international technologies to become a sub-contractor in many prestigious and big projects. While focusing on the Plans, L&T maintained its ability to enter new fields, as circumstances allowed. For example, when during the 2nd Plan period between 1956 and 1961, the Indian government stressed on power and atomic energy, L&T was commissioned to build India’s first atomic reactor. There was also a huge emphasis on manufacturing in the first few Plans, an integral part of the Nehruvian vision for India. The country was investing heavily in setting up steel plants
and other manufacturing hubs during the 3rd Plan (1961-1966). In response, L&T also focused on manufacturing, but instead of making consumer goods that were obviously in demand, focused on manufacturing machinery that would be used in heavy industry. Using foreign technical inputs, the machinery and industrial products division set up ventures that supplied equipment to industries like cement, steel, fertilisers, petrochemicals, mining, and paper and pulp.
Transition Once again, during the 5th
Plan period (1974-79), there was a renewed emphasis on industrial development under the leadership of Rajiv Gandhi, who was then a young, energetic leader. L&T responded by roping in the Indian Institute of Management in 1976 to make its manufacturing businesses more market-responsive. L&T centralised planning, budget and controls and rationalised its product lines into 4 groups— agriculture and earthmoving, heavy equipment for industry, switchgear and electronics equipment, and other business lines. This also marked a change in strategy from before and set in motion a series of strategic planning exercises that aimed to anticipate market trends in advance, rather than react to immediate events every time. But then, in the 90s, L&T had to return to defensive manoeuvering as it countered a series of aggressive takeover attempts by the powerful Reliance Group, owned by the Ambanis. Reliance was expanding its chemicals and petrochemicals business at the time, and was eyeing L&T’s capabilities in turnkey construction, engineering and equipment supply. Though the hostile bid was defeated, L&T floundered in terms of direction, for perhaps the first time since its inception.
Leveraging the core In 2000, L&T took the advice of its consultants, the Boston Consulting Group, and decided to concentrate on the core businesses of construction, E&C projects, heavy engineering, electrical and electronics, while exploring new thrust areas like IT and telecom. BCG’s strategy was somewhat
counter-intuitive. At the time, the engineering and construction business was not doing well since it had “taken on some large orders that were taking longer than expected time to complete,” according to a report by Khandwala Research. Instead, the cement division was considered the major growth driver for the company, which then had, “plans to acquire existing cement units,” from other companies. The strategic focus on engineering and construction seemed misplaced. On the other hand, L&T was the largest construction company in India at the time, and there was adequate domestic demand for construction, through government investment in infrastructure, and private investment in real estate. L&T took a bold decision to focus on its core competencies of contracting, fabrication and installation, and restrain somewhat its diversification. Over the next few years, the company sold off its cement business and divested stake in L&T-John Deere Pvt Ltd and L&T Niro Ltd. It exited the dairy equipment and glass container businesses as well. In 2008, it sold off its Ready Mix Concrete (RMC) business to Lafarge, despite enjoying a leadership position, with a 25% market share. Says AM Naik, “The vision was to take the group to a Rs 250 billion turnover by 2005,” from the 2000 turnover of Rs 80 billion. As it happened, in 2005 the company reported gross revenue of Rs 150 billion, a shortfall, but still nearly 100% growth over the five-year period. The silver lining was the success of the construction and engineering segments, which contributed 85% of this revenue. The strategy of
Go India January 2009
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