Strategic Plan for M/s Larsen & Toubro Ltd.

BITS MM ZG611 : Project Assignment

by

M. Francis Dhanaraj

2015HT79607

Project Assignment carried out at

Larsen & Toubro MHPS Boilers, Chennai

BIRLA INSTITUTE OF TECHNOLOGY & SCIENCE

PILANI (RAJASTHAN)

March 2017

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 TABLE OF CONTENTS:
Clause No Title Page
Introduction 5
1. Strategy Plan 6-7
Ia. Vision Statement 6
Ib. Strategy Statement Lakshya2021 7
II. Internal & External environment scanning/analysis 8
III. Situational Analysis: SWOT matrix 8 - 11
III.1 Strength 8 -9

III.2. Weakness 9

III.3. Opportunities 10

III.4. Threats 11
IV. Competitive Strategies: Positioning, Capability, 12
Value Innovation
V. Implementation Plan 13 - 14
VI. Evaluation & Control: Balanced Score Card 15 – 21
VII. Findings & Interpretations 22

VIII. Conclusions 22

IX. References 22

LIST OF FIGURES:
Maturity Matrix 13
Strategy Map: Diagram of the Cause – and – Effect 15
relationships between strategic objectives

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 LIST OF ABBREVIATIONS:

Acronym Definition

CAGR Compound Annual Growth Rate

INR Indian Rupee
ROE Return On Equity
EBITDA Earnings Before Interest, Tax, Depreciation and Amortization
E&C Engineering & Construction
FY Financial Year
NWC Net Working Capital
UAE United Arab Emirates
Kw Kilo watt
GDP Gross Domestic Product

DOS Days Of Supply

NPD New Product Development

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Project Assignment to be uploaded by 25th
March
Project work: Detailed Plan

Objective of the project: Prepare a Strategic Plan for your function or organization using the
Strategic Management Model, Tools & methodologies studied in this program.

Project scenario description: You can either choose to write the strategic plan either for your
function or organization.

Tasks to be performed by the students:

1. Strategy Statement

2. Internal & External environment scanning/analysis

3. Situational Analysis: SWOT matrix

4. Competitive Strategies: Positioning, Capability, Value Innovation

5. Implementation Plan

6. Evaluation & Control: Balanced Score Card

Expected deliverables: Project Report (minimum 10 pages) to be uploaded on Taxila.

Duration of the project: 3 weeks, Weightage: 15%

Last date for uploading Project report on Taxila: 25th March 2017

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 INTRODUCTION ABOUT ORGANIZATION

The pride achievements for Larsen & Toubro (L&T) include many titles such as,
tallest, longest, biggest, largest and best among the world over a broad
spectrum of engineering capabilities. Larsen & Toubro today is India’s hefty and
oldest engineering giant with almost 75 years of operational expertise with over
128 subsidiaries, 18 associates and 14 joint venture companies. L&T caters to
almost anything and everything of modern engineering... Achieving competitive
advantage is not easy, whether it is domestic or global markets. Businesses that
do well in these markets need to be able to use their systems, technologies and
knowledge effectively across the whole of the organization and respond to local
people, cultures and different ways of working. One such organization that uses
its knowledge and expertise to achieve competitive advantage is L&T. L&T is a
global engineering group involving many different engineering specialties. It is
recognized worldwide for its innovation, expertise and global manufacturing
capabilities with presence in over 50 countries to match customer needs

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1a. VISION - STRATEGY PLAN
Vision of the L&T of tomorrow. Building on our inherent strengths of engineering excellence,
professionalism and financial prudence, a new L&T is emerging – one that is innovation driven, agile,
and asset-light and delivers superior value to all stakeholders.

L&T goal is to achieve a revenue of Rs 2 lakh crores (USD 30 Bn at current exchange rates) by 2021 –
without compromising on our margins and achieving an order inflow in excess of Rs 2.5 lakh crores
per annum.

We believe that the economic conditions are now starting to turn in favour. Combined with the right
strategy and on-ground execution, our target, though ambitious, is achievable.

