Restructuring

of
Larsen & Toubro

Ajay K Datta, DGMP 14004

Mantosh Saha, DGMP - 14005
Rahul Bhatia, DGMP - 14014
Pradyumna Mishra, DGMP 14015 Arnab
Arnab Ghosh, DGMP - 14016

TABLE OF CONTENTS
LARSEN & TOUBRO ..................................................................................................... 1
Introduction ............................................................................................................................. 1
Organisational Change ................................................................................................................ 1
Organisational Structure of L&T .......................................................................................... 2
Background ................................................................................................................................... 2
Restructuring the Organisation ............................................................................................ 3
Need for Restructure .................................................................................................................... 3
Restructuring Plan ........................................................................................................................ 4
Current Scenario Post Restructuring ......................................................................................... 7

LARSEN & TOUBRO

INTRODUCTION
1.
Organisation. A social unit of people that is structured and managed to meet
a need or to pursue collective goals, is called an Organisation. Organisational
Structure consists of activities such as task allocation, coordination and supervision,
which are directed towards the achievement of organisational goals. Organisations
are a variant of clustered entities. An organisation can be structured in many different
ways, depending on their objectives. The structure of an organisation will determine
the modes in which it operates and performs.
ORGANISATIONAL CHANGE
2.
A business organisation makes changes in personnel and departments, and
change how workers and departments report to one another to meet market conditions
and challenges of the external environment. Some companies shift organisational
structure to expand, to serve growing markets, to bring in change so as to shift their
focus from cost cutting and efficiency to innovation for maintaining competitive edge
& some others reorganize to downsize or eliminate departments for conserving
overheads. Organisation restructuring happens when the reporting hierarchy of a
company changes. After restructure and change of an organisation certain groups will
report to different departments, and some departments may be created or made to
disappear altogether.
GENERIC REASONS FOR STRUCTURAL CHANGE
3.
Organisational change occurs when a company makes a transition from its
current state to desired future state. This is managed so as to minimize employee
resistance and maximizing the effectiveness of the change. Managing organisational
change is the process of planning and implementing change. There could be a number
of reasons for restructuring an existing structure in an organisation, some are as
mentioned below :(a)
Change in Strategy. Companies reorganize structure to accommodate
the market shifts. Some companies create new divisions to facilitate new
products or product lines. Some companies trim production staff due to surplus
production. Some companies increase sales staff to drive sales. Some
companies add/acquire new businesses and new revenue streams over a
period of time and need to streamline the operations of the same.
(b)
Change in Business Model. Companies often rearrange business
structure to follow a new business model. Some companies shift organisational

structure to a regional model to assign local managers. Some companies

create a matrix grid to place the key managers over various departments and
divisions. Many need to respond to market challenges and nimble competitors
for which they have to restructure themselves.
(c)
To Downsize and Cut Cost.
Companies commonly downsize to
remain functional during a loss of revenue. Most companies will close
departments, drop product lines, lay off managers and sell facilities to keep a
company afloat. Some companies reorganize business structure to meet the
needs of the new organisation at its smaller size.
(d)
To Expand. Corporate expansion demands the creation of new
departments to accommodate new products or new facilities. For any
expansion companies have to rearrange business structure to include the new
staff. Companies often make changes in the basic organisational structure for
any expansion.
(e)
Mergers and Acquisitions.
Mergers and Acquisitions refer to the
process of acquiring a company at a price called the acquisition price or
acquisition premium. The key principle behind M & A is to create shareholder
value over and above that of the sum of the two companies. Two companies
together are more valuable than.
ORGANISATIONAL STRUCTURE OF L&T
4.
Larsen & Toubro. Indias premier technology driven company with leading
edge capabilities in the fields related to Engineering, Infrastructure, Power, Infotech,
Financial Services, Shipbuilding and EPC. Its all about Imagineering is the motto of
LARSEN & TOURBO LIMITED profoundly known as L&T. L&T is one of Indias bestknown multi-product engineering organisations involved in over thirty distinct field of
engineering. Under the dynamic leadership of Mr. AM Naik, L&T has its presence
worldwide and is the leading infrastructure conglomerate of the country.
5.
Vision.
The vision of the company - L&T shall be a professionallymanaged Indian multinational, committed to total customer satisfaction and enhancing
shareholder value. L&T-ites shall be an innovative, entrepreneurial and empowered
team constantly creating value and attaining global benchmarks. L&T shall foster a
culture of caring, trust and continuous learning while meeting expectations of
employees, stakeholders and society.
BACKGROUND
6.
Larsen & Toubro Limited, also known as L&T, is an Indian multi-national
conglomerate head-quartered in Mumbai, Maharashtra, India. Prior to Indian

