An investigation through life of Aditya Birla Group of companies from 1919 to 2020(100 years) leaves answers to many of the questions like how Implementing, Evaluating & Controlling the Strategy keeps the SBUs grow creating value for stakeholders.
Born on 10
April 1894 in Pilani, Rajasthan, Ghanshyam Das Birla
started with a jute mill in Calcutta (now Kolkata), West Bengal, in 1918.
Initially, he had established the cotton mill with the name “Keshoram Cotton
Mills”’ in Bombay (now Mumbai), but later shifted it to Calcutta. In the
1930s, he had set up sugar and paper mills, and in the 1940s, he made his way
into the automobiles market by establishing Hindustan Motors. The real boom for
the Birla empire, however, came after Independence when Birla invested in
European tea, textiles and other industries. Although Birla was successful in
acquiring everything he aimed for, there was one thing he couldn’t attain —
Durgapur Steel Plant. The initial negotiations for the steel plant were on a
very positive note in 1962, but later India’s first prime minister Jawaharlal
Nehru stepped into the matter and the Birlas were alienated from the deal
of the steel plant.
Born in 1921, the youngest son of
legendary Ghanshyam Das Birla, and grandfather of Aditya Birla Group Chairman
Kumar Mangalam Birla, the Birla Group patriarch, Basant Kumar Birla, breathed his last at his Mumbai residence on
01 July 2020. He was survived by two daughters, Jayshree Mohta and Manjushree
Khaitan. His only son Aditya Vikram Birla, father of Kumar Mangalam, died in
1995, while BK's wife Sarla passed away in 2015, at the age of 90. In 1942, B.K. Birla married Sarala Biyani, the daughter of
Savitri and Brajlal Biyani, a freedom fighter and the first finance minister of
Madhya Pradesh in independent India. Mahatma Gandhi and Sardar Vallabhbhai
Patel attended their wedding.
G.D.
Birla’s close association with the Indian independence movement and its leaders
also allowed B.K. Birla to observe and absorb the spirit of the times,
including the philosophies of Gandhi, Patel and Jawaharlal Nehru, from close
quarters. In fact, his business philosophy was deeply imbued with Gandhi’s
socio-economic concept of trusteeship.
As
a responsible custodian of wealth, B.K. Birla was also inspired to expand the
family business from cotton textiles to other areas. An
astute businessman, he soon expanded the Birla group’s manufacturing footprint
through flagship companies Kesoram Industries and Century Textiles into rayon,
engineering, cement, medium-density fibreboards, pulp and paper, shipping,
tyres, tea, and chemicals, among others. The group’s turnover in FY19 stood
at ₹16,500 crore. He also led the growth of the group beyond Indian
shores.
Over
time, the group’s main companies were Kesoram Industries, Century Textiles and
Industries, Century Enka, Mangalam Cement, and ECE Industries.
His
close team of executives cite multiple examples of his business acumen. For
example, whenever he was travelling—in India or overseas—he would demand a
one-sheet summary of the group’s performance at the end of the day,
highlighting the day’s production, opening and closing inventory of raw
material and finished goods, and the day’s sales revenue. This snapshot allowed
him to get a sense of the day’s business performance.
An
essential element of the family tradition was the initiation and apprenticeship
of sons into family business and their grooming for future leadership. Sons
were initiated into the business once they finished schooling. Senior managers
played a critical role during the apprenticeship years. Basant Kumar, for
example, was placed under the charge of Sitaram Khemka, a trusted kinsman and
employee. An essential component of the training was in learning financial and
accounting matters. Keeping accounts, maintaining cash books, ledgers,
vouchers, bills and outstanding accounts, reconciling bank records were part of
this preliminary training which also included preparation of duly reports,
parta, monthly and annual income and expenditure accounts, sales procedures.
Such training continued for as long as it took them to single handedly prepare
the entire cash book, balance the receipts and payments, meticulously account
for every paisa. This could sometimes even take up to a year. Thereafter they
were attached to other departments such as sales and manufacturing.
