August, 2009 – Business Strategy, Strategic Management Article

Larsen and Toubro (L&T), the engineering and construction giant wants to reposition itself and be a more focused value-added engineering company. L&T is a USD 8.5 billion company and has 12 operating companies and three subsidiaries. The company was mainly into engineering, procurement and construction segments. It also has a large exposure to commodity businesses such as cement and ready-mix concrete. In the year 2000, L&T began implementing its business restructuring exercise with its first two five year plans. The restructuring plans had set a target to reach a business volume of Rs 35,000 crore annually which the company achieved and exceeded by 15-20%. As per the restructuring plans, L&T had divested its cement business in favour of the Aditya Birla Group and its ready-mix concrete business in favour of Lafarge SA. The third five-year plan of the company will be executed from 2010 to 2015.

L&T’s operating divisions

  • Engineering & Construction Projects (E&C)
  • Heavy Engineering (HED)
  • Engineering Construction & Contracts (ECC)
  • Electrical & Electronics (EBG)
  • Machinery & Industrial Products (MIPD)
  • Information Technology & Engineering Services

As part of its Business restructuring exercise L&T plans to:

  • Revise the status of each of its 12 operating companies, depending on financial performance, size and strength. A threshold value of Rs 5,000 crore has been fixed for identifying size. Only a company having a certain size and strength will be called a “L&T-promoted company”.
  • Executive vice presidents running operating companies will be upgraded to senior VPs based on performance.
  • A succession plan, with chairman A M Naik retiring in September 2012.

In August 2009, L&T had announced an internal restructuring exercise wherein it planned to form a new entity within the company to cater to the growing opportunities from the railway sector. The new entity was to be formed from L&T’s existing arms which were currently involved in railway work, including the manufacturing, design and marketing arms. The company had also announced plans to enter the general insurance business.

Keywords: L&T, Business Restructuring, engineering and construction