CORPORATE STRATEGY FRAMEWORK

INTRODUCTION

The corporate strategy be in relation to:

(a) outputs and

(b) Inputs

The tangible outputs of a corporation are the Goods and services.

So, in the first instance, our strategy has to be in relation to the Goods and Services that we wish to provide to cater to various human wants and needs in the days to come.

Human wants give rise to a demand for such products and  services. A broad framework of human wants which is used as a basis for the recommended Corporate Strategy with respect to outputs is given in

Annexure II

Our ability to deliver such Goods/services will depend upon a number of Inputs.

Hence, we must also develop specific strategies in relation to such Inputs, illustrated in

       Annexure II

During the last two decades, L&T's Corporate Strategy has remained quite resilient to the external and internal demands. The milestones of the past should now inspire us to add many more milestones during the closing decade of the 20th century and beyond.

LOOKING BACK

On a careful examination of the 50 year history of L&T, the following observations emerge:

1     Quite early-on, our founding fathers, envisaged the importance of most of these resources.

2     The emphasis did shift from one to another, depending upon the Govt policies and the stage­ of-development of the Indian economy.

During the last 10/12 years, L&T responded to the challenge of rapid growth through:

1 DIVERSIFICATION

shipping

Cement

Medical Electronics

Computer Peripherals

Merchant Export

Leather Shoes, etc.

2     GEOGRAPHICAL DISPERSAL

Awarpur

Ahmednagar

Mysore

Hazira

Kalol

Ankleshwar

pithampur

3     ORGANISATION STRUCTURE

The following functions were elevated to the Corporate Management level:

Personnel , organisation Development Long Range Planning , Diversification.

There was also a considerable restructuring of our existing business groups. Smaller groups, with product-lines having large long-term business potential, came into existence.

4     MERGERS

,For better financial management, the following Subsidiary/Associate Companies were merged into L&T:

- Christensen Longyear (India) Ltd. (CLIL)

- Utkal Machinery Limited (UTMAL)

- Engineering Construction Corporation Ltd. (ECC)

5     JOINT VENTURE

After a lapse of many years, a new joint venture, "L&T Gould Ltd." carne into existence.

These responses were adequate to meet the challenges of the late 70's and the 80's.

OUR FUTURE RESPONSE

Our strategy for the rest of this century and for the 21st century needs to be in the perspective of our response to the future.

Our response to the future could be:

a) To be able to "respond" to the changes

b) A mere "survival strategy"

c) To "anticipate" the future and be ready for the change when it happens

d) To "make things happen" and influence the future itself - the way we want it to be - through deliberate and planned actions

Considering our response in terms of (c) and (d), the possible diversification strategy is recommended. 

FLIGHT TOWARD THE 21ST CENTUARY

 Foundation-to-New Foundation

ACTION PLAN

1. CORPORATE DIVERSIFICATION

A full-day debate on the imperatives of Corporate-level diversification into the un­related business-areas.

2. CORPORATE MISSION

To

-      debate the Corporate Mission presented here

-      evaluate its relevance to L&T in 21st century

-      adopt (with modifications desired)   

3. CORPORATE-VISION

Encompassing a time-span of 5/10/20 years, clearly define L&T's goals, in terms of

Businesses Market-shares Growth-rates Financial parameters

4. CORPORATE-STRATEGY

Having identified future mile-stones along the corporate growth-curve, evolve specific strategies with respect to development of critical inputs of

-      Human Resources

-      Technology Resources

-      Finance Resources

-      Information Resources

all in "quantified" terms

5. COMMUNICATION

Obtain employee-involvement and commitment towards attainment of Corporate Vision, through regular, top-level, company-wide communication.

6. PROCESS

Set up a clearly defined mechanism to periodically monitor the organisational performance/attainment with respect to the Corporate Mission.

7. PLANNING & DEVELOPMENT FUNCTION

Strengthen the P & D function in order to accelerate the diversification-process Corporate-level. 