India is at the cusp of a turnaround. All indicators are positive. With a projected GDP growth rate of
7.4% in 2016 -17, India is the fastest growing large economy in the world. The Government's thrust on
Infrastructure and its 'Make in India' initiatives provide a range of opportunities for L&T.

The opening up of the Defence sector will lead to business opportunities worth Rs 13 lakh crores over
the next 10 years. With the resolution of issues relating to fuel supply and a clearer understanding on
nuclear liability issues, the Nuclear Power sector is expected to grow significantly in the years ahead.
The estimated opportunity from this sector over the next 10 years is up to Rs 50,000 crores.

India has launched satellites, orbited the moon and Mars, and is now all set to become one of the
world's preferred commercial satellite launch service providers.

Our Prime Minister has announced an ambitious plan to make a 100 cities in India into Smart Cities.
Each of these cities will be endowed with a combination of smart infrastructure and IT-led operations.
The outlay for a proposal of this nature is expected to be very large. It is estimated that by 2022, over
110 million homes will require to be built in urban as well as rural areas to house India's rapidly
growing population. The Government is bullish on real estate, and has passed numerous policy
reforms in the sector.

And finally, in infrastructure – roads, ports, airports, and railway corridors – there are over a thousand
projects in the pipeline with an estimated total value of over Rs 14 lakh crores.

L&T has both the expertise and the track record to make the most of each of these opportunities. Over
the years, we have set benchmarks, only to surpass them ourselves.

Whether it is the longest, tallest, heaviest, first, largest – L&T has made it.

The theme of 'Technology Leadership', reflected on the cover of this year's Annual Report, is more
than a statement of intent. It is at the heart of the new L&T. Our mission is profitable growth through
technology leadership – year after year.

Few of the key focus areas in the current five – year strategic planning process is that one will help us
achieve our target revenues of Rs 2 lakh crores by 2021. The first, is a requirement to sharpen our
business focus. We have identified select growth businesses in L&T's broad portfolio. These include
IT, Technology Services, Defence, Smart World and Water Management. Our Strategic Plan involves
re-allocation of resources – both talent and capital – to businesses with visible value creation
potential. As most of these are also asset-light businesses, the initiative will be in line with our larger
objective of building an asset- light organization. One of the objectives of our Strategic Plan is the need
to extend operational excellence across the Company. A major step in this direction has been the
setting up of a separate.

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1b. STRATEGY STATEMENT – LAKSHYA 2021

Long Term goals:

a) “Lakshya (FY17-FY21)”: Under its new five-year strategic plan, L&T aims to:
b) grow sales at a 12-15% CAGR to reach INR2t by 2021;
c) increase margins to 11.2% over FY16, driven by higher profitability in key manufacturing
verticals (power, process, forgings and Kattupalli yard) and hydrocarbons;
d) unlock value via asset sales to drive ROE to 18% from 12% in FY16;
e) reduce working capital to 18% of sales from 24% currently. We build in sales CAGR of 12%
over FY17-21E, EBITDA margin improvement to 11.1% and an increase in ROE to 16% during
this period.

Scope:
The study involves various objectives as listed below:
1) Understanding the current operational strategy of the company and correlate it with various
possible reasons related to decrease in revenues and profits.
2) To look for feasible solutions in macro level and change in operational strategy
3) Develop & Suggest a new operations strategy through scientific approach

Highlights:
Focus shifts to orders, domestic execution and working capital:
a) Orders: FY16 orders witnessed de-growth of 12% to INR1.37t (-15% YoY for the core E&C
segment), primarily due to market share loss in the power and hydrocarbon segments,
alongside delays in the finalization of domestic projects. In our view, FY17 orders would be
driven by the defence, power, hydrocarbons and transportation infra segments; we build in
20% growth in orders to INR1.64t in FY17 vs. the company’s guidance of +15%;
b) (b) E&C execution: In FY16, E&C sales grew 13% YoY; however, domestic growth was at a
muted 4%, while overseas revenues grew 37% YoY, led by execution of large orders in the
Middle East. For FY17, we build in a pickup in domestic execution and model in 12% growth,
c) Working capital: NWC stood at 24% of sales in Q4FY16, which we expect to come down to
22% in FY17.
d) LT is looking at asset monetization to improve return ratios and unlock shareholder value. It
has already entered into an agreement to sell its General Insurance business (INR1b loss in
FY16) and Kattupalli Port (INR2.5b loss in FY16). Besides, it is looking to divest its portfolio of
operational road assets (INR6b loss in FY16) by Q4FY17. These businesses total losses of
INR10b and would add ~2% to ROE once sold. Nabha Power is likely to be divested in FY18.

