STRATEGY : INPUTS (SECONDARY RESOURCES)

INPUTS : SECONDARY RESOURCES

B. Secondary Resources

B.1 Industrial Licenses/GOVT Permissions

Govt control/regulation of enterprises in India is all too well-known to all of us. Neither can we wish it away. The time we spend on getting LOIs/ ILs/ Govt Permissions has to be accepted as a "Cost" of doing business in India.

However, an ambition for rapid qrowth through diversification suggests that somehow this cost should be brought down without h~ving to compro­mise on our professional approach.

Following are some of the strategies that we could consider to adopt :

B.l.1

Government "Concerns"

The biggest GOI concerns today are with respect to:

Poor BOP position (requiring an export thrust)

b) Development of backward areas

c) Generation of employment

Diversification projects which have favourable impact on one or more of the above, may speed-up decisions.

B.l. 2

Connections

Politicians and Govt officials knowing L&T through institutional advertisements will not suffice. Individuals within L&T would have to know a large number of persons capable of influencing a favourable decision.

B.l. 3

Image Building

Our managers knowing politicians and key govt officials is one thing. Equally important is THEM knowing L&T first­hand. This campaign should consist of:

a) Arranging visits of such persons to L&T factories

b) Arranging half-day meetings

(followed by lunch or dinner) of govt. off icials where "L&T capabilities" are presented with the help of colour slides/video films/flip charts, etc.

c) High profile participation Managers in:

by L&T

Committee"':

Memberships/ Chairmanship

-      Trade Bodies and Professional Assns)

-      Trade Fairs (Local) Trade Delegations (where govt. officials are members)

-      Productivity Boards

-      Joint Business Councils

-      Govt appointed "Committees"

-  Bureau of Indian Standards, etc.

d) Putting politicians/Govt officials (both Central and State) on the mailing list of:

- L&T Newsletter

- ECC Concord etc ...

e) L&T Managers writing articles in trade journals/professional magazines

f) Encouraging join clubs officers. senior L&T managers to patronised by Govt. officers.

B. l. 4

"Service" Sector

Many "Service" industries are not covered by the IDR Act, and - may not require all Industrial Licence. A deliberate attempt should be made to prepare a comprehensive: list of such industries. After checking-out the correctness of our interpretation with the concerned Govt. officials, a short-list could be prepared based on the current Size of the market and the industry growth rate.

B.1. 5

De-licensed Industries

During the last 2 years, a number of industries have been de-licensed even for MRTP Companies like L&T, provided the unit is put up in Class 'A' No-Industry District (without export obligation). e. g. Voltas ' s refrigerator plant at Warora (which is in the process of doubling its capacity within 4 years of going into production) .

In such cases, we could simply get-going by applying for DGTD registration (as in the case of our Asphalt Emulsion project). We can cut-out months and years from our Project Implementation schedule.

We need to undertake an exhaustive survey of:

-      all such de-licensed industries

-      backward district all over India

The all-India Survey of Backward Districts should not wait for selection of a particular industry or a product. This should be carried-out right NOW and findings tabulated so that we do not lose much time in site-selection, once a product is identified.

B.l.6 Joint sector Approach

We must shed our inhibition to work with the "state Industrial Development Corporations" - SIDC for two reasons.

a)It is a short-cut to getting an industrial license. In many cases, SIDC have already obtained an LOI/Registration and are searching for a joint sector partner. Even if they have not thought of applying for an LOI, they are most happy to do so, if we show our willingness to promote a joint sector project.

In either case, it will cut-down months/years from Project Implementation schedule (e.g. Our recent application for PICUP's processed food project)

b)  In many cases, we simply do not stand any chance of getting an Industrial Licence on our own, since the products are officially (or even unofficially) "reserved" for public-sector, e.g.

- Main Automatic Telephone Exchanges (City exchanges)

- Optic Fibre Cables

- Products already being manufactured by PSUs

In all such cases, the only way out is to tie-up with a SIDC and promote a JV. Within a few years, the SIDC is' most happy to sell-out its equity to the private-sector partner (as per terms of shareholders' agreement) and pull-out.