Perhaps
more significant than learning these kills was the inculcation of the familys
code of business in the young initiates. This was not difficult to imbibe as it
was merely an extension of the code of restraint which they had been taught at
home. They were taught that the dignity and status of the family within the
community and in the industrial world were the most important. They were
repeatedly reminded that the family name must not be dishonoured. It didnt
matter, Birla told the younger generation as they took their first steps in the
world of business, if we should expand slowly, but we should proceed with
abundant caution. The reputation of the family was most important since the
community had reposed full faith on us. Even if a single enterprise failed, the
blame would fall ... on the entire Birla family.
There
were certain fundamental rules which were always to be followed. Foremost was
the need to keep a tight control on the finances by monitoring daily financial
performance achieved through the parta system which was followed in all Birla
enterprises. This entailed the calculation of cost, output and profit on a
daily. Their training emphasised an almost obsessive concern with financial
performance and control which characterised the Birla business philosophy.
Major effort was to go into financial and commercial matters. Each parta
statement was looked at on a daily basis and sometimes up to ten to twelve days
of each month were spent in examining the accounts of the previous month. Birla
himself insisted that daily parta statements from each of the mills under his
charge be sent to him each day wherever he might be.
Other
principles which were passed on to the next generation related to the extended
family. Complete loyalty was expected from senior employees. They were
considered to be a part of the extended joint-family staff. Senior employees
inevitably came from the Marwari community preferably from the Maheshwari
subcaste. Many of them also had a Pilani connection and had spent long years
with the business. They were often indebted for help rendered in personal
affairs. A prime example was Durge Prasad Mandeliacalled Chachoji by the
younger generation. He had started his career with Birla at the age of 14 and
had risen to become a key business associate. The new generation was similarly
encouraged to select a team of their own and were encouraged to recruit sons of
senior employees. This ensured stability and loyalty which was sometimes
rewarded by giving away of agency and distribution rights. Thus from within the
community satellite groups were created which strengthened the business
network, provided managerial talent and enhanced trust.
Once
their apprenticeship was completed and real business responsibilities started
the younger generation were given charge of the units where they had been
trained
As Basant Kumar recalls his early days in the
family business. I did have to approach Kakoji for permission whenever I wanted
to raise fresh capital. Without his advice and clearance, I did not raise even
Rs 50 lakhs from the market. Diversification plans were discussed carefully
with the elders and had to be approved by them. Certain areas of business were
considered taboo such as the hotel business because it involved drinking and
dancing which was not in keeping with the austere tradition of the family.
As
they expanded their horizons, the younger generation knew that the family
tradition had to be adhered to. For example, in 1938. Basant Kumar started a
new company, Kumar Chemical and Pharmaceutical Works Ltd., for the manufacture
of pharmaceuticals. He made a substantial investment of over rupees two and a
half lakhs and hired a foreign expert from Hungary to help set up the new
enterprise. When his plans were well advanced, Jugalkishore was horrified to learn
that the manufacturing process would involve the use of animal glands to
produce hormone-based medicines. Uncle and nephew argued over the issue for
over two months. However, Jugalkishore remained adamant and Basant Kumar
ultimately had to give in and abandon the project.
By
the early 1940s, the Birla brothers had the satisfaction of seeing the next
generation take up business responsibilities. Except for Gajanan, all other
sons had successfully completed their apprenticeship, and moved easily into the
roles earmarked for them in the business empire. This was welltimed as the
business was poised for unprecedented growth thanks to the economic
opportunities thrown up by the outbreak of World War II in 1939.
B K Birla even continued his father’s practice of
maintaining cordial ties with other business families. For instance, he
persevered with the group’s investment in Tata Steel—originally made by his
father as a passive investment—without disturbing the company’s management,
thereby providing the steel firm with stability during periods of turbulence
and policy volatility.
Under the leadership of Aditya Vikram Birla, son of B K Birla, the group companies became market leaders, not only in India, but also in South East Asia. In 1969, Birla set up Indo-Thai Synthetics Company Ltd, the group's first overseas company. Some of his group companies include : Ultratech Cement, Hindalco, Grasim, Vodafone Idea, Indo-Thai Synthetic etc.It was mainly due to his efforts that the Aditya Birla Group became one of the top three business houses of India along with Tata and Reliance. Aditya Birla believed in Dreaming Big, having Focus, Remaining Calm, Decentralise and look at Daily P&L A/c. Under his leadership the companies became the largest producer of Viscose staple fibre and refiner of palm oil.
