Birla #1: The “Unknown” Global Indian Conglomerate
The Aditya Birla Group is an Indian multinational conglomerate headquartered in Mumbai, Maharashtra, India. The group is primarily structured around its three holding companies: Grasim Industries, Hindalco Industries and AB Nuvo. These companies through their respective subsidiaries are into various areas like viscose staple fibre, metals, cement (largest in India), viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers, insulators, financial services, telecom (third largest in India), BPO and IT services. Many of them exist to support the group's strategy of vertical integration.
Before liberalization, the group had to grapple with issues like the license raj and bureaucracy. However the 1991 economic liberalization opened the door of opportunities to become truly multinational. Also Kumar Mangalam Birla's take over as the Chairman of the Aditya Birla Group in 1995 after the death of his father, Aditya Birla, proved fruitful. All apprehensions about his ability to lead the group with varied interests in textile and garments, cement, aluminum, fertilizers etc. were put to rest under his leadership. He had also grown to become one of the most respected industrialists in the country. With his strong emphasis on building a culture of meritocracy, the Aditya Birla group expanded into Telecom, Software, BPO and other areas while consolidating its position in existing businesses. Unlike his predecessors, Kumar Birla had a long term focus and was far more demanding.
In terms of statistics, when Kumar Birla took over the reins from his father, the turnover was only $2 billion and overseas operations accounted for a miniscule part of the overall business with only Egypt, Thailand and Indonesia being major centers. Under KM Birla's strong leadership the group's turnover spiraled to over $40billion. It has expanded operations to more than 40 countries including Australia, Dubai, and reaching out to North America, Canada, Brazil, Germany, Italy, Spain, Hungary and China. 60 percent of the group's revenues now come from abroad and several thousand people are being hired globally for their business operations.
The general direction of the Birla group's strategy now was to be either the biggest or most profitable in its each business area, with vertical integration to increase cost-competitiveness, or to invest in high growth sunrise industries. The Birla group also created Aditya Birla Management Corporation (ABMC) and 14 corporate cells. While ABMC provided the strategic overview, vision and setting of defined goals for the group's companies, the corporate cells covered major corporate functions like communications, HR, finance, legal, health and environment.
Apart from above, Kumar Birla Carried out several other changes such as: 1. Retirement policy. 2. Recruitment process. 3. 360 degree appraisal. 4. Scholarship to students and awards to employees. 5. Happiness at work. 6. Hierarchy based on performance of employees. 7. Changes in reporting system
The new restructured Birla group thus resembled the General Electric structure of 1980s with a mixture of both old and new. However the rival Indian conglomerates such as Tata and Reliance have also changed since the beginning of the economic reform period. They have shed moribund low-margin firms and industries and have concentrated on new high-margin, high-growth investments. Still claiming to be "Birla #1"-its rallying cry for several generations-is the group actually still number one, or is it being left behind by its more aggressive rivals is still unclear.
Globally the Aditya Birla Group is * A metal powerhouse, among the world’s most cost-efficient aluminium and copper producers. Hindalco-Novelis is the largest aluminium rolling copany. It is one of the 3 biggest producers of primary aluminium in Asia, with the largest single location copper smelter. * No.1 in viscose staple fibre * No.1 in carbon black * The 4th largest producer of insulators * The 5th largest producer of acrylic fibre * Among the top 10 cement producers globally * Among the best energy-efficient fertiliser plants * The largest Indian MNC with manufacturing operations in the USA
In India, the group is * The largest fashion (premium branded apparel) and lifestyle player * The second-largest manufacturer and largest exporter of viscose filament yarn * The largest producer in the chlor-alkali sector * Among the top three mobile telephony companies * A leading player in life insurance and asset management * Among the top two supermarket chains in the retail business * Among the top 6 BPO companies * The largest manufacturer of linen fabric
However, the Birla group still has to go a long way in becoming India's #1 conglomerate. The Birla group was formed almost at the same time as the TATA group and more than 100 years before the Reliance group, however with a gross revenue of USD 40 Billion (in 2012) it is still far behind the TATA Group with revenue of just over $100 Billion and just RIL group with revenue of $ 74 Billion
There are four possible reasons behind this lag. 1. The first seems to be its inability to divest weak businesses. When he took the reins, Kumar Mangalam Birla tried to go the GE way, by proclaiming its aim to be in top 3 of all the businesses it is operating in. However, it did not divest certain unprofitable business, let alone businesses which are still not in top 3, such as BPO business. Thus, there was a shortfall in implementation of strategy initially devised. It tried to mirror GE, but failed to incorporate the essential aspects of GE strategy. 2. The second issue is the separation of Corporate Strategy and Business Development Cell, which divorces strategy from operations, a dangerous situation. Further, this cell also suggests potential M&A, JV candidates, and blueprints for development. This introduces bureaucracy in the structure which creates a divide between the CEO and the individual businesses. Strategy is not made an integral part of the business structure, which may also result in misplaced priorities. 3. The third issue is the lack of integration of business. The group still functions as three separate companies, operating in silos as opposed to the Tata Group and the Reliance Industries. Though, Mr. Birla overseas and the Aditya Birla Management Corporation oversee the overall functioning of the group, at the grass root level, there seems to be a lack of integration. 4. Finally, the structure is still bureaucratic. There are 3 different companies, and within 3 companies, the businesses are divided as per different subsidiaries. The structure is too bulging. There also is some overlap between businesses of companies under the 3 main holding companies. For eg. While VSF is under Grasim, certain textile businesses are under AB Nuvo. Similar is the situation with chemical business. AB Nuvo is a residual company encompassing all the subsidiaries not previously forming part of Grasim or Hindalco. This results in diffusion of focus. Rather, the division can be according to business segments with grouping of companies with similar businesses. Also, too many companies give rise to administrative and management hassles, thus there being a strong case for merger of related companies. Thus there is a need of reorganization of the group structure and portfolio rebalancing in order to introduce more focus to each of the diverse businesses.