1. Briefly describe the strategic alternatives given by Glueck. Explain with the help of examples.
2. Explain PESTEL framework and illustrate with suitable examples.
3. What do you understand by tangible and intangible components of differentiation? Explain Give five examples each of tangible and intangible products and give reasons for their classification.
4. The record of M & As world over has not been impressive. What can be the reasons for the failure of M & A? Discuss.
5. Write short note on any two of the following:
(a) BCG Matrix
(b) Balanced Score Card (BSC)
(c) Joint Ventures
(d) CompetitiveStrategies
SECTION B
Read the case given below and answer the questions given at the end of the case.
We are shivering in our paints, as we grope against new competition from firms from USA and Korea. - A very senior L&T executive to the author at a Management Development Programme at IIM (Ahmedabad) in 1993 The competition we have faced till now is nothing is compared to what lies in store for us. Till now, the period (post-liberalisotion) was one of learning and assessment for the big global competitors
- Sudhakar Divokar Kulkarni, CEO. to the case author in April 1997.
In 1997 Larsen and Tubro (L&T), one of the largest engineering companies in India (and one of the top five private sector companies) posted yet again a growth rate of over 20 per cent. This happened for the fourth consecutive year despite acute liquidity crisis in the market, political instability, and uncertainty about execution of power projects of foreign companies (e.g. Enron), and so no. Since last few years, L&T was becoming a lesson for companies worldwide in managing explosive growth and developing internal capabilities on a continuous basis. Simultaneously, it was setting new challenges for the academics in defining core competencies and core capabilities. An independent survey named L&T to be one of the best managed companies in Asia and another by Business Toda, showed that the company was one of the most transparent and a leader on the issue of corporate governance. During 1995-96 and 1996-97, the company achieved an incredible growth in sales of nearly Rs. 1,000 crore per annum over the previous years, crossing the landmark turnover of Rs. 5,000 crore in the process.
The Evolution
L & T was set up in 1938 as a partnership trading firm by two
Danish engineers, Henning Holck Larsen and Soren kristian Toubro,
who had quit their jobs. In 1946, it became a private limited
company and by 1950 reached the status of a public limited company.
Table 1 gives the evolutionary picture in brief. L&T presently
has a shareholder base of nearly 1 million and employee strength
of over 24,000 As a company, this multi-dimensional engineering
giant is actually the nucleus of a group of companies involved
in building complexes, worksheets, offices and service outlets
at different locations all over India and abroad. Over the years,
L&T has acquired a commendable reputation for capabilities for
executing engineering related projects.
Table 1 L&T Business History: The Milestones
- 1938 - Incorporation as a partnership firm
- 1946 - Incorporation as a Private Ltd Co.
- I950 - L&T goes public Powai Works set up
- 1961 - Audco India incorporated for manufacturing valves
- 1962 - Retirement of Soren Toubro; EWAC Ltd. set up for manufacture of welding alloys
- 1963 - TENGL founded to manufacture crawler undercarriage parts for caterpillars
- 1969 - Agency business abolished, formation of L&T Bottle Closure division
- 1971 - L&T McNeil set up for manufacturing Presses for tyre industry
- 1974 - Management Organization Structure and Management Planning and Control System introduced
- L&T Bangalore Works commences production of hydraulic excavators
- 1978 - Larsen retires. L&T Faridabad commences production of switchgear
- 1982 - ECC merged with L&T; L&T enters shipping business with two ships
- 1983 – L&T enters cement manufacturing with Awarpur plant commencing production
- 1987 – L&T enters computer hardware with floppy discs and printers; L&T Gould for electronic test and measured instruments
- 1988 – Cement capacity enhanced to 2.2 m tons per annum
- 1989 – 90 L&T under DH Ambani (as chairman)
- 1990 - 93 - Repeated takeover attempts by RIL
- 1993 - 95 Series of strategic alliances and tie-ups resulting in formation of L&T-Niro. L&T-Chiyoda, L&T Sargent & Lund9, L&T Finance, and so on.
The Takeover Attempt
During 1991 - 93, as the country progressed towards liberalisation,
the company just emerged from a not-so-welcome takeover threat
from the powerful Ambanis of Reliance. The Ambanis were themselves
embarking upon massive expansion in chemicals and petrochemicals
business, and L&T would have provided a real and logical synergy
in terms of executing turnkey projects for construction, engineering,
supplying machinery and of course, offering suppliers credit
(to the tune of Rs. 1.000 crore). Through protracted investigation
and litigation (in which the Reliance Industries Ltd. was found
to have collected forged proxies), the company somehow remained
in the hands of 'professionals'. The big question mark as posed
by an article in the Economic and Political weekly was "Where
does L&T go from where it has reached now?"