Under the leadership of Aditya Vikram Birla, son of B K Birla, the group companies became market leaders, not only in India, but also in South East Asia. In 1969, Birla set up Indo-Thai Synthetics Company Ltd, the group's first overseas company. Some of his group companies include : Ultratech Cement, Hindalco, Grasim, Vodafone Idea, Indo-Thai Synthetic etc.It was mainly due to his efforts that the Aditya Birla Group became one of the top three business houses of India along with Tata and Reliance. Aditya Birla believed in Dreaming Big, having Focus, Remaining Calm, Decentralise and look at Daily P&L A/c. Under his leadership the companies became the largest producer of Viscose staple fibre and refiner of palm oil.
After the death of his son in 1995, BK Birla laid out his succession plan. He handed over the responsibilities of the educational institutes, temples and bungalows spread across the country to his family members. B K Birla helped his grandson, Kumar Mangalam, take over the
AV Birla Group’s leadership mantle.
As
far back as 1998, just two years after taking charge upon his father Aditya
Vikram's death due to prostate cancer, the young scion Kumar Mangalam Birla, formulated
a code of conduct for his group. It is an attitude he attributes to his
"Gandhian family". To
be sure, the Gandhian family did bestow many privileges upon Birla while
growing up. It is difficult not to be special in school and college if you come
from one of the country's largest business houses. But the chartered
accountancy was a different cup of tea.
The
Birla Group produces and sells such products as fiber, chemicals, cement,
metals, yarns and textiles, apparel, fertilizer, and carbon black (a
petroleum-based material used in the manufacture of rubber and plastic). It is
a US$30 billion conglomerate operating in about 25 countries, with 60 percent
of its revenues now coming from outside India.(September 13, 2010)
While the
Ambanis and Tatas churned businesses focusing more on technology and services,
the Birlas seem to have been caught in the mire of commodity businesses. They
also failed to recognise that commodity business is governed by the mantra of
size. B K Birla used to quote his father GD Birla, who taught the
family a cardinal principle. “Those who can’t keep track of expenses and taxes
should not hope to survive.” This will ring
very loud in today’s time when many businesses are over-leveraged and go bankrupt.
Kumar Mangalam Birla works "normal Bombay hours", except
that he is also in office on Saturdays and half of Sundays. His work-life
balance is completely messed up as .(September 28, 2011) he would like to know
how much cash came into his group and how much went out. Not turnover, not
profit. Cash. Of course, it will be a bit of a stretch for the chairman of a
$35 billion group to actually count the cash, but that is the broad philosophy
of the Parta system. A financial performance monitoring
mechanism, it has been refined over generations of Marwari businessmen. Among
the Birlas, Ghanshyam Das Birla embraced it wholeheartedly. And his great
grandson Kumar Mangalam swears by it. "It is a timeless concept and can be
applied even 20 years from now," says Birla.
Many variations of Parta have evolved over the centuries. But, at the heart of all the different variations, the underlying principle remains the same: at the end of the day, there should be a net inflow of cash into the system. If there isn't, something somewhere needs fixing.
This
overriding concern with net gain on a daily basis may have saved the Chaiarman
of the Aditya Birla Group from the quicksand of controversy in which many
of his peers are trapped. As the revered Tata Group, the two Reliances, and
sundry other businessmen find themselves facing one probe or the other, many of
the charges relate to attempts to manage the policy environment. Birla did not
see much net benefit in it. As a result, he and his network of 35 companies
remain unscathed.
Kumar Mangalam Birla’s
February 2007 acquisition of Novelis, the world's leading producer of aluminium
rolled products - based in the United States, and four times the size of
Hindalco then - was aimed at de-risking the metals business. The creation of
Aditya Birla Nuvo in 2005 to put cash generating businesses with cash guzzlers
under one roof make both incubator and
conglomerate combined within the group.In 2010/11, the group
clocked revenues of $35 billion with operating profits at $5.1 billion. But
Birla had been almost written off in the early years, mostly because his style
was so different from that of his late father. K.K. Maheshwari, today a
director of Grasim Industries who also heads the viscose staple fibre business
of the parent group, had worked closely with Aditya Vikram Birla as chief
financial officer of Indian Rayon between 1985 and 1988. "Management style
is often a function of the size and the state of a business group. Kumar Birla
took over the group in rough circumstances and turned it into a global group.