independence, the company was founded at Mumbai in 1938 by two Danish

engineers, Henning Holck-Larsen and Sren Kristian Toubro. The company began as
a representative of Danish manufacturers of dairy equipment. However, that changed
during World War II when British Government stopped them from doing business. After
independence, offices were set up in Kolkata, Chennai and New Delhi. In 1948, 55
acres of undeveloped marshy and jungle land was acquired in Powai, Mumbai. A
previously uninhabitable swamp subsequently became the site of its main
manufacturing hub.
7.
In December 1950, L&T became a public company with a paid-up capital of
Rs. 20 lakhs (2 million rupees) (2,000,000). The sales turnover in that year was
Rs. 1.09 crore (10.9 million rupees). In 1956, a major part of the company's Mumbai
office moved to ICI House in Ballard Estate, Mumbai; which was later purchased by
the company and renamed as L&T House, its present corporate office. Today, the
Company has multiple businesses ranging from engineering, construction,
manufacturing goods, information technology, power and utilities, ship building and
defence, realty and financial services. It has established offices in different countries
across the globe. It has got many patents and innovations to its credit. They generate
about 62% revenue from overseas operations.
RESTRUCTURING THE ORGANISATION
NEED FOR RESTRUCTURE
8.
Over the years due to diversification in various businesses L & T had become
a huge multiple division organisation being managed as a single entity. The
Organisational Structure of L&T during those times was as depicted in Figure 1. L&T
reported revenues of USD 10 billion in 2009/10 and had seen rapid growth during the
preceding few years as many reforms in infrastructure sector were undertaken during
that time and a record number of Infrastructure projects were awarded to the company
by the Government. The organisational structure of L& T required quick decision
making to be facilitated to remain competitive. It had also experienced smaller nimbler
rivals bagging projects due to their quick response time. Moreover, chances of one
unit fighting for the project against another and underbidding the other unit to gain
projects could not be ruled out due to sub-unit orientation. This triggered the necessity
for making the organisation more decentralized and enable quick and smart decision
making. As the country was pushing for more roads, ports, airports, metros, L & T saw
the need of the hour was to get the organisation going which required revamping the
structure completely.
9.
Strategy.
It had become extremely difficult for the top management to
effectively control the monolith giant that L & T had grown into. That was the reason,
Mr. AM Naik decided to restructure the Company into various smaller Strategic
Business Units, each independently managed by a CEO and run like a smaller virtual

company. L& T had 152 businesses in 63 subsidiaries and more than 1450 JVs when
it was decided to restructure the business. Moreover, the Company was failing in
capturing the valuations of individual divisions and therefore aimed at creating and
capturing individual valuations. It was felt that restructuring would unlock shareholders
value by re-organising the businesses into 09 independent companies under a
separate CEO and Board with central control by Headquarters.
10.
Simplicity and Clarity of Operations. It was believed that the planned
structural change will bring about the necessary improvement in performance of the
various companies with greater focus, empowerment, transparency, stronger
leadership and increased competitiveness. It was purely an organisational
restructuring and not aimed at cultural changes. It was felt that only restructuring can
help L & T to face the intense competition and business challenges of those times
while doing away with the inherent complexities of the existing structure and bring
about simplicity, clarity and greater coordination in operations.
11.
Changing Business Models. L&T was a highly diversified company and it
was difficult to maintain domain expertise and reorganisation had become inevitable
due to intense competition. Further, L & T saw major growth opportunities in all the
sectors they were present in. Therefore, they followed the path charted by other
conglomerates such as the Tata and the Birla groups who were also forced to
restructure themselves for carving independent companies, with holding firms (Tata
Sons Ltd and Aditya Birla Nuvo Ltd) to retain their competitive edge. During that time,
the struggling airlines, Air India Ltd, too, restructured themselves, by creation of five
strategic business units for the passenger airline, cargo and engineering, among
others to survive in the ever changing business environment.
RESTRUCTURING PLAN
12.
Strategic Business Units.
India's top engineering and construction
company Larsen & Toubro was to be reorganized into following nine business verticals
as depicted in Figure 2. The conglomerate sought to simplify its structure so as to
manage growth efficiently.

