How Anil Naik Built L&T's Remarkable Growth Trajectory [Part-1]
Harsh Batra
Naik’s story is fascinating because it is the journey from the shop floor to the position of an MD, CEO and chairman that transformed the organization to a leading Indian multinational company (MNC). We believe that the contribution of Naik shaped L&T to be among the top 10 engineering and construction companies in the world needs to be recorded.
26 LESSONS LEARNT
DREAMS WITHOUT EXECUTION IS ILLUSION
Thinking big must be accompanied by executing and concentrating all resources for the accomplishment of that task.
If you can dream it, you can do it. —Walt Disney
TO GO FAR, YOU HAVE TO GO TOGETHER
The investment in people was critical as that was key to sustain the business over a long period.
Talent joins companies, but professionals leave bosses! It was perhaps this reality for young Naik that helped him understand the importance of human relations in management.
TO GET ANYWHERE YOU MUST TAKE RISKS
Holck-Larsen and Toubro were both experimental entrepreneurs who were like agile surfers waiting for the wave and ready to ride it.
The first industry the Danes tried their hand at was the dairy industry. The reason was simple—they knew the suppliers of dairy equipment in their home country who were eager to sell their apparatus.
CUSTOMER CONFIDENCE TAKES TIME AND EFFORT TO BUILD
Both partners knew that customer confidence needed to be built through systematic and conscious effort.
NECESSITY IS THE MOTHER OF INVENTION
When the German army marched into Denmark and Norway, imports from those countries were also banned. L&T found itself in a difficult spot as machinery and equipment imports from Denmark came to a standstill. L&T had to think of something new, or shut down.
They had a Eureka moment. ‘If we cannot replenish the machinery by fresh imports, we need to replicate it!’ They dismantled the machinery, made moulds. They devoted all their energy to replicating the machinery. Engineering and innovation were the two pillars on which the partners took their first baby steps. After machining, grinding and polishing, the churns, separators and pasteurizers were reassembled with their brand new indigenized parts. The machines worked!
These products proved to be a success, and L&T came to be recognized as a reliable fabricator with high standards of quality.
Their smart hard work paid off as they got new orders along with precious goodwill of ‘reputation of reliability’.
By this time, without any fanfare, L&T as a company had graduated from a trading company to a manufacturing company.
OPPORTUNITIES OPEN UP IN WAYS YOU COULD NOT HAVE EARLIER IMAGINED
The first opportunity that knocked on their door was to repair and refit the war-struck ships. When the Royal Navy approached L&T for ship repair work, the Danish duo was ready to venture into this hitherto unchartered area.
The seeds of diversification of the company were sown during war time—from dairy equipment to shipbuilding.
Who could predict then that many years hence, L&T would build war ships, submarines, offshore patrol vessels and floating docks!
SPEND WISELY BUT STILL MANAGE PERCEPTIONS
Although Europeans in India travelled by the prestigious and expensive ‘first class’ of the railways, the Danish duo, who were scarce on resources at the time, travelled most of the long journey by the cheaper ‘third class’ coach.
But, in the last lap of their journey, they upgraded their seats to arrive ‘first class’ in order to impress their hosts, waiting for them at Mithapur station! They were fast learning the cultural nuances of doing business in India.
IF YOU HAVE THE RIGHT MAN FOR A BUSINESS, START THE BUSINESS
L&T followed a simple principle, ‘If you have the right man for a business, start the business.’
And, so, the seeds of yet another diversification were sown and ECC became a towering giant with its footprints in India and the world.
ECC is responsible for building many of the country’s prized landmarks such as high-rise towers, airports, IT parks, metros, and roads and flyovers.
Rapidly, L&T was becoming the one-stop shop for all kinds of capital goods required for industries such as hydrogenated oils, biscuits, soaps and glass.
BE AWARE OF YOUR CIRCLE OF COMPETENCE
Although L&T chose to manufacture the machines that produced a large number of consumer goods, it deliberately stayed away from producing consumer goods. It was the beginning of a conscious strategy, which L&T has followed through the years.
PARTNERSHIPS COME FROM UNEXPECTED PLACES
Holck-Larsen also had an opportunity to meet Mangaldas Desai, an experienced Indian lawyer at the time. Holck-Larsen spoke about the company’s future prospects with such strong conviction that the astute elite instantly bought his idea.
He felt that ‘Holck-Larsen was a good man—a man we can trust.’ Although L&T’s balance sheet was not yet robust, Mangaldas Desai’s decision to buy a stake in L&T was based on intuition and faith.
In February 1946, Larsen & Toubro Private Limited was incorporated. It was the beginning of the long relationship of L&T with the Desai family.
L&T expanded in metros, set up offices in Calcutta (now Kolkata), Madras (now Chennai) and New Delhi. Bombay (now Mumbai) remained the headquarters.
The year 1950 was also a turning point in the history of the company. L&T became a Public Limited Company with a paid-up capital of ₹20 lakh. The sales turnover in that year was ₹1.09 crore. The shares of the company were publicly listed.