Aditya Birla would monitor the operations of the group companies and would be
hands on. Kumar has institutionalised systems," he says
The Rs 15,000 crore Aditya Birla group has evolved a four-pronged strategy, which involves focusing on employees and customers, setting up systems for all major functions and evolving a common group strategy for future expansion and diversification. The group also plans to set up a new management cadre of highly-trained individuals, who will be utilised as a group resource.
The Rs 15,000 crore Aditya Birla group has evolved a four-pronged strategy, which involves focusing on employees and customers, setting up systems for all major functions and evolving a common group strategy for future expansion and diversification. The group also plans to set up a new management cadre of highly-trained individuals, who will be utilised as a group resource.
In an interview to Business
Standard, group chairman Kumar Mangalam Birla said on January 27, 2013 the
group would focus on training and developing a cadre of highly trained and
skilled people, increasing the customer focus by stepping up marketing efforts
and setting up systems to guide growth.
B K Birla at the age of 87, drawn up the blueprint in Jan
2013 to pass on the Rs 7,000 crore business empire to his daughters and
grand-children, has set about restructuring 17 to 18 unlisted companies in the
group to five. 'During my time, I do not want Kumar to amalgamate the cement
unit of Kesoram with either Ultratech or Grasim. I know he would not do that.
Kumar has the experience of running a huge empire (Aditya Birla group)
independently and has no arrogance'
As
business environment becomes increasingly competitive, in November 2014,
billionaire Kumar Mangalam Birla-controlled business conglomerate has
institutionalised a leadership back-up plan by anointing deputy managing
directors at its group companies.
The process, which was set in motion
with the appointment of Ambrish Jain as the deputy MD of Idea in 2011, is
taking a definitive shape. Group companies such as Idea, UIltraTech, Hindalco
and Aditya Birla Financial Services now have deputy heads. The group is
exploring the possibility of appointing deputy MDs in other group
companies."It is tough for one person to carry the burden as the business
environment has become complex and challenging. So, it is important to c;reate
a second line of support to the heads of various businesses," The
metals-to-telecom group is experimenting on a model that combines the intrinsic
strengths of two different people. As the deputy MD, Gaur is also the chief
manufacturing officer. So, Gaur, who had proved his project skills at Hindalco,
is in charge of the research &; development and technical skills.
"Being a chemical engineer, it comes naturally to him," said Mishra.
Unlike Satish Pai, who was initially hired from Sclumberger as CEO of Hindalco''s aluminium business, the group had handpicked the second line of leadership from within. As part of the succession planning initiative, leaders who showed uncanny ability to rally people were chosen for the top posts. Jain, who joined Idea when it was a very small regional operator, proved his leadership skills and competencies, supporting the company's rise as the third-largest telecom operator.
Management experts feel that the move
to create a second line of leadership signals the group''s transformation into
"democratic professionalism". "Most Indian family businesses
have been practising a limited level of professionalism. The Birla Group has
now confirmed their movement from what I call ''directed professionalism'' to
''democratic professionalism'' wherein high quality team members are respected
and treated equally by the lead promoter," said Kavil Ramachandran, Thomas
Schmidheiny Chair Professor of Family Business and Wealth Management, Indian
School of Business. "This is how most family-controlled businesses have
grown global in any country," he added. However, this process of talent
grooming and systematic succession planning is over a decade old and
institutionalised at the group.
1. Going through the century old management history of Birla group, how do you assess their Strategy Implementation moves
2. What is 'Parta' system? How did each of the leaders using the system across generations? Where do you put it in a classification of Strategy Implementation/Strategy Evaluation /Strategic Control? Explain
3.How did Birlas ensure Strategy Evaluation as evidenced from above narrative
4. How did Birlas ensure Strategic Control according to you from the given narrative
1. Going through the century old management history of Birla group, how do you assess their Strategy Implementation moves
2. What is 'Parta' system? How did each of the leaders using the system across generations? Where do you put it in a classification of Strategy Implementation/Strategy Evaluation /Strategic Control? Explain
3.How did Birlas ensure Strategy Evaluation as evidenced from above narrative
4. How did Birlas ensure Strategic Control according to you from the given narrative
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