However, it was obvious that a total new mindset and working culture would be required if L&T was to grow and remain competitive. In 1993 94, the company started adopting the principles of Total Quality Management (TQM) by becoming customer focused, reducing the costs and wastage, and adding value at all stages for maximising customer satisfaction.
In 1994, Mr. S.D. Kulkarni took over as the CEO of L&T and confidently promised that the company would reach its mission of being a Rs. 10,000 crore ($3 bn.) - company by the end of the century. He also declared that the company would strive to maintain and develop leadership positions in all its businesses or else it will quit. Simultaneously, zero retrenchment was promised. The philosophy of TQM was embraced with added emphasis on 'customer delight', that is, delivering more value than expected by the customer.
Vision, Core Values, and TQM
Infrastructure - being a key bottleneck for Indian industry
- was identified as the engine of Growth for the company's ambitious
plans. But before that, the company needed an ambition statement,
which every employee could own and share. A massive companywide
exercise for finding out what the company stood for and what
its core values were was embarked upon. The emergent statement
though not sounding much different from several other organisations
vision, however, came to be owned and understood by almost every
employee because of the process of identifying the mission and
peoples involvement. The key elements of L&Ts vision f focussed
towards a world class company dedicated to:
- excellence and professionalism
- customer delight through service
- entrepreneurial leadership and creation of an organisation that is on the path of continuously learning by fostering teamwork, trust, and care
- Community service and environmental protection.
Core Competencies
According to a senior executive, today the core competence of
L&T lies in its ability to synthesise, integrate and harmonise
its diverse world-class engineering, manufacturing, procurement,
construction and fabrication skills around turnkey projects
(in core economic sectors) and people. This is made possible
through a world class vendor base and quality technological
alliances, excellent IT infrastructure (CAD,/CAM systems, PMIS
etc.) sophisticated fabrication facilities for plant and machinery
in the core sector.
Business Leadership
L&T holds a leadership position in India in most of the areas
in which it operates. The first company to introduce hydraulic
excavators in the country, it still maintains its leadership
status in this and in the vibratory compactor segments. L&T's
switchgear products enjoy a dominant position in Indian as well
as the international markets. It continues to be a leader in
the manufacture of Z-Line petrol pumps and its cement is considered
to be of high quality. L&T has pioneered the manufacture and
supply of critical nuclear reactors and space vehicles hardware
in the country. It has to its credit many firsts in the Indian
industry - from the indigenously manufactured hydrocracker reactor,
naptha - run power plants, the world's largest curing press,
to the first vertical dairy in the country and so on.
With the Project and Construction business in the country growing at a fast pace and expected to continue to do so with the country s emphasis on infrastructure, both L&T ECC (Construction Group) and L&T s Projects (EPC) businesses are being treated as thrust areas. The ECC construction group has been responsible for construction landmarks both in India and abroad, for instance, the Bahai house of worship in Delhi, an international airport terminal in Abu Dhabi, bridges in Malaysia, hotels in Uzbekistan, and so on. Its major projects have been building of cement plants for Grasim Industries, Gujarat Ambuja Cements, and ACC Ltd., construction of bridges and railway tunnels for the Konkan Railway project. In projects business, L&T EPC group successfully executed orders from ONCC (for piping and oil platforms), Tata Chemicals {for captive co generation power plant) and Gandhinagar Dairy. In shipping and international business too, the company has made significant progress to become one of the leading players in their line of business.
L&T has a long and enviable record of high-tech fabrication. The workshops in Powai with CNC precision machines house large-size precision fabrication facilities. Its major heavy engineering complex at Hazira also caters to such needs. L&T's units and its links with globally reputed organisations have contributed much in developing manufacturing excellence.