If we are convinced about the techno­ commercial-political viability of such a "reserved" product, then the joint sector approach will cut-down many years of banging our head with the bureaucracy

(e.g., off-shore platform/power plant equipment/tele-printers, etc.)

B.2 Technology Imports

Occasionally we have been systematic about our search overseas for suppliers of technical know­how. Quite often however, either we have chanced upon a foreign· party or the foreign party has sought us out! Hardly a month passes without one of the trade commissioner/consul's office referring to me, a foreign company who wishes to have some kind of "presence" in India. I have also been, occasionally, approached through Nissoh-Iwai corporation, Mitsui Corpn etc. I have myself sent out "L&T '88" and "Shaping the Future" video-cassettes to a number of EEPC/Indian Trade Commissioner's offices abroad.

But so far, all of this, has been rather "Ad­hoc".

I would suggest the following strategy:

within the next 6 months, we should come­ out with a short-list of products industries/businesses/services that we wish to enter into/examine closely.

Immediately thereafter we should compile lists of foreign companies (all over the world) who are TOP-PLAYERS in these businesses.

We should send out to all of them, a letter introducing L&T/its capabilities/ its interest, requesting each company to indicate its willingness to jointly undertake:

-      A Market Survey

-      A Techno-commercial Viability study

in case the foreign company is, in prin­ciple, interested in coming to India, financially or through technology transfer.

D) We should send our complete list of "Interests" to selected foreign trade commission’s located in India, and request their help in locating a suitable party from their country.

E) We should also send out this list to the Indian Ambassadors/Trade Commissioners in select foreign countries and seek their help.

f) Every 3 months, one of our senior manager should spend one month abroad (USA/Europe/Japan) talking to a number of parties regarding our interest. During each trip, 15/20 foreign manufacturers should be contacted. The remaining 2 months should be spent in "organising" the visit for maximum qualitative coverage. This manager would have no other assignment for the next 2 years.

This manager would also organise "L&T capability" presentations to visiting foreign trade-delegations as also arrange for their visits to Powai and other L&T factories. He must equip himself with absolutely high quality video cassettes/ slides of L&T activities/financial performance data, etc.

B.3 Local R&D

Before we proceed to define our strategy with respect to R&D, we must first differentiate bet­ween

-      Fundamental Research and

-      Applied Research

Real fundamental research, whether in Physics, Chemistry, Biology or in any other branch of science, is both very time consuming and expensive. It is said that in pharmaceutical chemistry, developing just one new drug molecule could cost upward of $ 100 million and take 10 years! It is therefore no wonder that very few companies in very few countries engage in real fundamental research.

On the other hand, no company, anywhere in the world can expect to be SOMEBODY in its chosen field unless it actively engages in "applied re­search" .

The applied research itself may take many forms.

Level.1

At its simplest, applied research would comprise absorption/assimilation of an imported technology. It may require adaptation of locally available raw materials and manufacturing processes/equipment.

Level 2.

At a slightly higher level, intelligent copying of foreign the use of local scientific talent.

it may involve products through and engineering

Level.3

At the next level, it may- involve designing pro­ducts of higher/lower capacities, similar in concept to the ones, we may be manufacturing for some years. This would involve deep knowledge of, not only the materials of construction and the engineering principles involved but also of the product application in the user industry concerned.

Level_4

The highest type of applied research takes the form of designing from scratch a totally new product for a totally new application and unlike any available in the market, using an existing or a newly developed concept/material / Principle/ phenomenon etc.

Most of the leading manufacturers in the world engaged only in applied research, operate at Level 4 at the best and Level 3 at the worst.

In L&T at the best of times, we have occasionally operated at Level 3 but most of the times we have been operating at Level 1.

After the world war II, the Japanese started at Level 2. Their progression was perhaps as follows:

Pre-war – Level 1

1950s - Level 2

1960s - Level 3

1970s - Level 4

1980s - Fundamental Research

Unfortunately for our country, 40 years after the Independence, most of us are still operating at Level 1! We are' simply-unwilling, as a nation (and at micro-Level, as a company) to commit the scientific manpower and the monetary resources­ required to graduate from even Level 1 to Level  2! .  

