Subject international business
THE SAGA CONTINUES
It was the talk of the town in Bangalore during the late 1970s and early 1980s. The plant was coming up on the Bangalore Yelahanka Road, about 20 km from the city. Everything the people over there did became folklore. The buildings were huge with wonderful architecture, beautifully built with wide roads and huge spaces. Should a situation demand, the entire plant could be dismantled, bundled up, loaded into trucks and ferried to other places? Lighting inside the building had to be seen to be believed. Interiors
had to be seen to be believed. Washrooms, stores reception, Canteen, healthcare, had to be seen to be believed. It had never happened elsewhere. it was amazing, the boss was not addressed as Sir, he was called Mr. so and so! The yellow painted buses on the city roads made a delightful sight. Legends were told about the two gentlemen who founded the company.
An interesting story is told about how one of the surviving founders (Larsen who lived till 2003) visited the Bangalore plant once a year, he stayed in a hotel on his own, hired his own cab, went to the plant and greeted every employee, from the top brass down to the last person in the hierarchy. Story is also told about how, on one such visit Larsen went to the reception and asked for permission to enter the plant. Not knowing who he was, the young lass in reception room made him wait for half-an-hour. By luck, someone
recognized him. A budding author captured all these and many more in his first book, which became a big hit with all the teachers and students in different colleges buying and reading it. It cannot be anything other than L&T, the huge engineering and construction multi-plant organization, founded in 1938 by two Danish engineers, Henning Hoick-Larsen and Soren Kristin Toubro. Henning Hoick-Larsen and Soren Kristin Toubro, school-mates in Denmark, would not have dreamt, as they were learning about India in history classes that they would, one day, create history in that land. In 1938, the two friends decided to forgo the comforts of working in Europe and started their own operation in India. All they had was a dream. And the courage to dare. Their first office in Mumbai (Bombay) was so small that only one of the partners could use the office
at a time! Today, L&T is one of India’s biggest and best known industrial organizations with a reputation for technological excellence, high quality of products and services and strong customer orientation.
As on today, L&T is a 62 business conglomerate with a turnover of Rs.18,363 crore (2006-07), with the script commanding Rs. 2400 in the bourses.
No, L&T is not sitting pretty. Lt want to hit Rs.30, 000 crore turnover mark by 2010 and is busy restructuring, sniffing new pastures, grooming new talent and projecting the new company credo—”it’s All about Imagineering.” With the sole idea of creating several MNCs within, with footprints across nations, L&T is shedding the old economy and embracing the emergent opportunities and challenges. Stag rant Revenues and Low Margins Not everything went the L&T way. In the late nineties, the macro environment
was not very inspiring with stagnant revenues and low margins, and L&Ts core strength, its engineers, were being constantly weaned away by the fast- growing software sector. So, the general comment around the bourses was about the credibility of the company, ‘L&T is a, good company but its stock price, for some reason or the other, is fixed at the Rs.140-2l0 bands. So the company had to change by keeping its core intact. As a senior executive remark, “L&T was perceived to be un-sexy and we had to create a
new buzz around the campuses.” The metamorphosis must echo through a whimper, not a bang. Even before the company divested its cement business in 2003, which accounted for 25% of its total sales, there were years of incremental and low visibility organizational moves towards a new L&T. At a 52-week high of Rs. 2400, the L&T scrip today looks dapper, a far cry from the nineties when the
stock price was in a state of flux. Much of the change started as a ripple way back in 1999 when Naik took over as the CEO. He visited employees at all levels across the organization and asked them what it took to transform the company. The insights were mapped and implemented. “None of our employees thought that we build shareholder value. They thought we build monuments,” the chairman reminisces. The focus
on people became stronger and formed the basis of restructuring. It became the first old economy company to provide stock options to its employees.
