View from McLeod Road: Can Fauji successfully pull off its diversification strategy?

Published: March 30, 2015
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PHOTO: FAUJI CEMENT

PHOTO: FAUJI CEMENT

CHICAGO: It is no secret that ever since Engro Corporation had its successful IPO of Engro Foods, the two Faujis – Fauji Fertilizer and Fauji Fertilizer Bin Qasim – have been trying to diversify into the food business. With their proposed acquisition of Noon Pakistan, a small dairy products manufacturer, they may well get a head start. But how successful can this strategy be?

For Fauji, the challenge is not just executing a business strategy that works, but creating a culture that is very different from the current working environment at the company.

To understand what it will take for Fauji to succeed, it is important to understand how Engro, which was then the smaller fertiliser and petrochemical manufacturer in Pakistan, was able to build a leading consumer goods company that successfully competes against Nestle in products and against all multinationals for talent.

When Asad Umar first announced Engro’s decision to create a food subsidiary in 2004 at his alma mater, IBA Karachi, his statement was met with incredulity. How could a fertiliser manufacturer, with its heart and soul in its engineering operations in Daharki, create a food business?

Umar’s answer was: hiring the right people. He chose Sarfaraz Rehman, a man with decades of experience in the consumer foods space, including at Unilever Pakistan and PepsiCo Pakistan. Umar made his fair share of mistakes as the CEO of Engro, but hiring Rehman was one big thing that he got right. Because what Rehman did next should become the next textbook case study on how to build a world-beating business in the consumer goods space.

Rehman’s strategy for building out Engro Foods was simple: hire some of the most talented young people in the consumer goods space and then give them the freedom to run the business as they see fit, backing them up fully. And so he built a working environment that, in its early days, was more like a Silicon Valley tech start up rather than a division within what was then a stodgy petrochemical business. Twenty-somethings working late nights, bean bag chairs and all, and being excited about building a new business from the ground up: no rules, no limits on their imagination, with Rehman acting as the cool uncle or elder cousin, who was their champion in front of the board of directors and senior management.

It was in that whirlpool of creativity and energy that helped propel Engro Foods into becoming the food giant (by Pakistani standards) that it is today. Not everything they tried worked. But much of it did. And their management and board had enough faith in them to trust that there would be more successes than failures, and kept backing them, even if some things did not work.

Of course, having the Engro money helped. Ideas are meaningless without the resources to back them. But money alone cannot build a great business, particularly one in the consumer goods space that needs creativity and an almost Bohemian corporate culture to be successful. Engro Foods has run into quite a few problems recently, but there is no denying that they got off to a great start and built the kind of corporate culture that set them up for success. The multi-billion rupee question for Fauji, then, is whether or not they can replicate this kind of corporate culture. Like Engro of the 1990s, Fauji is also a stodgy petrochemical manufacturer. It has the added disadvantage of being run by military men, who are used to valuing discipline above all other virtues. Will they be able to create the kind of open culture and environment where new ideas can thrive and where failure is not punished but instead simply seen as just another building block towards success?

Based on my observations of Fauji, my initial guess is that the organisation is not ready for this. They have yet to hire the right people, let alone create the right culture. They may yet prove us all wrong. But for the moment, Fauji’s management and board of directors are about to throw a lot of good money after a flailing food company with no real plan to create a winning subsidiary.

the writer is an editorial consultant

Published in The Express Tribune, March  30th,  2015.

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Reader Comments (5)

  • Atif Khan
    Mar 30, 2015 - 9:20PM

    If any naive person reviews the business performance of all the initiatives taken by Fauji Foundation (which basically governs all the business operations including those of Fauji Fertilizers) , his/her analysis will unearth the following facts

    a. Fauji Foundation has always wrapped up its business as soon the operating environment becomes more competitive. Their business ventures can only thrive in monopolistic environment and as soon the environment becomes competitive they start losing and eventually these leave the market by selling the business.

    b. Focus the tag line of Fauji Foundation, ” trust for the welfare of ex-service men and their families”. This tag line has done more damage to the business ventures under the umbrella of Fauji Foundation than any benefit. Due to this tag line few key positions are always reserved for the ex-service men, head of the company (in the capacity of CEO/MD/GM etc), HR & Admin, Security, Stores/Inventory etc. One can image how the ex-service men who have never faced any practical business competition will handle the overall business, or develop HR as business function of the 21st century . They ex-service men after their retirement from the army tries to manage the civilian business with the army mind set

    c. The tenure of all the ex-service men placed at the helm of affairs is not more than three years therefore the continuity of business vision, which is must to translate any strategy into action always vaporizes whenever the key positions are replaced with new batch of ex-service men. In any corporate and competitive business environment, without the continuity of leadership, hoping for the performance is all about day dreaming.Recommend

  • Abdul-Ghaffar
    Mar 31, 2015 - 9:26AM

    I think, the author is quite impressed by the engro corporation, is expecting a job offer, or has been asked by a friend in engro to write that article. The article mostly just praises the engro working environment. Well i would like the author to visit FFBL once in a while, the employees, both civil and ex-service men are highly satisfied with the working environment and one should see by himself, that the working standards and the ease of implying new ideas is beyond their thinking.
    Yes the organization has been limited to the fertilizer business for long, but it is quite the right time to look into other business than never diversifying.
    For the comment section, the company’s focus tag line is far from what you have understood dear. Its not about serving the ex-service men by giving them a job, a part of the profit money of the fauji group is used for supporting persons and families of disabled and shaheed military personnel (senior and junior).
    Furthermore, the business decisions might be influenced by the ex-service men, but the technical decisions and managerial decisions of the projects are all by qualified personnel, and you may research a little bit, the best engineering and managerial systems are currently working here in FFBL.
    In a nut shell, the future of the diversification might be uncertain but is in Shaa Allah not in any kind of danger and other business tycoons and critics should just wait until they find something to comment on rather than spreading doubt based on their own assumptions.Recommend

  • Apr 1, 2015 - 2:38PM

    It has the added disadvantage of being run by military men, who are used to valuing discipline above all other virtues.

    Here’s what Elaine Kamarck of the Brookings Institution, a Think-Tank has to say about hiring ex-soldiers:

    Though there are reasons to worry about the effects of hiring people on criteria other than being the best person for the job, an infusion of veterans can be beneficial. “These folks are generally used to getting things done, rather than coming up with 50 reasons why something is impossible.”Recommend

  • Ali Raza
    May 9, 2015 - 3:40PM

    As far as open corporate culture is concerned FFBL is lagging far behind where issues are concealed behind the curtains. Recently I came to know about harassment case in FFBL. The employee was intimidated and left the company and the management did nothing for the employee and just dampened the case.Recommend

  • Ahmed
    May 10, 2015 - 1:21AM

    Askari Bank Limited was acquired by Fauji Group. If we see annual financial results of the bank before and after its acquisition by the Fauji group, it is evident that the new administrators have worked wonders for the bank with its profit reaching Rs 5 billion after taxation for the financial year 2014.Recommend

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