When Prem Kothari, chairman and managing director of Fine Jewellery Manufacturing Ltd., joined the family business 25 years ago the trust factor was considered the most important prerequisite for joining the business. However, as the business grew to an unimagined scale the family critically reviewed the success of multinational companies and realized that systems were as important as trust. “We then did a 360 degree change in our thinking,” smiles Kothari. “We realized that if you want to expand rapidly you have to hire professional people who have more vision than owners and who are also able to set and achieve targets.”Another company which has famously shed the inflexible mindset of the industry is Orra which has metamorphosed from Rosyblue, an organization which is a pioneer in professionalizing its business in the country and fervently believes in meritocracy.

Meritocracy, restructuring and professionalisation of businesses are key concepts which the industry must ponder and ultimately adopt, if it wishes to grab the future that is slowly looming into view on the horizon. According to the much consulted GJEPC-KPMG report released in December 2006, Vision 2015: Transforming for growth, “China and India together will emerge as a market equivalent to the US market by 2015.” But, the report cautions, this rosy future will be attainable by the Indian gems and jewelry industry only if it devises strategies for “increased transparency, professionalizing, lowering of financing costs and attracting high quality talent.” According to highly placed sources within the industry, the Indian jewelry business is a Rs 100,000 crore industry today with a growth rate which varies between 8 percent-10 percent annually. Says Dharmesh Sodah, director, World Gold Council: “If the industry professionalises, the growth rate could double in just a five year time period.”

Shape Up or Ship Out
The Indian jewelry retail market presents a unique business opportunity with the diamond business, in particular, stresses Vijay Jain, CEO of Orra, growing at an astonishing 20 percent plus annually. However, in this challenging business environment, there are not more than 100 jewelry retailers who have more than one store across the country, despite the fact that India, along with China and Turkey, has a startlingly long history of jewelry consumption. According to the KPMG report for India Brand Equity Foundation released in 2006, “The industry is dominated by family jewelers who constitute 96 percent of the market.”

But the future belongs to the brave, the entrepreneurially bold and farsighted jeweler. According to Vision 2015, “India and China together will realize total sales of US $20 billion by 2015,” provided the Indian jewelry business does some intense soul searching, plugs the loopholes and restructures the industry. Shailesh Sangani, former managing director of Gili, forecasts that “in the future about 20-25 business houses will  capture more than 50 percent-55 percent of the business, there will be lots of buyouts and mergers and professionals will come in and streamline the business.” Jain goes a step further and predicts that “in the next ten years Indian jewelers will own large jewelry chains globally. This has already started happening in the diamond business and it will also be seen in the gold jewelry retail business.”

A chimera, a mirage? Not so. With extensive changes within the business, the industry could be poised for superlative growth and Indian jewelers may well end up like cats beaming at the cream! For this to happen the industry must in all earnestness professionalise and separate ownership from management issues. The baton must be passed on to the professional while the owner focuses on macro-management. The professional will then run the company in consonance with the promoter. Professionalisation engenders the institutionalization of business and empowers the organization to take independent decisions which are in the interest of the company and its stakeholders whether they are owners, promoters, employees or vendors. The aim of professionalisation is to allow the business to flourish and grow and further, to continue in existence and be profitable even with the exit of management, family and original promoters from the business. With professionalisation emerges the recognition that the business is bigger than the management and even the family and that it requires a preponderance of intellectual or human capital.

As the industry professionalises it will have to learn to delegate work and even power within its organizational structures and allow its management much leeway in the spheres of responsibility and accountability, issues which have often wrecked otherwise harmonious relationships and been at the root of bitter discord between owners and management. Dharmesh Sodah observes sharply that “in this industry owners want a say in every decision, even if you want to employ an office assistant!”

Systematizing the Trade
With the induction of professional management into the business, the industry can systematize the trade which has remained unorganized for years. Special and expert attention can then be paid to areas like finance, marketing, sales and information technology which have been sorely neglected for decades. Prabir Chatterjee, managing director of Adora, is emphatic that “industry will then be able to set its goals and systematize its operations to attain these goals. So far the business has never had any scientifically planned expansion plans – retailers have just sold jewelry without even dreaming of leaving their localities.”

As the jewelry trade professionalises owners can step back and analyse their businesses critically, plug the weak points, strengthen and fortify the strong ones. They can innovate, explore new avenues and plan for spiralling growth. “We can then capture markets internationally better than anyone else,” points out Anaggh Desai emphatically, former CEO of D’damas and group president of marketing and commercial at the Gitanjali group. With an arsenal of global brands acquired by Indian jewelers, a recession looming large in the US and declining demand from the once important markets of Italy and Japan, India together with
China could be on top of the heap in the not too distant future.