CORPORATE DIVERSIFICATION

Mr. S.R.Subramaniam                                 January 5, 1989

CORPORATE DIVERSIFICATION

20th Century saw two world-wars between super-powers. The aim of both was territorial expansion. 21st Century will witness a similar war of global dimensions - but with a difference

It will be

-a war of expansion of economic -territory involving nations,    

  large and small                        

-fought by mega-corporations

-employing world-wide network of space-age technologies/    

  alliances/resources/markets.

-unrestrained by national boundaries

-without an end      

It will be a business-war in which the unprepared will be wiped-out and even those who have made definite survival-plans will find going tough.

I am happy to enclose a report which goes beyond survival. For many thousand L& T-ites, it will offer hope for growth in the 21st Century. I suggest that the Corporate Management sets aside one full day during the forthcoming Strategic-Plan Meetings, to debate this report and take necessary decisions.

With kind regards,

                                 

H. C. PAREKH

CC : Mr. N.M.Desai

SWOT ANALYSIS

STRENGTHS

1.  A modern well-equipped manufacturing base spread over 10 plant locations.

2. 17000-strong, skilled manpower.

3. Organisational ability to assimilate advanced technologies.

4. Very wide business diversification.

5. Consensus-based decision-making.

6. High standing with

       * Financial Institutions

* Investing Public

* Central/State Governments

* Collaborators abroad

7. Generally satisfactory Industrial climate.

8. A strong marketing/dealership network.

WEAKNESSES

1.  Lack of "in-house" capabilities to

    * conduct market surveys

* prepare techno-commercial viability studies

       when it comes to totally "unrelated" businesses.

2.  Inadequate manpower resources as far as "Implementation Phase" of large projects business concerned.

3. "Information-Base" inadequate with reference to :

* ready-reference list of "Experts" with vast experience of the   businesses/industries we wish to diversify into.

* ready-reference list of world's top ten manufacturers in each

  product/business lines of interest to us.

* comprehensive list of LOIs/ILs issued to SIDCs.

* comprehensive list of "critical success­- factors" for

   businesses/industries we wish to diversify into.

4.  Lack of expertise in dealing with various State Industrial Development Corporations (SIDCs).

5.  Liaison at appropriate levels in Delhi with DGTD/Ministries/Planning Commission/DoE/DoT, etc. as also with Financial Institutions is not adequate.

6.  Very long internal decision-making process for new business/product lines.

7.  Ultra-conservatism leading to too much analysis and pushing up all risk-involving decisions right to the top.

8.  Absence of a climate which encourages innovation (ability to respond to changes faster everywhere, of every kind)

9.  Very long external process of getting MRTP clearance (where more than 10 be held by L&T)

10.     Resistance to usher into a truly work participative work culture.

11.     Insufficient in-house managerial resources to manage diversification ventures at new locations.

OPPORTUNITIES

INTERNAL

1. positive synergy and use of existing manpower to fill up   

   positions in diversified industry in functional areas like EDP,      

   finance, personnel and general administration.

2. Improved growth opportunities to trained middle level

   manpower and lower level manpower at group level.

EXTERNAL

1.  Delicensing of 26 industries (for category 'A'districts for MRTP companies - without export obligation) including "Industrial Machinery".

2. Broad banding

3. OGL import of food processing machinery at lower rate of duty

4. Thrust to food processing industry

5.Opening up of "Defence-sector" to private industry (in a limited     way) .

6.Poor BOP position throws-up opportunities to take up a number

   of products for local manufacture (import-substitution angle),  

   something which GoI will strongly support.

7. Backdoor entry into thrust areas and non­- Appendix I  industries through joint sector Approach.

THREATS

1.            Possibility of linking new industrial licences with export obligations.

2.            Possibility of Govt asking large companies to meet their foreign exchange requirement through open market purchase of REP licences.

3.            Increased foreign competition because of a large number of items having been put under OGL.

4.            Liberalised industrial licensing policy have made it very easy for a large number of "entrepreneurial start-up" companies to enter into the competition area.