Whereas Importation of technology from abroad may be inescapable as far as diversification into totally "unrelated" products is concerned, it is high time that we, at L&T, commit at least 2% of our sale turnover each year, to conducting applied research at Level 3 (to begin with upto 1995). Beyond 1995, we should step it upto 3% of our turnover and get deeply involved at Level 4. -

This, then, should be our R&D strategy. if immediately and consciously applied, it could help us command respect in the international business community by 1995.

B.4 Organisation structure

Before we get into defining our strategy with respect to L&T's organisation structure, we will need to make certain key assumptions as regards external and internal environments.

External Environment

1. Because of a good monsoon and the forthcoming elections, we will see during the course of next 12 months, an accelerated pace of governmental spending and speeding up of the pace of liberalisation of industries. Even the forthcoming Rate and Central Budgets may be full of populist measures. For a couple of years, this may boost the volume ­expansion of our existing businesses.
2. In a little longer term however (2-5 years) liberalisation would bring fierce competition from within and from abroad, posing a severe threat to the expansion/growth of our existing businesses. There might even be shrinkages in some of our product groups.
3. Liberalisation will bring in many more "screw-driver" technologies with their consequential drain of foreign exchange (eg. Maruti 1000, VCR, FAX, ALCATEL type exchanges, push-button type telephone instruments, computer peripherals, etc. etc .. - the list is long). This will lead to further deterioration of our already precarious BOP position.

      One consequence could be govt. insisting on all Large Houses to earn      their own require­ment of foreign-exchange through physical exports. other sequence could be issue of future industrial licences with stiff "export obligations".

4. In India, the governments (state + Central) have been the biggest "buyer" of goods. wi th rapidly rising levels of non-plan expenditures (both in absolute terms as also in  terms), the govts. will have less and less money available for "developmental" expenditure. This decline (or deceleration of growth rate) poses a serious threat to several of our businesses which heavily depend upon such developmental expenditures.

These factors points towards:

1. Future growth of L&T will have to come largely from diversification into unrelated products/businesses.
2. Export angle will dominate our future diversification plans.

Internal Environment

1. Productivity of our manufacturing operations has been growing at under 3 p.a. (at least at Powai )

2. Our employee-costs have been rising at a phenomenal 15 17 p.a. (at Powai at least) , thereby reducing our profitability. These costs have reached, an all time high of 26 - 27 of our ex-­factory product-costs!

3. There has been no worthwhile corporate level diversification during the last 5 years.

4. Tax-planning of earlier years have reduced our tax-liabilities - a situation which may not continue for more than a couple of years, unless some major investments are approved quickly.

5. The liberalisation process caught us unaware! We did not make enough investment in P&D dept. manpower to keep ready, haIf­ a-dozen major investment proposals for Govt approval. The P&D Dept's strength which stood at 18 persons five years ago, today stands reduced to only 11 persons. Over these five years, we lost 6 professionals who were not replaced.

This loss was, perhaps, sought to be made good by constituting a "THINK TANK" of senior managers in September, 1985. The Group, however, met barely twice and then died an 'unnatural' death! There was a similar attempt to tackle the "export issue" by constituting a "TASK FORCE", which met with a similar fate !

All these internal factors lead us to conclude:

1. To simply remain above the "break even" point (in terms of rising employee costs) , geographical dispersal of our business activities will have to be further stepped up.

This inescapable step will place enormous strain on our existing management staff. Setting up a brand new factory at a green field site is a highly complex and demanding matter. An addi­tional demand (self-imposed) is that, at the new location, we want the "core management" group to be formed by pulling out senior managers from our existing operations in Bombay.

This is because we want (and rightly so) our traditional L&T systems/procedures/values and culture to perpetuate at the new location. However, on one hand we are short of high calibre senior managers and those few whom we can spare, are unwilling to move out of Bombay to an up-country site. We have faced this problem when we moved to Awarpur, Hazira, Mysore, Kalol - everywhere.

And if we are going to move to many more far­ flung places in the years to come (as it appears inevitable), this problem is going to get more acute. Our future organisation-structure would have to address itself to solve this problem.

