Birla case

Birla Case
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 worlds 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.
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 fiber, metals, cement (largest
in India), viscose filament yarn, branded apparel, carbon black, chemicals, fertilizers,

insulators, financial services, telecom, BPO and IT services. Many of them exist to support
the group's strategy of vertical integration.
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. Sixty percent of the group's
revenues come from abroad and several thousand people are being hired globally for their
business operations.
Apart from above, Kumar Birla Carried out several other changes such as:

Globally the Aditya Birla Group is a metal powerhouse No.1 in viscose staple
fiber No.1 in carbon blackThe 4th largest producer of insulatorsThe 5th largest
producer of acrylic fiberAmong the top 10 cement producers globally Among the best
energy-efficient fertilizer plantsThe 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 businessAmong 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
there are four possible reasons behind this lag:

Is the over diversified Birla Conglomerate is good for Aditya Birla Group?

Different companies diversify for an array of reasons. In some cases, its a survival strategy,
for instance, if one company makes the bulk of its sales at a particular time of year, it makes
sense to consider diversification at a different time of year. By extending the portfolio of
products or services one can ensure a regular revenue stream from January through to
December. In other words, a vendor selling ice cream can diversify into a hot soup joint
during winter. However, there are plenty of other good reasons for diversification, not least
by extending ones range of goods or services one can either sell more products to the
existing customers or reach out to new markets. This can supercharge the growth prospects.
And perhaps the biggest reason for doing it is to extend a brand reputation into other markets,
with the knowledge that one winner could be the drop of rain that starts the heavy
downpour, making your business bigger than you ever imagined.
Something similar to this has been observed in the diversification of Aditya Birla Group. In
fact they over diversified, leading to a conglomerate diversification. Conglomerate
diversification is a growth strategy in which a company tends to grow by accruing entirely
unrelated products and markets to its existing business. A company that consists of a
grouping of businesses from unrelated streams is called a conglomerate. In conglomerate
diversification, a firm generally introduces new products using different technologies in new
markets. Conglomerates diversify their business risk through profit gained from profit centres
in various lines of business.
The Aditya Birla group is one of the fastest growing industrial houses in the country. Grasim,
a group company, was incorporated as Gwalior Rayon Silk Manufacturing (Weaving) Co Ltd
in 1947. The Aditya Birla Groups strategy has been to diversify into capital-intensive
businesses and become a cost-leader by leveraging on its various strengths. Apart from
Grasim, major companies in the group include Hindalco Industries Ltd (aluminium), Indian
Rayon (Cement, VFY, carbon black, insulators etc), Indo-Gulf Fertilizer (Fertilizer - Urea),
Tanfac Industries (Chemicals for aluminum), Bihar Caustic & Chemicals Ltd (Caustic Soda/
chlorine), Hindustan Gas Industries (gas producer), Birla Growth Fund (financial services),
Mangalore Refinery (oil refinery). Grasim holds a 58.6% stake in Kerala Spinners Ltd, which
manufactures synthetic/ blended yarn. Grasims fully owned subsidiaries, Sun God Trading
and Investments Ltd and SamruddhiSwastik Trading and Investments Ltd, are into asset
based financing. The group also owns several companies in Thailand, Indonesia and Malaysia
manufacturing textiles, synthetic/ acrylic yarn, rayon, carbon black and other chemicals.
Furthermore, they also have entered into the Business of Education through their reputed
Birla High Schools and Engineering & Management schools.
Companies diversify because of several reasons: for economies of scale and scope, to widen
the market base and enhance market power, to stabilize their profit by scalability, to gain a
better percentage of market share, to counter competitive threats etc. For Birla it is one of the
motives to diversify into an unrelated sector to hedge its bets against the risks of economic or
cyclical downturns that impact certain industries. Birla also enjoyed the advantage of
operating multiple business types within one corporate umbrella by allocating company
resources strategically to address the needs of each company. The Birla Corporate employees

shared responsibilities for roles such as human resources, buying, and information technology
across the corporation.
Like two sides of a single coin, over diversification can also be pernicious to a company. One
of the most significant and typical drawbacks of branching out into unrelated business arenas
is that one can spread their collective talents too thin. Leaders in a company usually have
expertise, strategic planning abilities, and leadership qualities specific to the given industry or
business sector. The chances that a leadership group can provide consistent high-quality
direction of drastically different companies are limited. Even with leaders who have diverse
abilities, the time and energy requirements to optimize results in unrelated companies are
significant. Also, many companies avoid unrelated diversification as a general business rule
because of the lack of synergy that exists. When one has related diversity, one can more
easily integrate into company brand, philosophies, resources and partnerships to take full
advantage. With unrelated diversification, many companies intentionally have to keep each
diverse enterprise segregated to avoid diluting the respective brand images of each business.
Diversification can put any company on the fast track to growth but if the strategy fails it can
also burn up money. Now, it is an indeed prudent choice to differentiate between whether to
diversify or to focus. It is not at all a sagacious decision to diversify into unrelated business
unless and until the company has become stable as well as profitable.

Does Birla want to be seen in every business or does it concentrate on its

core business?
Vision of Aditya Birla Group is To be premium global conglomerate with a clear focus on
each business.
In 1995 Kumar Birla inherited with a US$ 1.5 billion conglomerate with investment in
cement, textile, aluminum, fertilizers, tea, carbon black, sponge iron, shipping, palm oil
refining, chemicals and assortment of small business, mostly to support vertical integration.
Aluminum and textile had major share in revenue.
In the decade of reform beginning in 1996, the Birla Group followed several principles, first,
the rule of three mandated that company should be among top 3 player in the world or at
least in a region for any particular investment. Second was to grow a business in a sector
where the group had dominant present and track record of strong performance. Third was
increase in vertical integration to reduce cost structure and improve cost efficiency .Fourth,
economies of scale was to be found by consolidating similar business unit into larger firms.
By 2008 Birla Group had three flagship companies; Grasim Industries, Hindalco Industries
and Aditya Birla Nuvo (AB Nuvo).Grasim and Hindalco focused on commodity business and
was following principle of vertical integration, while AB Nuvo was shifting its balance from
value companies to growth sector.
From the above facts we can say that Birla was focusing on its core business, it was also
focusing on vertical integration to reduce operating cost. Similarly the Birla Group perused a
dual track strategy of improving return for value business while using its cash flow to expand
into growth secto