09/01/2020
L&T - Builders to Nations
1- Two Danish National Larsen and Toubro, who refused to go back due to second world war and N**i Germany, would change the future of India, construction industry and business at large. How serendipitous can adversity be! L&T built HITEC city, TIDEL park, most stadia, ISB, IIT, Hyd and they've literally built nations.
2- They started in the pre independence era, saw the opportunity to build a free country, providing infrastructure, building relationships and they knew their suppliers so well. In one case, a steel plant says "Hariharan saab, we don't roll steel plates of that size" and the EVP KG Hariharan says "don't tell me that what width you roll, .., I was the one who built this plant for you". So you create and leverage your creation for further creation!
3- L&T is known for speed of construction. In 1999 AP government wants water pipelines to reach Tirumala after a water shortage forecast. They commit to doing it in 90days, while their initial estimate was 1year, which would initially become a 72 day wonder, by interacting with suppliers and building on their concept of Material, Men, Machinery, Money and Management. L&T pioneered a change of deadlines from years to months to days. This was on the backbone of strong personal relationships with suppliers who shared their vision.
4- India had 10 of top 20 polluted cities in the world, with construction industry playing a big role. L&T pioneered green practices which bring in quality, alternatives to soil, reduced water requirement. Though the industry operates on cost minimisation, L&T focussed on setting an example and inspired the industry.
5- L&T was about to be taken over multiple times due to low market capitalization. CMD Naik made employees their shareholders, so they looked at the share prices every day, since they have say 500 shares. The employees now worked towards value creation, it was not just about revenue, but shareholder returns as well, increasing the share price and mitigating the threat of takeover. L&T made sure that no family business would take over - Dhirubhai (saved L&T from a middle east investor trying to take over) and KM Birla came close.
6- L&T had 13.9% attrition in 2015, below 14% average in India, withstanding the competition from high paying IT services industry where margins are 30% unlike 10% in construction. This was due to proper growth trajectory, mentorship within. Proper e-learning was created and used to train people, in the absence of mentors - pioneering skill initiative in India. They set up employee housing, basic amenities, even provided infra for people to start schools for everyone in the locality, so employee welfare was taken care of, while their folks hop a lot between locations, due to work.
7- They inspect customers sites even several years after deployments. Plants set up in 1993 are also visited and assistance is provided to ensure customer delight, nurture relationships and secure projects. In 1990s, they moved from marketing intensive approach to quality, on time delivery and customer relationships - as predicted by Philip Kotler (Marketing 2.0). The cliched but evergreen win win strategy.
8- Mc Kinsey report - L&Ts best practices - design and engineering capabilities, building long term supplier relationships, adopting lean construction, institutionalized risk management, providing lump sum Engineering Procurement Contracts. The company grew 24 times in market cap from 1992 to 2015. Employees say that once Naik became CMD, the company started talking the language of finance and economics.
9- The impossible probably becomes possible once you start asking how, rather than can I. L&T picked up ambitious project with crushing deadlines and got their stakeholders to believe and excel in ex*****on. Doesn't this make our processes more effective, cut costs and make construction more sustainable - minimizing damage to the planet.
10- L&T survived so many years as they kept reinventing themselves, understanding the change in shareholder expectations. When the expatriats had left in 1974 the PSU mentality of Indian management was hurting talent management as merit was taken over by experience. CEO Naik convinced the seniors to change the system which was " working". Yes, the elephant can be toppled, a large organization can ensure that merit and excellence wins over status-quo and inertia. Recruitment, Renumeration, Recognition, Retention and Recreation was their formula for managing top talent for high end projects.
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