2. The persons getting transferred from Bombay to new locations will wish to continue their existing compensation structure at the new location. As against this, a vast majority of locally hired employees will get fixed into a local compensation structure. This has already caused severe "adjustment" problems.

Our new organisation structure will have to find a solution to this problem as well.

3. We will have to create an organisation structure where diversification does not become an "on-­now, off-now" type of an abrupt process but where it is a deliberate, planned and continuous process. For this, we will need to adequately staff the P&D dept. I will cover this aspect later while discussing the "Long Range Planning" as a "resource".

4. Accelerating pace of liberalisation will require a matching pace of decision making. This can come about only through a "federated type" of organisation with far greater decentralisation of decision making. The new organisation structure must emphasise this aspect.

5. At corporate level, the new structure should lay greater emphasis on:

- R&D including technology transfers

- Information technology management

- Exports

6. The new structure would have to take into account, the management of an increasing number of:

- Foreign Financial participation JV

- JVs with SIDCs

- JVs with PSUs

7. The new organisation structure should facilitate:

- Acquiring management control of other companies (potentially viable sick units of strategic importance to our own corporate diversification ambitions) perhaps through floating a number of "Investment companies".

- Disposing off potentially declining or unreunerative units/divisions of L&T (which should be a part of on-going product/business audit at corporate level). This could release experienced managerial staff to set up new green field projects elsewhere.

8. The new structure should provide for a certain "minimum" amount of synergy amongst individual businesses of its various "strategic Business Units" (SBUs) retaining the flexibility of quick restructuring to meet the challenge of dynamically changing environment.

Having broadly defined the "attributes" of the new organisation structure, an attempt has been made to draw a matrix of this new organisation structure. See

Annexure IV

B.5 Manufacturing Base

In the developed countries, service industries are overtaking the manufacturing industries. But before reaching this stage, they went through the stage of developing a very strong "manufacturing-base".

Over the last 3 decades, L&T has itself shown a marked bias for setting up a strong manufacturing base at 9 plant locations all over the country. If the kind of diversification envisaged earlier has to be pursued vigorously, this activity will have to be considerably stepped-up, say one plant every year.

What would it involve?

1. studying Central and state Govt policies on industrial location and the constraints imposed and the areas earmarked.

2. studying state and Central Govt incentives.

3. studying the infrastructure of various states especially, the water & power, transport/ communication etc ..

4. study of state Pollution Control Acts

5. Indepth study of all Class A/B/C backward districts in each state along with study of industrial estates set up.

6. Investments planned by the state-sector and the Central-sector during the 8th and 9th Plan.

7. comparative study of the costs of II INPUTS II at various locations.

8. study of IR situation at various locations

9. Examining availability of skilled manpower/ professional staff etc. in relation to local housing, education, medical, entertainment, and shopping facilities.

The above list is by no means comprehensive.

A plant-site can become a valuable asset or a long­ term liability depending upon the thoroughness or otherwise, of the above mentioned examination. Once located at one site, it is next to impossible to shift a plant to another site for cost-considerations and political considerations - and we can be rest assured that the local Govt. and the judiciary will do their damnest to mess up things - as in the case of DCM plant in Delhi!

I am sure various groups of L&T must have carried out some site selection studies from time to time. These are, however, not available at one place. Probably, these have also become obsolete. Again, their terms of reference might have been narrow.

Our strategy therefore should be to name one agency responsible for carrying out a broad based, all India study which could then be used for unrelated projects as also for group-expansion schemes. Conceivably this work could be carried out by the P&D Dept. and up-dated every 3 years.

It is not inconceivable that given a choice of more than one state for a given project, we might be able to obtain some "special concessions" from one or more states. Much would depend upon our negotiating skills.

The next strategy has to do with the project implementation. Each project would call for:

-      Specific site selection site development

-      Roads

-      Power

-      Water

-      Sewage/Effluent

-      Fencing/entry-exit gates/watch towers

-      Tree plantation

-      Housing (for essential staff)

-      Factory buildings

-      Stores (FG/RM/Maintenance etc.)

