to have benefited considerably from price increases.

The bottomline has further been aided by efficient tax management and stringent cost-control measures. Interest costs, which had risen last year, have dipped 18.51 per cent from Rs 7.94 crore to Rs 6.47 crore due to a reduction in inventory levels and prudent working-capital management. Analysts say interest costs will come down further as most of P&G's capex has already been incurred and a substantial portion of its future cash flows will be used to repay borrowings.

Furthermore, despite a marginal increase in the effective tax rate from 17.67 per cent to 19.17 per cent for the twelve months ended June 1998, P&G is expected to have a low tax liability for another two years. Its Rs 100- crore expansion, a major part of which is being carried out at Goa and for which the company enjoys a 5-year income-tax holiday, will come handy.

The markets, it appears, were already privy to P&G's performance. The stock has spiralled northward from around Rs 500 in June to Rs 830 recently. Despite the bonus issue in February, earnings per share have dipped only marginally from Rs 22.73 to Rs 19.95. Besides, P&G's readiness to buy back its shares has also fuelled stock prices.

P&G's strategy for the future appears to be -- "building leadership brands driven by innovative technologies". "Vicks" has been rated as the numero uno brand by the A&M-Marg survey. In the feminine hygiene market, the innovative sanitary product - "Whisper Extra Dry", has been enhancing the market share of the Whisper brand. However, one probable hitch to future growth could be the parent company's 100 per cent subsidiary, P&G Home Products. Analysts say this could well lead to the parent introducing new products through this unit, reducing the importance of P&G India.

(With contributions from Sarad Saraf & Percy Dubash)