Logic:

The factors on the need for study listed are based on the current operational strategies as well as
those which the company is planning for the future.

L&T‘s LAKSHYA 2021 aims to make independent companies out of the main firm for better
operations, calls for better financial stability as a standalone Company.

Uncertainties in the order inflows due to policy stagnation, decrease infra spending,
competition etc.

Since EPC is very much capital intensive decrease in order inflows will cause pressure on
Working capital

(If order inflow increases then advances increases which will help to generate working capital)

Larger the organization larger the variable cost & overheads (labour, operating cost, salaries
etc...).So better revenue models to be incorporated as safety

Need for better vertical integration and client lock-in to beat the increasing domestic &
international competition.

To understand the decreasing contribution of manufacturing industry in National GDP.

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2. Internal & External environment scanning/analysis
The Company has a risk identification framework which provides for risk reviews and also evaluates
steps to strengthen its risk management processes. This framework involves evaluation of the risk at
the enterprise level as well as clearance process, pre-bid risks, execution risks and close-out risks. It
also periodically assesses the new and upcoming challenges for the Company. Periodic ‘Execution
Risk Reviews’ are conducted for the projects under execution. ‘Top risks that Matter’ are identified
and the Company’s response measures are integrated into respective business plans. Key risks and
opportunities across significant businesses are listed below:

L&T Power Business

Risk Strategic and Operational Initiatives

• Limited domestic opportunities

• Aim to be more competitive
• Selectively pursue opportunities in gas-based projects outside India – particularly in South-
East Asia
• Increased competition Enhanced focus on project management to ensure cost optimisation
and timely execution of projects as per business plan – LAKSHYA 2021
• Risk during bidding and execution of projects
• Deployment of Structured Risk Management process.
• Due diligence on prospective clients and projects
• Back-to-back arrangements with sub-contractors and vendors
• Talent management
• Fine-tuning HR policies to facilitate talent acquisition and retention
• Establishment of Power Training Institute for developing skillsets required for execution of
power projects

3. Situational Analysis: SWOT matrix

Strengths

Market leadership providing competitive edge

L&T is a technology, engineering, construction, and manufacturing company. It is one of the largest
and most respected companies in India for engineering, manufacture and integration of custom made
technology-intensive equipment and systems. The company has manufacturing facilities in India,
China, Oman and Saudi Arabia; and has its customers in more than 30 countries. L&T has a strong
brand name, having built the world's largest coal gasifier made in India and exported to China, the
world's biggest ethylene oxide reactor for a petrochemical complex in the Gulf, the world's largest
Fluid Catalytic Cracker regenerator for a refinery, and the world's longest limestone conveyor. L&T
also played a critical role in building India's first nuclear powered submarine. In FY2013, the largest
ten players in the Indian engineering sector reported $47 billion of revenues with L&T’s market share
of over 60% ($28.3 billion). In August 2013, Engineering News Record, the international contractors’
magazine, ranked L&T Construction 48th among the world’s top international contractors and
28thamong the world’s top global contractors, based on 2016 revenues. The company can leverage its
strong brand name and market leadership position to gain competitive advantage and also expand
into international markets.

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Strong technical expertise reinforces leadership position

Technology plays a very important role in all of L&T's operations. In engineering and construction,
L&T's technology capabilities include a strategic mix of in-house strengths and the expertise of its joint
venture partners. Engineering centres carry out process design and simulation, analysis of
computational fluid dynamics, mechanical design, failure analysis, and trouble shooting. L&T has set
up an engineering and project management centre in Abu Dhabi to undertake oil and gas related
projects as well as engineering and consultancy services.