When Naik came to the helm, he set upon himself a 90-day transformational agenda. Portfolios were reviewed and a vision clearly chalked out. He drew up a simple, brief, ‘L&T has to be a multinational company and it has to deliver shareholder value at any cost. At the end of 90 days, between July 22 and July 24, 1999, the company launched Project Blue Chip, which essentially fast-tracked projects. The moot point was to complete all projects by February of the new millennium. Strategy formation teams were
formed, portfolios reviewed and structures were optimized. Young leadership was brought to the fore and the business streamlining process kicked in. Hiving off from 1999-2001, L&T went about de bottle-necking its cement plants. They were modernized and capacities were raised from 12 million tonnes to 16 million tonnes annually, with minimum costs. The mantra really was to grow the business and then divest it as cement fell in the non-core category. So, in September 2003, L&T sold its cement business to the Aditya Birla Group, which resulted in the company’s Economic Value Add (EVA), an important indicator of the financial health of the company, swinging from a negative Rs.350-crore to a positive Rs.50-crore immediately. The move also enabled L&T to reduce its debt-equity ratio from 1:1 to 0.2:1. Analysts took a positive view of the demerger, and re-rated L&T as MA from AA+ in 2004. From then on, began L&T’s
transformation into a lean and mean machine. In 2004, the company envisaged a growth curve for the next five years. This marked the beginning of Project Lakshya, which was centered around people, operations, capabilities and new ventures. The company set out with over 300 initiatives in hand, and also placed a rigorous risk management system. For instance, any project above Rs.1, 000-crore needed the signature of the chairman. Project Lakshya is known for targeting and selecting the right projects.
By now, the Indian economy had started witnessing unprecedented boom and despite divesting the cement business, the L&T turnover scaled the Rs.10, 000 crore mark. Alongside, the lucrative Middle East market was booming and L&T forayed into six countries in the Gulf with joint ventures. “The idea was to develop a mini L&T in the region,” observes a senior company executive. The company also set up manufacturing facilities in China to leverage the cost structure. Exports in 2007 constituted 18% of net
sales. With soaring revenues and operating margins, L&T started benchmarking itself with the best in the world.
.
Questions;-
1. Having a strong presence in India, what drives L&T to think of emerging a strong MNC?
2. What challenges lie ahead of L&T? How is it prepared to cope with them?
3. Will the L&T saga continue?
THE SAGA CONTINUES
It was the talk of the town in Bangalore during the late 1970s and early 1980s. The plant was coming up on the Bangalore Yelahanka Road, about 20 km from the city. Everything the people over there did became folklore. The buildings were huge with wonderful architecture, beautifully built with wide roads and huge spaces. Should a situation demand, the entire plant could be dismantled, bundled up, loaded into trucks and ferried to other places? Lighting inside the building had to be seen to be believed. Interiors
had to be seen to be believed. Washrooms, stores reception, Canteen, healthcare, had to be seen to be believed. It had never happened elsewhere. it was amazing, the boss was not addressed as Sir, he was called Mr. so and so! The yellow painted buses on the city roads made a delightful sight. Legends were told about the two gentlemen who founded the company.
An interesting story is told about how one of the surviving founders (Larsen who lived till 2003) visited the Bangalore plant once a year, he stayed in a hotel on his own, hired his own cab, went to the plant and greeted every employee, from the top brass down to the last person in the hierarchy. Story is also told about how, on one such visit Larsen went to the reception and asked for permission to enter the plant. Not knowing who he was, the young lass in reception room made him wait for half-an-hour. By luck, someone
recognized him. A budding author captured all these and many more in his first book, which became a big hit with all the teachers and students in different colleges buying and reading it. It cannot be anything other than L&T, the huge engineering and construction multi-plant organization, founded in 1938 by two Danish engineers, Henning Hoick-Larsen and Soren Kristin Toubro. Henning Hoick-Larsen and Soren Kristin Toubro, school-mates in Denmark, would not have dreamt, as they were learning about India in history classes that they would, one day, create history in that land. In 1938, the two friends decided to forgo the comforts of working in Europe and started their own operation in India. All they had was a dream. And the courage to dare. Their first office in Mumbai (Bombay) was so small that only one of the partners could use the office
at a time! Today, L&T is one of India’s biggest and best known industrial organizations with a reputation for technological excellence, high quality of products and services and strong customer orientation.