AMUL WAS BUILT WITH L&T'S EQUIPMENT
When Dr Verghese Kurien took up the challenging experiment of setting up Amul Dairy, a milk co-operative in Gujarat’s Kaira district, L&T emerged as the best choice for supply of equipment.
L&T not only supplied dairy equipment but also erected the piping and insulation machinery for the gigantic dairy. Whether there was a need for storing milk in massive vertical silos, setting up massive milk pasteurizers and cream separators, building milk pipelines or even tankers for transporting milk, L&T provided solutions and technical expertise.
The subsequent success of Amul Dairy transformed lives of rural dairy farmers like never seen before. Amul Dairy successfully connected a large number of rural milk producers with urban consumers at a reasonable price.
L&T HELPED BUILD INDIA
Buoyed by its success, the next challenge facing the government was to substitute imported fertilizers and pesticides by domestic production. It turned to none other than L&T to carry out this task of utmost national priority.
Over the next decade, the IADP was expanded to cover many more parts of the country, and increased use of fertilizers helped India become a food-sufficient economy.
Import substitution was the new mantra of Independent India’s industrial policy. L&T obtained the licences and permits to produce the machinery and equipment indigenously.
L&T emerged as the largest construction contractor in the country. In technical collaboration with F.L. Smidth & Co., L&T ventured into the domain of making cement machinery at Powai. In these ways and more, L&T literally shaped India. By fabricating steel and other metals into various shapes, sizes and forms, they made factories and machinery. By using cement, L&T gave shape to buildings and infrastructure in the country.
Competing against British and German manufacturers, L&T won important projects.
L&T BUILT THE ABU DHABI AIRPORT
This construction division had its first international experience when they worked as sub-contractor to the Japanese Construction Consortium (JCC) in 1976.
This experience of working with the Japanese allowed ECC to become thoroughly professional, especially in terms of quality and timelines, and they were able to successfully undertake the complex construction assignment of the Abu Dhabi International Airport.
What followed was a series of international assignments; for example, construction of large football stadiums with a capacity of 25,000 in Iraq and Qatar, besides complex projects in Kuwait, Sri Lanka, Malaysia and the USSR.
Each project took ECC further up the learning curve and value chain. Its tagline at the time ‘We make the things that make India proud’, truly reflected its organizational culture.
L&T BECAME SO GOOD THAT IT STARTED EXPORTING TO THE WEST
Over the years, L&T reversed the old assumption that hi-tech equipment could flow only from the West to the East. L&T has taken its polypropylene reactors to the US, desalination machinery to France and specialized reactors to the United Kingdom (UK).
THE DANISH FOUNDERS PUT INDIAS NATIONAL INTEREST OVER PROFITS
The founders of L&T had decided right from the beginning that they would place national interest above commercial interests. This is the reason L&T was among the first private sector companies to be involved in the vital, if less profitable, strategic areas of defence, nuclear power and space research.
The participation of L&T in nation-building was summed up in Holck-Larsen’s comment, ‘If not L&T, who else?’
Since its inception, L&T has been a nation builder, choosing to be in those businesses that served the country’s goals. They dared to venture into new areas which became part of L&T’s DNA (Defence, Nuclear, Aerospace).
Most of India’s nuclear reactors were made by L&T that was involved in 18 out of 22 nuclear reactors in India.
ISRO chose L&T as its manufacturing partner in 1970, and when ISRO launched its space programme. L&T constructed the launch systems and also made critical components.
Former Finance Minister P. Chidambaram acknowledged L&T’s role in nation-building and described it as ‘India’s only National Sector Company,’ He spoke of the company’s contribution as ‘…making the impossible possible…this is an example of entrepreneurship and the ability and the confidence to chart the most difficult frontiers of business.
ECONOMIC LIBERALIZATION HELPED L&T BECOME MORE COMPETITIVE
As always, L&T swiftly responded to the positive economic reforms by transforming itself from being a government contractor to becoming a government partner, ready to play a vital role in building a ‘new India’ preparing for the twenty-first century.
What L&T had been doing for the past four decades was a preparation for the horizons that economic liberalization had opened up to them. The company swiftly learnt to devise value engineering to pare down costs at every stage to improve competitiveness.
THE LEADERS STEAR THE VISION OF ANY COMPANY
A.M. Naik, who took over as CEO and MD in 1999. ‘We have to be No. 1 in India and among the top three internationally.’
L&T stopped being just a major engineering and equipment producing company; it scaled up into management of entire projects.
TO ACHIEVE YOUR WILDEST DREAMS WORK BACKWARDS
L&T had perfected the art of completing projects before time by working backwards on the schedules.
There was typical military precision in planning and execution.
Be the change you wish to see in the world. —Mahatma Gandhi
It is good to have an end to the journey, but what matters at the end is the journey. —Ernest Hemingway
Naik, who was an expert at planning schedules backward to meet a deadline.