5.            possible dilution of corporate "values" due to geographical and business-diversification.

6.            Inadequate technical/supervisory/managerial re­training may lead to "personnel-obsolescence."

7.            Rapidly rising manpower-costs, unmatched by manpower-productivity, may force us out of some traditional businesses.

In this backdrop, L&T's Corporate Strategy would shape itself towards realizing its Corporate Mission as delineated in the previous Chapter. While taking into cognisance L&T’s historical growth so far, the following Chapters would now define the possible strategic moves within the ambience of Goods and Services encompassing a gamut of Inputs and Outputs. 

DIVERSIFICATION STRATEGY (OUTPUTS)

DIVERSIFICATION STRATEGY : OUTPUTS (GOODS/SERVICES)

Before we get into a detailed examination areas of diversification-opportunities, let us recapitulate our Corporate Mission :

a)  To serve the Indian Nation through manufacture and supply of high quality goods  and services at reasonable cost;     
b) To become the most diversified company of India.

A Diversification strategy for "Goods/Services" must necessarily take into account:

a)  L&T's strengths & weaknesses

b)  GOI's Licensing Policy

But, "taking into account" should not be taken as "binding" or being "limited by".

Any diversification move would obviously generate newer challenges. These challenges, in turn, could also crystallise our "weaknesses". Such crystallisation, however, would emphasise the need to discover ways and means to convert "weaknesses" into "strengths". Some of the options could be as listed in

Annexure III

This list is only a demonstrative one as there could be many more options available to us.

 Various human wants and needs generate the demand for innumerable goods and services, which in turn create the necessary prospects for business. Some of the specific areas that emerge out -of these human wants and needs are identified as follows, under each want category.

A. want Category: ESSENTIAL

A.I Economy sector: Food

A.I.I Sub-sector: Agriculture-based
Products/Services Recommended

* Flavours

* Processed foods

* Bagasse based paper

* Genetic engineering (Tissue culture/ cloning for Hybreed seeds)

* cut flowers/Potted plants (for exports)

A.I. 2 Sub-sector: Animal-based

Products/Services Recommended

* Dry land fisheries

* Milk based products

A.I. 3 Sub-sector: Consultancy

Products/Services Recommended:

* Food testing laboratories

A.2 Economy sector: clothing

A.2.l  Sub-sector: Natural/synthetic Yarns

Products/Services Recommended .

* Textiles/Fabrics

* Apparels/Garments

* Soft furnishing

* Components

* Shoes (Leather shoes, Sports shoes)

A.3 Economy Sector: Shelter

A.3.l  Sub-sector: Building Construction

Products/Services Recommended

* Mass housing/Residential complexes

* Commercial complexes

* Shopping plazas

* Industrial estates

A.3.2 Sub-sector: Building Materials

Products/Services Recommended

* Cement (we are already in)

* Value added cement products

* Glass (Float)

* Ceramic tiles

* Pre-fabricated components

* Gypsum/Cement/MDF boards

* Lighting systems (Lamps)

* Natural stones

* Metal sections (Doors/windows)

A.3.3 Sub-sector: cities/Towns/Land Services

Products/services. Recommended

* Town planning consultancy

* Real estate/Land development projects

* Architectural services

* structural engineering services

A.4 Economy Sector: Sex

A.4.l  Sub-sector: Population

Products/services Recommended:

* Family planning devices

A.5 Economy Sector: Climate

A.5.l  Sub-sector: Heating/cooling/Humidification/ De-humidification

Products/services Recommended:

* Air-conditioning devices

* Refrigeration devices

B. want category: NECESSITIES

B.l Economy Sector: Health

B.l.l Sub-sector: Health Care Products

Products/services Recommended:

* Pharmaceuticals

- Preventive (Vitamin~/tonics)

- Curative (drugs)

B.l.2 Sub-sector: Health Care Services

Products/services Recommended:

* Diagnostic clinics (not hospitals)

* Ambulance services ('Corporate-Image' angle)

B.2 Economy sector: Education

B.2.l Sub-sector: Educational institutions

Observations/Recommendations:

* Products/Services are not recommended because of Govt controls and low returns

B.2.2 Sub-sector: Research Labs (Industrial/ scientific/Management)

Products/Services Recommended

* Research Labs in Biotechnology/ Genetic engineering

Observations/Recommendations:

* Sector recommended due to the "Image creation Effect" (Example: TIFR/TISS, etc.)