Building & Factories

Infrastructure
Heavy Engineering & Systems
Industrial Projects & Water
Electrical Construction
Hydrocarbons
Electrical & Automation
Mechanical & Industrial Products
Power Equipment
4

Figure 1 Structure Prior Re-organisation

Infrastructure

Hydrocarbon

Roads & Bridges

Power

Process

Others

Construction &
Mining Equipment

EPC - Coal
Minerals & Metals

Ports & Harbours

Midstream
(Refineries)

Airports

EPC - Gas

Shipbuilding

Hydro Power
Defence & Aerospace

Railways

Nuclear Power

Buildings & Facilities

Urban Infrastructure

Bulk Material
Handling

Boiler & Turbines

Downstream
(Petrochem)

Industrial Macheniery
Production
Technology Services

Balance Plant
Fertilizers

Water

Transmission &
Distribution

Electrical Products

Figure 2 Sectors Under New Structure

13.
Each SBU was to have separate boards comprising of experts from related
industries. L&T also has planned to list these entities in the future, once they gain
critical mass and required maturity. In line with its restructuring plan, the Board of
Directors of L&T approved, seeking of shareholders approval for transfer of the
electrical & automation (E&A) business to a subsidiary and/or associate company or
to any other entity. The group would form a hybrid holding firm for effective
management and to ensure synergies in a conglomerate that has more than 150
businesses. The restructuring was loosely based on the Indian governments principle
of assigning Navaratna status to public sector enterprises, giving them greater
autonomy than other state-run units to compete in the global market.
14. This was the second recast in 12 years at L&T, which earned around 80% of its
revenue from engineering and construction, and has aggressively invested in new
sectors ranging from shipbuilding to power equipment manufacturing. In 2005, the
company separated its cement division and sold it to Aditya Birla Group. L&T had
introduced the concept of treating different verticals as operating firms three years
ago. The company had previously sold non-core businesses such as the ready-mix
concrete and petrol pump businesses as a part of business restructuring. The
business heads of independent companies could now transform into leaders, from
merely looking into operational issues. The joint ventures of L&T would be coming
under the respective independent companies.

15.
A corporate centre was established to nurture the L&T brand, value, culture,
and optimize synergies through key account management and shared services. The
focus shifted to develop a deeper leadership pipeline and attract lateral talent.
CURRENT SCENARIO POST RESTRUCTURING
16.
The company has successfully met the challenges of competition in the ever
changing business environment. The restructuring of organisation coupled with five
decades of experience in designing, manufacturing, installing plant and equipment for
major projects and absorbing/adapting technology to sharpen skills helped L& T to
make its foundation and operations stronger in developing India and abroad. L & T
expertises has grown out of its mastery over indigenous know-how, its versatility
diversifying into various fields. Behind it all is the spirit of enterprise and an obsession
for quality and customer service. The new organisation structure of L& T is depicted
in Figure 3.
17.
The creation of nine independent companies made L& T more aggressive,
facilitated nourishing talent by fast-tracking senior managers to independent positions
and unlocked value by allowing investors to choose particular businesses. It is a
common practice in the West among diversified conglomerates to incubate a business
and later unlock value, allowing investors and senior managers to cash out. But, L&T
proved that the same can also be successfully implemented in the Indian business
environment with a growing economy. The hybrid company now houses the nine
operating companies with separate profit and loss accounts. There are five
subsidiaries, including L&T Infotech Ltd and L&T Finance Ltd. The reorganisation is
expected to yield a fourfold increase in revenue by 2017 from Rs 46,900 crore in FY10.
18.
The Company has been able to leave a mark in professional management. It
has produced legendary professionals and leaders like Mr. NM Desai, Mr. UV Rao,
Mr. SD Kulkarni and Mr. AM Naik. Today, L&T is one of India's biggest and best known
industrial organisations with a reputation for technological excellence, high quality of
products and services, and strong customer orientation. The company has
manufacturing facilities in India, China, Oman and Saudi Arabia. It has a global supply
network with offices in 10 locations worldwide, including Houston, London, Milan,
Shanghai, and Seoul. It is also taking steps to further grow its international presence.
The presence of L&T in India and abroad is depicted in Figure 4.

Larsen & Toubro Ltd.

Business Verticals Independent Companies

Associate Companies

Subsidaries

Building & Factories

Financial Services

Metallurgical & Material

Handling

L&T Infotech

Power T&D

Infrastructure SPVs

Hydrocarbon

MHI JVs

Power

Other Mfg. &

Fabrication subsidiaries

Heavy Engineering

Services & other

subsidiaries

Shipbuilding

AUDCO

Infrastructure

Machinery & Industrial

Electrical & automation
products

L&T KOMATSU
Others

Figure 3 New Structure Post Re-organisation

Figure 4 L&Ts Footprint at National & Global Level