Winds of Change
The new script appears to have been read by some of the prominent jewelers of the country and winds of change are blowing through the industry, albeit slowly. Top jewelry firms like Dimexon, TBZ-The Original and Orra have embarked on a process of change to enable their companies to retain their competitiveness.
Dimexon hired a consultant to conduct a study on a strategic review of the company and in 2004 implemented the solutions provided by it. The company, which until then was wholly a family business, metaphorsed into a corporate family concern -  a radically different avatar with an organizational structure of 12 members, of whom only four belong to the family. The organizational structure consists of diverse departments like Head of taxes and legal matters, Head of manufacturing, Head of sourcing etc.

Rajiv Mehta, CEO of Dimexon, believes that “most jewelers in the country are becoming professional, especially when the next generation comes in. I think everyone in their own way is ready for this change.” Shrikant Zaveri, chairman of TBZ-The original, who is planning to expand at the frenetic pace of opening ten new stores across India every year, insists that “change is a must. Look at the changes in other sectors of the industry, so the jewelry industry must also transform itself, more so in today’s day and age.” Industry analysts firmly believe that with the second generation inheriting the mantle of their fathers, the industry will perforce be compelled to change as the younger generation is educated, has exposure and a mindset radically different from their forefathers.

Much of the industry’s reluctance to transform itself stems from a straitjacketed past where rigid overnment controls like the Gold Control Act (it was repealed in 1991), snuffed out its growth. Severe government restrictions about the amount of gold the trade could handle, the number of people it could employ etc., reduced the business to a somnambulistic role. Industry sources concede that with the restrictions the business became less transparent and the entire industry went underground. The year 1991 when the Gold Control Act was repealed was a watershed for the trade when the industry shrugged off its past and began to attempt a different trajectory into the future.

Industry’s Fears
But even as the industry attempts to break free of the past, doubts and fears appear to prey on the minds of many jewelers. A substantial chunk of the trade appears to be wary of placing its trust in business executives and more importantly, permitting them to handle their finances. The industry also believes that executives may siphon off their trade secrets, causing incalculable harm to their businesses. Some of the owners of prominent jewelry houses readily admit that much of the industry consists of “control freaks” who wish to micromanage their businesses. But lurking beneath these reasons for avoiding professionalisation is a still deeper one: much of the jewelry industry is still not transparent.

The industry’s growth will be retarded without accountability and transparency and the business will continue to remain suspect both with the consumer and the government, to which the industry repeatedly turns for growth incentives. Ashok Minawala, chairman of the All India Gem and Jewellery Trade Federation, urges jewelers to be transparent “as it’s only with transparency that your anxieties will reduce, things will be accounted for and since all transactions will be on record, you will get the best analysis of your business.”

The industry also needs to abjure this “narrowmindedness” – as one prominent jeweler described it! – if it wishes to fend off the fierce challenge from luxury watches, perfumes, electronic goods, exotic holidays, etc. The luxury goods sector has captured the hearts and minds of the Indian consumer with its innovative marketing, cutting edge competitiveness and spiffy advertising. Failure to reform the jewelry trade could well mean the turning of the economic screw on the trade, with the industry losing heavily to the luxury goods segment.

So what’s the road ahead? For the Indian jewelry industry with its huge potential the future must be growth. In an industry where 96 percent of businesses are family owned (in the US only 60 percent are family owned businesses) growth can begin only with deep introspection and candour. Highly placed industry sources advise that jewelers must first shed their rigid mindsets and secretive attitudes and then scan the future for growth. Indian jewelers must develop a systematic approach to business – set their goals and then systematize their operations to attain those goals. Head honchos like Minawala advise that on a scale of 10 if a jeweler’s business has reached 5, he must start professionalizing swiftly. Jewelers must then start restructuring their various departments like sales, marketing, finance, merchandising, etc. with professional talent. They must also introduce a very high degree of automization into their operations. A very successful Indian retailer like Tanishq, for instance, is able to technologically track its fast moving products and effortlessly replace them.

The Future
CEOs like Vijay Jain of Orra believe that mid-size companies could embark on a three step method of restructuring their companies. The first step could be strengthening the board of the company and appointing independent directors. The next step could be to hire a CEO and permit him to establish a team with the aid of consultants, while the third step would be to hire a COO along with executives with professional skill sets in marketing, sales, systems etc. Most important of all, jewelers need to value their human capital. In other sectors of industry, management is treated as an investment, but in the jewelry industry professionals are treated as an expense. Says Dharmesh Sodah pointedly: “The jewelry industry only sees the cost factor, not the investment and how it will help to develop their businesses. You need to see not just the ticket price, but also the value benefit.”

Equally important are the remuneration packages offered to skilled professionals. Since the industry works with slender margins, executives are often paid low salaries which make them hightail it to more profitable sections of the industry! Over the years this haemorrhage of talent has been a major deterrent to growth and the industry could stymie it by offering comparable salaries. Also, once the industry sources valuable managerial talent it needs to retrain them about the intricacies of the jewelry business – there is now a groundswell of opinion in the trade that formal degrees ought to be offered in jewelry finance management, jewelry retail, etc. Highly placed  industry sources point out that these courses could vary from one year to three years and could equip new management hired from other sections of industry with all-important product knowledge. This could only kickstart growth.