B.3 Economy Sector: Transportation

B.3.1 Sub-sector: Air Transport/Rail Transport

Obeservations/Recommendations:

* No scope either in products or services due to pUblic-sector presence.However,sports-fun products such as "PARA-PLANE"could be marketed world-wide.

B.3.2

Sub-sector: Road Transport

Products/Services Recommended:

* Highway/Road construction

* Road construction eqpt.

* Road Transport Corpn. for materials (Similar to USA's Federal Express and United Parcel Services)

* Auto/Industrial Batteries

B.3.3 Sub-sector: Sea/River Transport

Observations/Recommendations:

* No immediate prospects.

B.4 Economy sector: communication

B.4.1 Sub-sector: Telecommunication

observations/Recommendations

This sector can be broadly divided into two: services and products.

Both of these are very closely controlled by the state/Central Govt through public sector units. For the next 25 years, this is going to be one of the fastest growing sector of economy. The public sector is unlikely to cope-up with the demands and gradually more and more areas of goods & services are expected to be thrown open to the pri vate/joint sector.

The entire sector, therefore meri ts a very close,' indepth examination and development of detailed "Entry-strategies" in a big way including backdoor entry through tying-up with state Govt projects.

The following developments will revolutionise the tele-communications:

* Very powerful supercomputers

* Artificial intelligence/Expert systems

* Miniaturisation

* Optical computing

* Large scale use of optical fibre cables

Within the next 10 years, there will be Generation/storage/Retrieval/Manipulation/ Transmission of

- Voice

- Data

- Text

- Image

thru a single instrument.

Having covered the "Senses" of EYES!. EARS within the next 25 years, the 3rd generation revolution will comprise the long distance transmissions of the feelings generated by the senses of:

- TASTE

- SMELL

- TOUCH

Japan, USA and Europe will lead the development of these new technologies which will give birth to a whole gamut of "Sunrise" industries in these coun­tries.

Obviously these industries will have for its basic building blocks, very powerful micro-processors operating at fantastic speeds. These micro-proce­ssors will have a product-life of not more than 2/3 years and will require heavy investments in manufacturing facilities. For this reason, manu­facture of these building-blocks would be beyond the abilities of countries like India.

On the other hand, the "applications" of these technologies will travel to India, much faster than hitherto. This will open-up enormous opportunities to those Indian companies which have built-up a strong "application-base" in communication electronics by the turn of the century.

Very clearly therefore, L&T's strategy should be to build-up such a base through a series of com­plimentary (non-conflicting) steps comprising of:

1 Joint-venture with world-leaders.

2 Technical collaborations with world-leaders.

3 Joint ventures with state Industrial Development Corporations.

4 Joint ventures with existing PSUs such as ECIL, BEL,ITI/GCEL,etc.

5 A central "Technology-Absorption/Transfer-cum­ R&D Laboratory" with a free flow of technicians/     engineers/scientists to the geographically dis­persed manufacturing units. This will include a "communication consultancy service organization"

6 Owning and operating a publishing network of newspapers/magazines/professional journals.

7 owning and operating a computerized Data Network for :

-      Financial World (Equity/Bonds/Debentures,etc.)

-      Products/Services (Yellow-page type)

-      Industrial Production Statistics (for market surveys, etc.)

-      Business Intelligence/Corporate Performance

-      Industrial Licensing Data

c.

-      want Category : DESIRABLE

-      C.1 Economy Sector : Environment

-      Products/Services Recommended:

-      * Pollution monitoring/control/prevention equipments. ( These will cover air/water/ sound pollution) .

