Are we doing everything we can to help people be the best they can be? ” asked Birla in the Q203 issue of The Smart Manager. The question is close to his heart. Since he took over the reins at the Birla Group he has focused on fine tuning the group’s talent pool. If this meant taking hard decisions Birla did not shy away. More than 350 senior managers left the group. Some through natural attrition, others through counseling, leaving space for new faces and new talent.
Management means attracting talented people, nurturing them, developing them, and giving them space,” asserts Birla, “decisions need to be made at every level and decisions need to be quick. So, we have to spot, incubate and groom talent at every level of the organization, because more people need to be making high quality decisions. ” To build this culture in the group, Birla has created a system based on meritocracy. His HR initiatives fall under three broad heads: learning and relearning, performance management and organizational renewal. For example Gyanodaya, the group’s learning center falls in the first category.
It helps in the transfer of best practices across group companies thus sharpening the group’s competitive edge. The training calendar is accessible to employees via Aditya Disha, the group wide intranet, and the teaching programs consist of a mix of classroom, outreach, and e-learning initiatives. Birla has also instituted The Organisational Health Survey (OHS) which tracks the satisfaction levels of 8,670 managers across the group. A direct result of such initiatives is that today his brand as an employer has enhanced significantly, allowing Birla to access to some of the best minds and talent available in the country.
The group is considered among the top 20 preferred employers in Asia. For performance management Birla instituted the Aditya Birla Sun awards an annual internal awards system. Here each group company makes an open presentation on their successes and failures to a group of 400 managers drawn from different group businesses. This leads to information sharing and also encourages healthy competition in the group. Birla believes that star performers need appreciation and recognition. “It is very important for people who are doing well to be told they are doing well,” he says.
He insists that performance levels jump considerably higher after a person/team receives an award. The Aditya Birla award is for teams while the chairman’s award is for individuals. A group company that has won numerous such awards is Hindalco. Birla has transformed Hindalco into a globally competitive non-ferrous metals company. The first step was to merge the copper division of Indo Gulf with Hindalco unifying the group’s non-ferrous metals business under one company with 40% market share. He acquired 74. 6 % equity stake in Indal for Rs 10 bn to make it a wholly owned subsidiary of Hindalco.
This made him the largest producer of aluminum in India and today Hindalco-Indal command a 70% market share. Having made Hindalco competitive now Birla is pursuing market growth. He recently entered the Rs 2. 50 bn branded foil market. Within a year of launch Hindalco captured a 40% market share and put a robust distribution in place. Last year Hindalco launched of as many as five branded products. The launch of “Aura” Alloy Wheels in early 2002, uniquely positioned as “dress code for your car”, was followed by the launch of its kitchen utility range – Freshwrapp aluminium foil and Freshpakk semi-rigid containers, and Everlast roofing sheets.
Hindalco also introduced “Al Planet”, a unique exhibition format highlighting products from the secondary aluminium industry. For organic growth Birla has embarked on an Rs18 bn brownfield expansion at Hindalco’s integrated complex in Renukoot to increase aluminum metal capacity from 100,000 TPA to 342,000 TPA. This will ensure Hindalco’s leadership position in the domestic market and improve its export markets as well. But while Birla was revamping Hindalco, a move towards untangling the cross-holdings among group companies, a legacy of the ‘licence raj’, was also initiated.
He unified his diverse companies under the Aditya Birla Group head. “If one were to encapsulate it (the group strategy) in a single word – the dominant strategic theme over the past four years has been consolidation,” says Birla. The process was threefold. Birla rearranged the companies, consolidated market presence in the different industries and then went on an acquisition spree to further strengthen leadership position. The result is a streamlined group with all aluminium companies merged under Hindalco, cement companies under Grasim, copper companies under Birla Copper and textiles and garments under Indian Rayon.
Losing some of its loss making divisions also made Indo Gulf a debt free fertilizer company. In the process the group’s revenues have risen from Rs 72 bn to Rs 270 bn in eight years. “Our strategy dictates that we get out of businesses where we are bit players and strengthen the businesses where we have clear competencies, so that we get to the top of the league or consolidate our position there, as the case may be. This leads to a sharper and tighter business portfolio with our firepower being better targeted,” says Birla. Birla began with Grasim in 1995.