Decision-making at L&T
Over the years, the company has implemented its vision through
various approaches. Foremost is the emphasis on empowerment,
teamwork, and continuous training of employees. In terms of
structure, the company has decentralised decision-making, and
according to Mr. Kulkarni, CEO, the concept of Strategic Business
Units (SBUs) is being actively encouraged. The company is decentralised
for all practical purposes. Budgets and allocations are made
at the beginning of the year and SBUs undertake the responsibility
for achieving the targets. Only in major decisions involving
capacity augmentation, business divestment, diversification,
and so on does the CEO personally involve himself. According
to Mr. Kulkarni, "only through empowerment and decentralised
decision making can a highly diversified company like L&T be
managed". For example, though the decision to divest the Dot
Matrix Printers (DMPs) business was first proposed by the concerned
department, yet the decision was taken ai the MD/Board level
as it agreed that product and technological obsolescence and
synergy of DMPs with other businesses was indeed low.
The Culture of TQM
The TQM journey, initiated in 1993, has now taken firm roots
in L&T. The efforts put in training a large number of employees
has resulted in the launch of many quality improvement initiatives.
A large number of employees have participated in continuous
improvement (Kaizen) and small group activities. Several cross-functional
teams regularly function in the areas of manufacturing, design,
marketing and services. L&T has created an environment for increased
empowerment to further improve customer services. The TQM Awareness
Programmes have also been extended to the stockists and vendors
to achieve improvement in the operations and customer service.
L&T strongly believe in the concept of internal customers. With
TQM knowledge spreading widely inside the company, employees
have realised that everybody in every department is a supplier
to somebody in the organisation if not directly to an outside
customer. One employee says, "even though it is difficult to
oblige everybody, I believe that we should go a step forward
to understand the real requirements of the customer, which he
himself may not be fully aware of, and delight the customer
through total quality and service. Such an attitude should be
our guiding force". A value strongly sought to be inculcated
in the employees is that people can confront competition better
by moving from a product-oriented philosophy to a customer-oriented
philosophy. For this, employees are being trained in multi skills,
including quality transactions and market engineering, besides
product engineering.
With people being regarded as the 'prime movers', a strong HRD culture pervades the organisation's personnel policies, and HRD systems are designed to sustain motivation, encourage learning, and achieve higher levels of quality and productivity through job involvement. The embracing of TQM philosophy.and implementation of ISO 9000 systems by almost all divisions has led people to work towards common goals with a customer oriented approach.
Social Commitments
Corporate Citizenship The Mumbai Chamber presented the Good
Corporate Citizen Award for the year 1994 -95 to Larsen and
Toubro Limited for its contribution to Larsen and Toubro Limited
for its contribution to the corporate world, but more importantly
for its conspicuous achievements in improving the quality of
life in the community.
Award for most Outstanding Concrete Structure
The ECC Division of L&T received the ICI-Mc-Bauchemie Award
presented by The Indian Concrete Institute for the most outstanding
concrete structure for the year 1995 - 96 for Sree Kanteerava
Indoor Sports Complex is Bangalore. The structure is considered
to be an engineering marvel. The citation for the award reads
'Sree Lanteerava Indoor Sports Complex is designed in the shape
of an ellipse using 120 'V' shaped precast folded plate elements.
Each element is 43 m long and weighs 55. t. The thickness of
the plate is just 40 mm, but strengthened by ribs throughout
its length. Since the folded plate springs from the ring beam
along the outer periphery and connected by the compression ring
at the crown, the entire roof is self supporting, providing
an unobstructed column-fee space of 119 m x 91 m with a playing
arena of 65 m x 45 min the centre.'
Environment Upgradation L&T has been showing its commitment towards corporate citizenship. As one goes around the works and offices of L&T. one experiences a soothing and refreshing ambience because of the rich foliage and delightful floral blooms around these structures. L&T has undertaken extensive tree plantation programme. Over three lakh trees were planted in and around the factory in 1993-94 under the programme 'Trees for Life. The villagers have been given grafted saplings of fruit-bearing trees and encouraged to plant them. The success of this ongoing effort led to L&T being selected by the Government of Maharashtra for the prestigious Vanashree Award in 1990.
Contribution to Academics L&T set up L&T Institute of Technology, a polytechnic in Mumbai. In a short period, it has come to be widely regarded as one of the best training institutions of its kind in the country, particularly for the full-fledged workshops and laboratories that provide a strong practical orientation to theoretical inputs. There is a good demand in engineering companies for the students passing out from this Institute. L&T also contribute financially towards Upgradation of facilities in several polytechnics. It regularly interfaces with academic institutions to promote quality education and has established research chairs for faculty in several institutions including ai IIM, Ahmedabad. Within the company, one of the most invaluable and lasting investments made by L&T is the establishment of a Management Development Programme Centre at Lonavala (near Mumbai). According to Mr. CM Srivastava, Joint General Manager (JGM) (HRD), the management development centre has been visualized as a 'temple of learning where people would come with the sole purpose of enhancing knowledge, learning through experience, self-study, and introspection. The emphasis, therefore, is on providing an ambience for learning rather than training'. The centre has modern learning facilities like computer-added packages, a library, and outdoor training facilities.