-      * Geotextiles/Geofabrics

-      * De-desertification plants/chemicals

-       * Water de-salination plants and soil salinity removing chemicals

-      * Underground water locating devices

-      * Rain making (cloud-seeding) devices

-      * Garbage processing eqpt.

-      * Sewage water recycling eqpt.

C.2 Economy Sector - Entertainment

-      Products/Services Recommended:

-      * High Definition Flat Tube TV

-      Observations/Recommendations:

-      The technology for this is unlikely to be passed-on to India for the next 10 years atleast. The Japanese & the Europeans are working on two differing STANDARDS. Which standard, India will adopt is quite likely going to be a political decision, since the potential Indian Market could be worth billions of rupees.

-      The new system will make existing TV system totally obsolete and force existing TV manufacturers to close-down their existing manufacturing facilities or carry out costly renovations.

-      Our ability to

-      obtain a favorable political decision in time;

-      tie-ing up wi th a world-class HDTV manufacturer of technology in time (name of the game is to be THE FIRST),

-      could give us a virtual monopoly of the Indian entertainment market.

-      D. want Category : LUXURY

-      D.l Economy sector: Comfort

-      Products/Services Recommended:

-      * Domestic Appliances (White Goods)

-       Air conditioners Refrigerators

-      Washing Machines

-      Vacuum Cleaners

-      * Cosmetics

-      * Wines/Beer

-      D.2 Economy sector: Ego/Status Needs

-      D.2.1 Sub-sector: Tourism/Travel

-      Products/Services Recommended

-      * 3-star hotel chain

-      (Synergy with our "Construction Group")

-      * Fast Food franchise chain

-      (Synergy with "Processed Food Groupll)

-      * Tourism/Travel Agency/Luxury coaches

-      * Trade Fair/Conference Centres

-      D.3 Economy Sector: Intellectual/ spiritual needs

-      Products/Services Recommended

-      These are ultimate luxuries in the Indian context with a negligible "market".

-      Of course , these are not water-tight compartments. Very often, a particular sector of economy caters to more than one Human-Wants.

-      For example:

-      "Agriculture" will provide "essential" foods for survival, as also sophisticated cocoa products (chocolates) which may fall under "Luxuries" in the Indian context.

-      Similarly, "Housing-sector" could mean an "Improved slum-type Shelter" to millions who sleep on footpaths to fully air-conditioned luxury apartments for the ultra-rich.

-      A lot of compromise was inevitable in trying to prepare a "simple" list.

-      E. Economy Sector: INDUSTRY

-      There are, however, several products/services which satisfy a number of human-wants indirectly by the reason of being essential "inputs" to that sector of economy which we call:

-      Engineering sector/Industrial sector/Energy Sector

-      Some of these which may be worth examining indepth are:

-      E.l Ferrous/Non-ferrous Metals, especially

-      * Sponge Iron

-      * Steel

-      * Flat Products of Steel (sheets/strips/ flats)

-      * sections of Steel (Tubes/Irregulars)

-      E.2 Non-metallic Materials, especially

-      * Plastics/Polymers

-      * Composites

-      * Plasticisers/Elastomers

-      * Synthetic Rubbers

-      * Speciality Chemicals

-      * Basic Chemicals

-      * Dyes/Dye-intermediates

-      E.3 Energy Raw-materials/Applications, especially

-      * Petrochemicals

-      * Refining

-      * Gas-based Industries/Piped Domestic Gas

-      * Gas-based Power Plants

-      * wind/Solar Energy Products

        

 E.4 Information Industry, especially

-      * Special Process-control Computers

-      * Energy Software

-      * Office automation products

-      E.5 Service Industries, especially

-      * Advertising

-      * Leasing

-      * Engineering/Management Consultancy

-      * Financial Consultancy

with the Corporate Mission and SWOT Analysis in the background, an attempt is now made (Chapters 6 and 7) to define L&T I S Corporate strategy with respect to the primary and secondary resources