In manufacturing, L&T's design and engineering capabilities enable it to set new benchmarks in terms
of scale, sophistication, and Speed. The Company has engineering centres at the manufacturing
locations. L&T's electrical and electronics division is a pioneer in the design of switchgear and
switchboards that are engineered for tropical conditions. It has built further on this experience, and
has leveraged its research and development strengths to develop a host of new products and features.

In technology services, L&T develops optimal solutions for its global clients. The embedded systems
unit provides technological assistance across a broad spectrum of operations including design,
maintenance, re-engineering, testing, prototyping, and industrial design. A strong technical expertise
helps the company to reinforce its leadership position, sustain its competitive strengths, and provides
with an edge over its competitors.

Strong project pipeline ensures revenue growth

L&T has a very strong pipeline of projects which would be completed in the next few years. Order
book as at March 31, 2016 was worth INR1, 536,040 million (approximately $28,293.9 million) as
against 708,200 million (approximately $13,045 million) as at March 31, 2012. Further, the company’s
order book inflow increased at a compounded growth of 14.2% since FY2012. It was primarily due to
bulk orders received by the company from engineering and construction. The company received 49%
of the orders received from the infrastructure sector. The engineering and construction division
received new orders worth INR797,660 million (approximately $14,692.9 million) in FY2016 for
projects such as 220/33 kV Grid Station at Zakher & Ayn Al Faydha in the UAE, 11 kV Power Distribution
Network for Emirates Palace, Concourse 4 of Dubai International Airport, a tunnel between Shankar
Vihar and Hauz Khas awarded by Delhi Metro Rail Corporation, Rajasthan Atomic Power Plant, Riyadh
Metro Project, Al -Batinah Expressway Project, and others. Large number of projects in L&T’s pipeline
ensures a steady revenue growth.

Weaknesses

Major dependence on domestic operations for revenue generation

L&T is largely dependent on its domestic operations for generating its revenues. In FY2016, the
company's domestic (India) operations contributed more than 70% of the total revenues. The
company's revenues can be affected with any adverse events occurring in the domestic market such
as adverse economic conditions and foreign currency fluctuations, among others. Higher dependence
on domestic operations to generate revenues could drastically affect L&T's revenues and profitability.
Increasing debt impacting financial flexibility L&T’s debts are increasing steadily. The company’s debts
in the form of loans increased to INR619,940 million ($11,419.3 million) in FY2016 from INR327,980
million ($6,041.4 million) in FY2015. Increase in loans registered a compound annual rate of change
(CARC) of 35.5% over the FY2013-16 period. As a result, L&T’s interest expense over the period
FY2013-16 increased to INR20,950.2 million ($385.9 million) from INR8,027.5 million ($147.9 million)
in FY2016. L&T’s increasing debts is impacting the company’s financial flexibility.

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Opportunities

Strategic joint ventures strengthening business

L&T has entered into several joint ventures in the recent past. During March 2016, the company
completed the ownership transactions related to its India based group company Audco India Limited
(AIL), a manufacturer of industrial valves. In December 2014, L&T signed a contract with PETRONAS
Carigali Myanmar (Hong Kong) Limited for executing an offshore engineering, procurement,
construction, installation and commissioning project valued at over $100 million. Also during 2014,
L&T acquired Indo Pacific Housing Finance, Ltd., a housing finance company and the UK based Thalest
Limited, a holding company engaged in offering integrated platform management system and
integrated bridge system solutions for naval warships and mercantile marine ships, vessels and
floating systems. In the same year, L&T formed a strategic partnership with the UK based Cyan
Holdings plc, an integrated system design company to collaborate in the development, supply and
delivery of advanced metering solutions comprising utility meters equipped with Cyan's wireless
communication capability for AMI, smart metering and smart grid pilot projects.

L&T’s joint ventures in diversified areas such as finance, defence, transmission and distribution and
power plant equipment market could strengthen its presence in these business lines and add to its
expertise.

