The virtual splitting of the country?s biggest engineering & construction company, Rs 45,000-crore Larsen & Toubro, into nine independent entities, with plans to list a couple of them in the next few years is a masterstroke. Chiefly, for three reasons. One, the clubbing of five dozen-odd businesses across 14 operating divisions into nine clearly demarcated entities with a dedicated company-style CEO, CFO, HR head, board, and, most importantly, a separate profit and loss account, will bring the much needed focus to individual businesses, some of which were falling under the radar in the current milieu where the buck really stopped at the chairman, the indomitable 68-year-old AM Naik?s door. Carving the 10,000 people strong software-to-rigs conglomerate into nine entities will enable individual businesses to demonstrate performance more explicitly and that will help unleash the entrepreneurial spirits in L&T managers, long used to the bureaucracy and anonymity of a big professional-driven organisation.
Secondly, by creating more opportunities for young people to head big businesses (Naik expects each of the nine entities to quickly ramp up to a billion dollar in sales and the CEO to be in the 55-59 year bracket), the company, at one shot, has also tried to address a long-standing management lacuna, and that is its inability to create a strong leadership pipeline capable of leading L&T in the 21st century. Remember that most of the current L&T executive board members, including Naik, are set to retire in the next two years, and this restructuring has come not a day too soon.
Lastly, this virtual split, with the potential to unlock value by listing various businesses, is also a way of preparing L&T for the future, where the new chairman may have to take big calls on businesses like defence, nuclear power, etc. Naik, an L&T veteran for 46 years with the last 11 at the helm, was largely instrumental in identifying and exiting non-core businesses like cement, ready-made concrete, food processing, tractors, petrol pump machinery et al in the last decade or so and giving a huge impetus to core businesses in constructing ports, airports, factories, power plants, bridges, turbines, etc. Amongst non-promoter driven companies, including Tatas, L&T is India?s number one company by sales today. No wonder, Naik stands like a colossus in the Indian business firmament. But history will judge his true legacy, much like with the legendary Jack Welch of General Electric, perhaps on the resilience of the organisation after the fading of larger-than-life aura of a charismatic leader. The current reorganisation therefore can be read as much as the company?s gambit to improve its growth prospects as Naik?s one last big contribution to the company?s future and his legacy.