His first step was to move the cement division of Indian Rayon to Grasim, thereby integrating the cement holdings within the group. Then in 2003 he acquired the cement division of Larsen & Toubro for Rs 22 bn increasing Grasim’s total capacity to 31 MTPY. Today Grasim is the largest producer of cement in India and the seventh largest in the world. Similarly the copper division of Indo Gulf was divested and incorporated into Birla Copper. Then Birla increased the smelter capacity of Birla Copper from 100,00 to 150,00 MTPY and acquired two copper mines in Australia.
Birla has been nicknamed the ‘non-ferrous general’ by the industry: his aluminium, copper, and carbon black units are ranked among the top three in their respective segments. Indian Rayon also saw dramatic changes in portfolio. Its cement division was demerged. Then it acquired Madura Garments, the apparels and garments division of Madura Coats for Rs 2. 6 bn in January 2000. This takeover gave Indian Rayon ownership of prominent brands — Louis Philippe, Van Heusen, Allen Solly, Byford, Peter England and San Frisco. This marked a dramatic change in focus for the commodity based group.
Though a major player in textiles, Birla had not been able to impact the branded menswear market. Building brands from scratch takes time as well as money, and the easiest way was to acquire an established one. “The apparels business is one in which we want a leadership position. We will make a focused entry into the high-value, ready-to-wear segment. This acquisition as well as the acquisition of certain overseas brand rights has catapulted the group to the top of the league in the branded apparels market,” says Birla. Today after a long period of negative growth Madura Garments has reported a 14. % increase in revenues. As a part of the restructuring process he sold Mangalore Refinery and Petrochemicals to ONGC. “The exit from MRPL indicates our firm resolve to rationalized the Group’s portfolio of businesses with a view on the future, and also bears testimony of our commitment to a key group of stakeholders: our lenders,” says Birla. The other major restructuring at Indian Rayon was demerging the insulator business into a new JV with Japanese company NGK to sustain leadership position and to acquire a global marketing network for the insulator business.
The consolidation initiative has allowed each company to emerge with a stronger balance sheet. The three largest companies in the group, Grasim, Hindalco, Indian Rayon, turned in a cumulative net profit of Rs 10. 55 bn in FY03, a jump of 2. 1% from FY02. Their combined sales increased to Rs 110. 45 bn in FY03, an increase of 36% over the previous year. The group’s overall revenues touched Rs 2,700 bn. Management style Birla is his father’s son, but he has gradually developed his own personal management style.
Commonalities include performance orientation, a strict eye for detail, close attention to budgets. Differences include more informal interaction with managers from top to bottom; a greater gap between personal and office life; and a strong emphasis on financial performance. For example he has replaced the old Parta system, which focused only on production with the Cash Value Added method, which emphasizes profitability, asset productivity and growth. Birla is a firm believer in meritocracy. In his father’s time, there were several marwaris in top management. Today there are plenty of non-marwaris.
He places a lot of emphasis on HR and hired Santrupt Mishra from Hindustan Lever to spearhead the groups HR initiatives. A 360 degree feedback program that allows managers to question even Birlas own leadership style and does away with the ‘babu culture’ prevalent in the group. But while on one hand Birla nurtures employees, on the other he is very careful about performance measures. Birla is equally adamant about strict adherence to policies and procedures that have been discussed and approved. For example he introduced a retirement policy, similar to the one Ratan Tata introduced over at the Tata Group.
While a cresendo of unhappiness was heard at Bombay House, peaceful silence reigned at Industry House. At Lever House, no doubt Vindi Banga is closely watching these events. Birla’s retirement policy saw 325 senior executives, between the ages of 62 and 65, step down after years of service. Though the policy was drafted in 2001, he took a year to implement. He then hired 190 young executives to infuse fresh and out of the box thinking in the group. “I think its been one of the most important decisions I’ve had to make,” says Birla.
People skills are Birla’s biggest strength. He has the ability to get on with both the old guard and the new turks. Soft spoken and insistent Birla likes to be directly involved. For example he sends individual notes to employees regarding their performance. Debu Bhattacharya currently the managing director of Hindalco and another former Hindustan Lever employee says, “it won’t be an exaggeration to say that I joined this group because of Mr Birla. For somebody who is from a highly respected MNC in the country, going to an Indian business house, I had a lot of reservations.
My reservations came from that perception of the group. But I was so overawed with his simplicity, his genuineness, and his ability to explain simple things without trying to sell the job. If I had to take that decision all over again I’d do the same. ” For all this Kumar is a low profile person, with a sense of humor and the rare ability to laugh at himself. This ease spills into his business relationships. For example the stalemate between the houses of Tata and Birla is now history. Ratan Tata recently invited Birla to join the board of Tata Steel, and Birla just as easily accepted.