-      Canteen services

-      Medical services

-      Mech./Elec./Civil maintenance services

-      Transport section/Garage

-      Welfare centre/Club house

-      Shopping centre

-      Transit house/Guest house

-      Construction staff quarters

-      Own generating sets

-      Computer centres

-      Telecommunication network

-      Data transfer network  ( integrated into L&T's all India network )

We can go on and on.

Not every project may need all of these facilities. On the other hand, some major projects may require putting up an entire township.

Having put up many projects of our own and some for others (part work done by PPE/LTCG/GR V Project, etc) we have accumulated within L&T, a considerable amount of "expertise" in this regard. Facilities Planning and/or Plant Engineering departments of our major operating groups have also, considerable "in­-house" know-how on this subject.

Recently, while setting up Kalol Footwear Works, I wrote to:

- Plant Engineering Officers

- Personnel Officers/Training Officers

of all of our manufacturing units and requested them to send me a statement of

"DOs and DONTs OF A NEW MFG PLANT"

alias

"How would I do it, if I had a chance of doing it all over again"

Unfortunately, while setting up a new manufacturing base, very little use is made of L&T' s "Internal Synergy" the accumulated wisdom of thousands of engineer-years. I would not be surprised, if we are making the same mistakes again and again (of course , a new person at a new location every time).

An organisation solution could be a strong project execution group within the P&D Dept.

B.6 Marketing Network

As with its manufacturing base, L&T could also feel proud of its existing marketing network - which is an envy of many a large organisations in the country. Over the last 4 decades, we have set up:

-      4 Regional Offices

-      13 Branch Offices

-      15 Resident Engineers Offices

-      700 Dealers, Distributors and stockists

Obviously the "degree of presence" of our various groups in all these offices differs depending upon local/regional business potential. Barring some minor problems (eg. common supporting staff availability) the set up has, by and large, worked well. The set up was created, keeping in mind that we were an engineering company and our products required "customised-marketing" which had an "application-orientation".

Then came shipping - where the cargo space was "sold" from a single location - Bombay.

For selling cement (only now getting to be a "buyer's market"), we set up several hundred stock list who were dealing in some or other kind of building materials. The dispatches are by rail as well as road, made from Awarpur, controlled from Bombay.

within 2/3 months, we will start dispatching shoes from Kalol, to a couple of wholesalers each in Delhi/Bombay /Bangalore. The marketing group will operate from Bombay.

And if we decide to get into even half the diversification projects listed earlier in this document, we are in for £ "sea-change" in our marketing network! It would hardly matter whether public at large remember that we spent first 50 years of our corporate life trying to become an engineering giant.

All that would matter to the public is

"will L&T deliver the goods/services in time?"

"will these be of high quality? In case of product failure; where can I go for a repla­cement? will L&T honour its warranty clause - and much more?"

"In case of a problem, whom do I phone/write? will anyone respond over phone? will anyone ask for my phone-no, address and call me back/write to me in 48 hours?"

"Suppose I was to ask for the Chairman, will telephone operator/secretary put me through, or direct me to Public Relation Dept or ask me to get lost?"

So far we may have dealt with only a few large companies, or public sector units and with a few highly placed Purchase Managers - who knew they could wake us up in the middle of the night without having to apologies!

But if we decide to get into a whole lot of consumer products (food/drugs /cosmetics/lamps/shoes) and a wide range of service industries, it is an altogether different ball game!

Then the questions Listed hereinbefore are not hypothetical. They are very real, needing a very different kind of "consumer orientation" and "responsiveness”. The entire marketing network - every single individual would have to feel "accountable" to the customer - every single customer.

We have all read the story of an old woman who walked into the cabin of the Chairman of one of the largest USA Banks and asked him to accept a deposit of $ 700 and make out a receipt to her. We also know how the Chairman put all his work aside, went down with her to a cashier, filled-in the form himself, gave her a receipt and politely saw her to the door telling her next time she can go, see the cashier directly!

We also know that the Chairman of "AVIS RENT-A-CAR­COMPANY", used to phone up his own local offices in whichever city he travelled and would ask details for a car-rental, pretending he was a customer! He wanted to test the customer-orientation of his staff.

And, I think, this company had an advertisement catch-phrase which said.