YOUR CONFIDENCE MAY COME ACROSS AS OVERCONFIDENCE BUT DON'T LET THAT STOP YOU
Tim Baker, works manager at L&T, interviewed him (Naik) and found him suitable for the job. He was offered the post of assistant engineer at a salary of ₹760. In the next round of interviews, a stern man who was Baker’s boss, Gunnar Hansen grilled the young engineer.
Among the tough questions, he casually asked this— ‘How many people report to you?’
Naik answered, ‘350 people.’ Hansen remarked, ‘350 people is a lot and you will not be getting that kind of opportunity and responsibility at L&T for a long time.’
‘Who knows? Time will tell.’
Hansen took offence and considered this reply rather impudent and a sign of overconfidence. He instructed Baker to downgrade the post offered to Naik to junior engineer at a salary of ₹670. Naik was downgraded in salary, grade and cadre—all within a matter of half an hour. Baker was apologetic, but Naik comforted him and simply said it was his dream to join L&T.
DEVOTION IS RARE AND UNBEATABLE
Naik joined L&T as junior engineer in 1965, with two obvious disadvantages: he was from a non-IIT background and was not proficient in English. However, this boy from a village in Gujarat was fearless. When he entered L&T’s premises on the first day, the overwhelming feeling was that of realizing his dream.
‘My work was rewarded as I got six promotions in nine years. I was the youngest DGM.’
He was so committed to L&T that thinking of an alternative employment was out of the question (even when promotions stopped). On the contrary, he was thinking of taking on larger responsibilities and a leadership position. That finally happened in 1986 when he was promoted as general manager (GM).
Later, in an interview to Bloomberg Quint,19 he said, ‘I have a deep sense of passion, devotion, commitment and conviction for L&T.’ He added, ‘L&T provides tremendous freedom and a sense of ownership. For me, L&T is my life. I am devoted to L&T.’
THE PROCESS IS THE REWARD
Naik’s attitude to work was deeply influenced by the Bhagavad Gita. The following verse was especially meaningful to him: ‘You have every right to work but not to expect the fruits of it. Therefore, let the focus be on work and not on the fruits’.
Naik, raised on the values of ‘work is worship’, calls himself a Karmayogi
NO ONE CAN BEAT YOU WHEN YOU CONSIDER YOUR WORK TO BE A FORM OF RELAXATION
He inherited the idea that there is no substitute for hard work. He followed his own standards that far exceeded the norms of work at L&T.
He would take responsibility voluntarily. He would reach office before anyone else. He stayed back after everyone left, even though nobody was looking over his shoulder.
He would put in about 16 hours of work a day. ‘I used to work 100 hours a week, which is twice the required number of hours,’ he said in an SPJIMR researcher interview.
‘In my 54 years at L&T, I must have put 108 years of effort for the company,’ he added with a smile.
When asked, ‘How and when do you relax?’ he answered with a smile, ‘When I am working.’
ALWAYS BE TWEAKING AND IMPROVING
Naik’s working style was different; he would try to innovate to be more efficient.
He appreciated the importance of well-laid processes but not at the cost of time and efficiency.
Each time Naik saw a better way of doing something, he made a mental note of it.
He was setting up processes for minimum wastage of time and resources, and followed metrics for strict quality control.
GET YOUR HANDS DIRTY
Naik worked on the shop floor along with the workers. He was at home with workers and treated everyone as his extended family.
IF YOU REALLY CARE ABOUT YOUR COLLEAGUES IT WILL SHOW
His memory was excellent and he remembered and addressed everyone by their names. As a result, he mingled well with workers and developed a strong rapport of mutual trust and friendship.
Naik was best suited to the task of managing workers and unions.
He managed people well and in turn received support from his team.
He was a meticulous manager, who would delegate but not leave anything to chance.
BE PERFORMANCE-BASED NOT SENIORITY-BASED
A change in the culture of L&T. After four decades, Holck-Larsen, co-founder of L&T, stepped down as chairman after a long and eventful stint. Simultaneously, it was time for the European managers to retire.
Senior Indian managers were appointed as directors based on their experience. Slowly, the system of performance-based evaluation gave way to seniority.
For someone like Naik whose promotions were on a fast-track until 1974, the period of 1974–86 seemed dull, but he hung on.
Sucheta Dalal of Money Life18 once asked Naik, ‘Did you get frustrated in this period? Did you have an opportunity to go elsewhere?’
Naik replied, ‘Yes, I did get frustrated in this period as I was used to fast-track promotions, and I was working hard.’
He added, ‘But I would not go anywhere. Despite having opportunities, I did not go for even one interview.’ ‘It may sound strange, but at L&T I got the best opportunity to exploit my skills as an engineer as well as work for the good of the country. I don’t think there was any other company that could provide me that kind of a platform.’
So what made him tick and stick? On reflecting on this question, he opined that he really enjoyed his work, and to enjoy your work is a blessing. He enjoyed the freedom and feeling of ownership that L&T offered.