As on today, L&T is a 62 business conglomerate with a turnover of Rs.18,363 crore (2006-07), with the script commanding Rs. 2400 in the bourses.
No, L&T is not sitting pretty. Lt want to hit Rs.30, 000 crore turnover mark by 2010 and is busy restructuring, sniffing new pastures, grooming new talent and projecting the new company credo—”it’s All about Imagineering.” With the sole idea of creating several MNCs within, with footprints across nations, L&T is shedding the old economy and embracing the emergent opportunities and challenges. Stag rant Revenues and Low Margins Not everything went the L&T way. In the late nineties, the macro environment
was not very inspiring with stagnant revenues and low margins, and L&Ts core strength, its engineers, were being constantly weaned away by the fast- growing software sector. So, the general comment around the bourses was about the credibility of the company, ‘L&T is a, good company but its stock price, for some reason or the other, is fixed at the Rs.140-2l0 bands. So the company had to change by keeping its core intact. As a senior executive remark, “L&T was perceived to be un-sexy and we had to create a
new buzz around the campuses.” The metamorphosis must echo through a whimper, not a bang. Even before the company divested its cement business in 2003, which accounted for 25% of its total sales, there were years of incremental and low visibility organizational moves towards a new L&T. At a 52-week high of Rs. 2400, the L&T scrip today looks dapper, a far cry from the nineties when the
stock price was in a state of flux. Much of the change started as a ripple way back in 1999 when Naik took over as the CEO. He visited employees at all levels across the organization and asked them what it took to transform the company. The insights were mapped and implemented. “None of our employees thought that we build shareholder value. They thought we build monuments,” the chairman reminisces. The focus
on people became stronger and formed the basis of restructuring. It became the first old economy company to provide stock options to its employees.
When Naik came to the helm, he set upon himself a 90-day transformational agenda. Portfolios were reviewed and a vision clearly chalked out. He drew up a simple, brief, ‘L&T has to be a multinational company and it has to deliver shareholder value at any cost. At the end of 90 days, between July 22 and July 24, 1999, the company launched Project Blue Chip, which essentially fast-tracked projects. The moot point was to complete all projects by February of the new millennium. Strategy formation teams were
formed, portfolios reviewed and structures were optimized. Young leadership was brought to the fore and the business streamlining process kicked in. Hiving off from 1999-2001, L&T went about de bottle-necking its cement plants. They were modernized and capacities were raised from 12 million tonnes to 16 million tonnes annually, with minimum costs. The mantra really was to grow the business and then divest it as cement fell in the non-core category. So, in September 2003, L&T sold its cement business to the Aditya Birla Group, which resulted in the company’s Economic Value Add (EVA), an important indicator of the financial health of the company, swinging from a negative Rs.350-crore to a positive Rs.50-crore immediately. The move also enabled L&T to reduce its debt-equity ratio from 1:1 to 0.2:1. Analysts took a positive view of the demerger, and re-rated L&T as MA from AA+ in 2004. From then on, began L&T’s
transformation into a lean and mean machine. In 2004, the company envisaged a growth curve for the next five years. This marked the beginning of Project Lakshya, which was centered around people, operations, capabilities and new ventures. The company set out with over 300 initiatives in hand, and also placed a rigorous risk management system. For instance, any project above Rs.1, 000-crore needed the signature of the chairman. Project Lakshya is known for targeting and selecting the right projects.
By now, the Indian economy had started witnessing unprecedented boom and despite divesting the cement business, the L&T turnover scaled the Rs.10, 000 crore mark. Alongside, the lucrative Middle East market was booming and L&T forayed into six countries in the Gulf with joint ventures. “The idea was to develop a mini L&T in the region,” observes a senior company executive. The company also set up manufacturing facilities in China to leverage the cost structure. Exports in 2007 constituted 18% of net
sales. With soaring revenues and operating margins, L&T started benchmarking itself with the best in the world.
.
Questions;-
1. Having a strong presence in India, what drives L&T to think of emerging a strong MNC?
2. What challenges lie ahead of L&T? How is it prepared to cope with them?
3. Will the L&T saga continue?
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