Business observers have noted that Indian family businesses inevitably pass through three stages – the first generation lead frugal lives, pinch pennies and found the business, the second generation expands and sustains the business while the third generation kills the business! In an industry which is slowly professionalizing, the Indian jewelry business must ponder over the lessons to be derived from these boom and bust cycles, accelerate the reform process and grow.

As the industry slowly changes, there are some family businesses which have beaten the competition and swiftly turned professional. The following are case studies of two firms who have transformed their businesses immeasurably and reaped rewards.

Pathbreaking Growth
Orr was founded by Rosyblue which was established by Arun Mehta  along with his brothers and a maternal uncle more than forty years ago.  The steps taken to professionalize and globalize their business are pathbreaking as there was no prior precedence in the industry. In 1998 Rosyblue made a tentative foray into
retail by establishing Intergold, a jewelry store in Mumbai. In 2002 when the family wished to scale up the business they appointed Vijay Jain as the CEO of Intergold and in 2004 Intergold was rebranded as Orra. The jewelry chain has a presence in 20 cities across the country and has received the Retail Jeweller’s Award for the Best Retail Jewellery chain in the country in 2007.

With a CEO heading the company, the corporate is now a professionally run company based on strong family values. The internal structure of the organization has been transformed to ensure that it is one of the finest companies in the jewelry industry. Indeed Orra is one of the first corporates in the industry where the family has withdrawn from day-to-day running of the business and is only involved in strategic decisions of the company. In keeping with the vision for the corporate, the Board of members has eschewed any involvement in the operations of the business which are handled exclusively by the CEO and his specially constituted team.

While the company was being transformed, the temptation to hire an entirely new team was resisted and the existing team was given the opportunity to perform alongside new professionals. The organization also moved swiftly towards decentralization where employees were given responsibilities according to their skills, with no cognizance taken of their affiliation or closeness to the owner. The new culture initially resulted in friction, with few employees favouring the new dispensation. “But employees have now opened up,” indicates Jain, “and are in tune with the organization.”

To infuse vitality into the organization professionals were hired from other segments of industry like Wipro, Lintas, Godrej & Boyce, Accenture, Saatchi & Saatchi, etc. They were given new responsibilities such as GM marketing, GM sales who in turn had regional managers, Head production, Head HR etc. Jain, in particular, stresses the importance of HR which he considers of vital importance, especially in a growing organization.

Equal importance was also given to tweaking relationships with vendors and other suppliers and also keeping an eye on their deliverables. In a family run concern personal relationships dominate business deals, but once Orra professionalized parochialism was turfed out and relationships were built around the good of the company. With professionalisation Orra also emerged as a transparent company with its organizational team involved in all important decisions. The company has also introduced new systems and technology which has eased the work flow.

When Intergold was rebranded as Orra in 2004 the company undertook a study to understand its consumers using qualitative and quantitative methods of research. This research has enabled an understanding of the business and the consumer and helped Orra to emerge as a diamond destination and be synonymous with contemporary and beautiful diamond jewelry.

Bracing for the Future  
Dimexon was established in Mumbai in 1966 by Pankaj Mehta. It is a leading DTC sightholder and has become one of the largest and most trusted manufacturers in the world.

The corporate has world class infrastructure in India and China with a work force of over 10,000 professionals, 11 offices around the globe and operations in 26 countries. The company has meticulously efficient manufacturing facilities in India and China which polish over three million carats of diamond rough annually.

In 2003 the company developed a strategic road map for its own transformation given the changing nature of the industry. The objective behind the exercise was to ensure that Dimexon was able to weather any changes that could impact the industry and thereby the corporate. One of the first exercises the company undertook was to evaluate the “as is” factors of its identity so that it could retain the “good things” within the DNA of the company. This helped the corporate to articulate a vision statement which would reinforce its commitment to its core values which have always driven its sustained growth and business.

Dimexon segmentized its work into various departments which ran the business. Says Rajiv Mehta, CEO Dimexon: “We have operating functions from sourcing, manufacturing, sales, marketing, human resources, finance, legal and taxes matters, etc. This has helped in terms of accountability and responsibility which are very clear in our organization today.” Accountability manifests itself in self-regulatory processes which deal with critical industry issues like conflict diamonds, disclosure and regular financial audits. While the company was being transformed, change management initiatives were up and running in the corporate so that the employees could cope with the change.

With the firm changing swiftly from a family run business to a professional company, the day-to-day running of the business has been taken up by the CEO and his executive team, whilst the family is brought in for matters of strategic importance which   have a long-term impact on the company. Rajiv Mehta also indicates that the company has decentralized to a fair degree “through proper authorizations of power viz. the organization structure.” Formal organizational structures have become necessary to clarify roles and separate the day-to-day management from the strategic direction of the business. With these deep-seated changes the company is bracing itself for its transition into the future.