Manufacturing Facilities
Some important manufacturing facilities of L&T are shown in
Table 2. Table 2 Important Manufacturing Facilities of L&T
| Location | Product/Plants |
| Powai, Madh (Maharashtra) | Plant and heavy equipment switchgears, Petrol pumps, Bothell closures, control and automation, welding alloys, undercarriage components |
| Thane (Maharashtra) | Electronics and Inputs for undercarriage components |
| Awarpur (Maharashtra) | Cement |
| Nashik (Maharashtra) | Light–weight glass containers |
| Faridabad (Haryana) | switchgears |
| Ankleshwar (Orissa) | Welding Alloys |
| Kansbajal (Orissa) | Plant and equipment for steel paper and pulp, material handling and mineral processing industry |
| Mysore (karnataka) | Medical electronic equipment computer peripherals, telecommunications, test and measuring instruments |
| Bangalore (Karnataka) | Earth–moving and construction equipment, hydraulic equipment and diesel engines, Gen. Sets |
| Hazira (MP) | Heavy equipment’s |
| Hirmi (MP) | Cement manufacturing unit |
| Chennai (TN) | Valves, rubber and plastic processing machinery |
| Kandla (Gujarat) | Export oriented fabrication |
| Pondicherry | Transmission towers |
| Kalol (Gujarat) | Export footwear |
| Jharsuguda (Orissa) | Cement grinding unit |
The Future
The financial results of L&T far the year 1996 - 97 are not too encouraging as far as profits are concerned. The company has reported profits of Rs. 410 crore against the previous years profit of Rs. 390 crore, thereby achieving a slim growth of five percent. However, the turnover has recorded a sharp jump from Rs. 4249 dare to Rs. 5304 crore. From another perspective, the performance has been commendable considering the slump and intense competition in the cement industry and performance of other competitors during the period. L&T is firmly consolidating itself in four major business areas engineering, construction cement, and equipment manufacture, Presently, cement accounts for 15 per cent of the total revenue. lt has embarked on a major expansion programme that will double the capacity to 12 m tons per annum, which will make it the largest cement manufacturer in India. A Euro-issue of $135 million has been planned to fund this expansion. Having defined EPC as a thrust business for the future, it will be relevant to take a look into the competitive structure of the EPC business. In the domestic business, L&T has a handful of competitors among whom BHEL. Punj and Lloyd, and RITES are the major ones. The peculiar nature of EPC business is that it is not a sector specific industry. The core infrastructure activities such as power, telecom, and roads will become key focus areas for the country. Most players in this industry have specific competencies which cater to specialised areas, L&T is perhaps the only company which competes in almost every sector by virtue of its diversified technical competence and expertise. L&T's EPC business takes the form of competitive bidding for executing projects from start to finish for third parties, part execution of projects as sub contractors to other bidders, and autonomous bidding for setting up its own projects in the core sectors.
In the global EPC business, however the company faces stiff competition from the global construction and engineering giants like Hyundai, Saipern, Mcdermoft, Caterpiller, to name a few. In such a highly competitive environment with technology being a handicap (that most Indian companies suffer from), the logical step is to enter into strategic and technological alliances. Most Indian EPC players follow this route and L&T is no exception. Some of its alliances are with its competitors, for instance, Caterpillar, Marubeni. Like most Indian EPC players going global, L&T s overseas EPC operations are concentrated in the developing and developed countries of South-and Middle-East Asia such as Thailand and Malaysia, Vietnam, Burma, Bangladesh, Sri Lanka, and Gulf countries like Qatar, Saudi Arabia. Bahrain, Oman, and so on.
Though L&T has attained impressive achievements, the productivity of several businesses are alarmingly low on the international benchmark level. In an environment of high interest rates and tight liquidity position, the efficient management of working capital will form the key to future L&T successes. Some of the areas of concern for L&T in the short-term would be: the need to attain faster delivery standards, customer satisfaction, continuous cost reduction, productivity improvement and operating with low working capital, and aiming at least to be a regional player of repute and recognition.