"We try harder because we are No. 2"

The "Search for Excellence" lists,"customer­- or ientation " as a major attribute of successful companies, almost alongside with "Bias for Action" and a free-wheeling "Innovative Climate".

In marketing, our strategy must be to copy a successful American consumer-product company.

B.7 strategic Planning & Development

If Manpower is our most critical "Resource", Long Range Planning & Development is our most critical "Process". So obviously we must have a corporate strategy with respect to strategic planning process itself!

Very broadly speaking, the process consists of:

Earlier, we spoke of the months/years it takes to get various permissions from the Central & state Govts.

If we were to critically examine our own internal process, we find it to be quite lengthy and time ­consuming. While we are making elaborate

-      Concept notes

-      Profitability study of the Industry concerned

-      Market surveys

-      Techno-commercial viability reports

-      study of Govt policy (Central)

-      study of location policy (state)

Search for a suitable collaborator etc ..

Either

Many others have already jumped in the fray

Or

Govt has closed the "Booking Window" for further licensing

In a world, and in India within that world, where environment is rapidly changing, clearly such a process won't work! And as far as I can see, the "pace-of-change" will accelerate to g_ dizzying speed requiring g_ matching "speed-of-response" unlike any we have been used to so far.

Clearly there will be a much greater need for "Entrepreneurial" decisions especially in an environment where the state controls "what" we can do, kind "when" we can do. We must not confuse our professionalism with so much minute analysis that we finally get paralysed!

To meet the challenge of the 21st Century, I suggest the following strategy :

At the "opportunity-Identification" stage, P&D Dept will prepare a checklist of :

a)  critical "Success Factors"

b)  Likely "Failure Factors"

for the "Opportunity" that is Identified.

The statement will also seek to answer

Q. 1  Even if the, industry (being considered) appears crowded, having over-capacity, no current demand­-supply gap and generally having low profitability, should we either ?

Q.2 Is there a good growth rate ?

Q.3 Are there one or two existing manufacturers who are reasonably profitable -? (There are "sick" units in every Industry and these should not vitiate our decision !

Q.4 with anyone (or more) of the strengths of L&T (Finance, Technology, Management - Marketing, etc. ,etc. ), can we reasonably expect to snatch away 10 share of the market from the existing manufacturers ?

Then

a) If we are confident that we can set up a manufacturing/marketing bass that will

- ensure the success factors

- avoid the failure factors

b) If we can answer "YES" to the four questions listed above,

We should PROCEED full-blast and apply for an industrial licence (or better yet a DGTD registration for a backward district), clearance. And while we are waiting for this permissions, we could

-      prepare a market survey

-      prepare a techno-commercial viability report

-      select the site

-      negotiate with the collaborator, etc ...

As a part of the responsibility of the P&D Department, all of the above mentioned steps will be an "Internal-to-P&D Dept" process.

All that GM (P&D) should do, is to keep The CPC (Corporate Planning Committee) INFORMED monthly meeting.

Of course , I am not advocating commitment of com­pany's financial resources for the implementation of the project without first obtaining approval of our Board of Directors.

And it is clearly understood that if the Board rejects the proposal, the project stands SCRAPPED.

However,

the only price we would have paid (for an entrep­reneurial decision) would be

a) Expenditure of between Rs 5 - 10 Lakhs in:

- conducting market survey

- preparing techno-commercial viability report

- travelling abroad to search for technology, etc.

b) Time (departmental man-hours) spent on vari­ous activities

I feel this is a small price to pay for an otherwise "missed" opportunity.

Having said this, we must now try to define the organisation structure of the strategic Planning Development Department.

Before, however we do so, we must list

-      The strategic Planning functions, and

-      The strategic Development functions

See Annexure V

Organisational structure of P&D Dept.

Having defined the P&D functions and its relevance/importance to the whole process of Corporate-level Diversification, it is necessary to define the P&D Organisation structure which would enable P&D Dept., to discharge its onerous responsibility to the satisfaction of the Corporate Management. And if the function is vitally important from the view-point of the company's future, it is equally important that it is represented at the level of L&T's Board of Directors - as in the past.

The details of P&D Dept. organisation are given in

Annexure VI