The success of the Kanan Devan Hills Plantations Company Ltd is the result of a meticulously planned sell-off of Tata Tea's plantations to its employees, says T Damu, vice president corporate affairs, South, Indian Hotels Company Limited.
When troubles started brewing strong and steady for more than six years, making the tea plantations unviable to operate on a profitable plank, Tata Tea, one of the largest tea companies in the world, decided to exit from its key tea plantations, keeping only a few others. This was in line with its overall business strategy of focusing on brands. The focus first was on its South India plantations operations (SIPO). Since the major chunk of the company's tea plantations in South India was located in the High Range of Kerala, it became the testing ground for the company's exit strategy.
Nevertheless, as is unique about the Tatas, the business plan was very clear about a two aspects of its divestment. First, the exit from the plantations should not cause any adverse impact on the employees, several of whom had spent their entire life in the shaping of one of the best maintained and organised tea plantations in the world. Second, there should be no adverse impact on the ecology of the pristine mountains of Munnar.
Thus the task to exit was taken in right earnest in the SIPO considering various options. There was great enthusiasm to try the co-operative model of running the business and one estate in Munnar was chosen for a trial in December 2003. However, the employees did not find favour with this model for want of job security and proper management. A producer company model was also explored, but this, too had its fair share of nebulous loopholes and was abandoned.
At this point of time, the management of the SIPO gardens took the initiative of examining the possibility of the 'employee buy out' model under which employees become co-owners of the business enterprise but would function under a professional management. In February 2004, the then general manager of Tata Tea's SIPO, T V Alexander, an avid planter well-known for his path breaking leadership and management strategies, meticulously assembled a core team of young and enthusiastic managers, which devoted itself to several days of painstaking work to come out with the framework of the 'buy-out' model. At the end of several rounds of discussion and presentations to the company's middle and top management in March 2004, the unique business model took shape.
The objectives of the new model appeared as an ideal fit to the Tata Tea's exit plan, as there was an astounding realism about the sustainability of the new entity, without compromising the Tata values on social security and environment conservation. A 10-year business plan was prepared in April 2004, which was shared with the prospective financial partners, ICICI Bank, which was quite excited about the project right from the word go.
The carefully crafted robust business model immediately appealed to chairman, vice chairman and other top officials of Tata Tea and Tata Sons and received their green signal.
The spontaneous flow of support with a magnanimous measures of goodwill from Tata Tea in the form of a voluntary retirement scheme for all categories of employees so as to hand over a right-sized employee base to the new company, shouldering the responsibility of funding and managing the welfare projects such as the High Range School, the General Hospital and the Srishti Welfare Unit (a rehabilitation project for the physically and mentally challenged children and youth, who are dependents of the estate workers), and most importantly holding a 26-per cent stake in the equity of the new company paved the way for a smooth business transition.
There were many such confidence-building measures from Tata Tea for the sibling company, which are very special and very characteristic of the Tata corporate vision. The idea kindled the enthusiasm of the 13,000 estate employees, of whom more than 12,500 are workers. They came forward to join hands as shareholders to form the new company. Thus on 31 March 2005, Kanan Devan Hills Plantations Company Limited (KDHP), was born in Munnar. It is probably one of the largest participatory management companies in the world, definitely the first of its kind in the plantation sector.
What gives KDHP a truly participatory nature are the facts that around 70-per cent of its shares are held by nearly 12,800 employees of the new company, there is a workers' representative and a staff representative on the board of directors, and there are several advisory and consultative participatory management committees comprising a cross section of employees at every level of the estate and factory management and also at the company level.
The company's new bottom-up management plan instead of a top-down hierarchical approach is seen as a radical shift from the past, that has been the norm of the plantation industry.
The employee buy out (EBO) had to work from scratch in formulating policies covering different aspects of governance in the company including HR, quality, marketing, etc. An interesting feature of the EBO is the over-riding desire to optimise revenues from hitherto untapped areas of non-tea operations such as cultivation of medicinal plants, horticulture and floriculture, as well as plantation tourism. In all these areas, KDHP is making steady progress.
The annual accounts of KDHP for the year end shows a reasonable post-tax surplus of Rs2.37 crore. The new company declared a dividend of 14 per cent in its very first year of operations. This is no mean achievement considering that it had to work against many hurdles during the year. The company also received many awards for its tea quality in the first and second Golden Leaf India Award, Southern Tea Competition, held in Conoor and Dubai in 2005 and 2006.
In what has so far been the bastion of large corporate holdings and small growers, the birth and growth of the KDHP model has opened up a new corporate thinking in the trouble torn plantation sector in India. It is a success story of vision, courage and leadership, blended with innovation, teamwork and collective effort, and driven by youthful energy, hard work & a steely resolve.
History would speak; with the passage of time that one bold move saved the century-old plantations of Munnar from ruin. Many families will be able to stand up and bear testimony to the success of KDHP.
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