Growing Indian construction and engineering industry

Construction and engineering industry in India is growing rapidly. The industry grew by 4.4% in 2014
to reach a value of $117.4 billion. In 2017, the Indian construction and engineering industry is forecast
to have a value of $162 billion, an increase of 38% since 2014. This industry is expected to register a
Compound Annual Growth Rate of (CAGR) of 6.6% over the period 2012–17. The Planning Commission
of India has proposed an investment of around $1 trillion in construction sector in the 12th five-year
plan (2012-2017). In 2011, Union government conferred infrastructure status to fertilizer industry
which has created conducive environment for revamping and modification of fertilizer plants. L&T is
one of the largest players in the Indian construction and engineering industry. The company is well
placed to leverage from the growing Indian construction and engineering industry and further
enhance its business in the coming years.

High global oil and gas capital expenditure plans likely to enhance business

The global oil and gas capital expenditure (Capex) plans are forecasted to remain high over the coming
years. This is likely to provide more business opportunities for the company’s engineering and
construction projects division in 2017. Key drivers of growth in this sector in near future include
increasing brownfield prospects particularly in Middle East and Africa; the trend within Indian refining
units going for downstream petrochemical units for value added products; and growing prospects in
new business lines (gas processing, poly propylene and coal gasification). In addition, the growing
thrust on gas production and transportation is expected to increase investments in cross country gas
pipeline projects and to bring in more business. L&T is well placed to tap the growing global oil and
gas capex plans and enhance its business in the coming years.

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Threats

Economic challenges in India could adversely impact the company’s business

The Indian economy witnessed a decadal low growth in FY2016 with GDP of 5%. The country has seen
economic expansion drop since the start of the FY2014 to levels even below the crisis years of FY2011.
The slowdown which started in the industrial sector also extended to services sector. While the
moderation in growth in agriculture was largely on account of the rainfall deficiency, the deceleration
of industrial production growth to 1.2% in FY2016 from 2.7% in FY2014 was mainly due to domestic
supply bottlenecks, contraction in mining and slowing growth in manufacturing and electricity sectors.
Also, the country continued to face persistent challenges due to high inflation, tight monetary policy,
deteriorating external balance and the global uncertainties. In addition, government expenditure
growth decelerated from 8.6% in FY2014 to 3.9% in FY2016 due to the fiscal consolidation by the
government to reduce the deficit. Continued economic challenges in India, the company’s largest
geographic market could lead to further slow-down in industrial production and impact L&T’s business
prospects.

Challenges in land acquisition likely to affect business

Challenges in land acquisition are affecting L&T’s projects. Land acquisition issues are causing delays
and concerns to projects under various segments within the group. Difficulties in land acquisition are
slowing down the pace of project award decisions. Environmental and land acquisition issues are
current barriers in the near term for expansion of mining equipment demand. Power projects and new
projects in minerals and metals sector face hurdles due to land acquisition issues, environmental
clearances, and coal linkages. Moreover, in 2016, Indian government passed ‘The Land Acquisition,
Rehabilitation and Resettlement Bill, 2015’. As per the bill, compensation for the owners of the
acquired land should be four times the market value in rural areas and twice in urban areas. Projects
involving land acquisition that are undertaken by private companies and public private partnerships
must have consent of 80% of the people affected. L&T presently has many ongoing projects under
public private partnership. For instance, the land acquisition bill is expected to raise Navi Mumbai
airport's project cost by INR50,000 million ($921 million). Challenges in land acquisition are likely to
affect L&T’s business.

Intense competition may reduce profitability

The company faces stiff competition in the international market. The engineering and construction
segment faces intense competition from construction majors in the Middle East including ABB of
Sweden and Bechtel of the US. These companies have substantially greater resources and superior
capabilities than L&T. In the domestic market, the company primarily competes with players like
Hindalco, Sundaram Fasteners, Gammon India, and Lanco Infratech among others. Stiff competition
in the marketplace could erode the company's market share and reduce its profitability.

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4. Competitive Strategies: Positioning, Capability, Value Innovation

ECONOMIC

L&T has been a pioneering offering ‘concept-to commissioning engineering solutions across various
verticals. Our key competitive advantages across businesses include dedicated engineering design
centres, competency cells, advanced formwork systems, project execution capability, digitized project
control and a pool of talented employees. These have enabled the Company to establish itself as one
of the premier EPC solutions providers, in India and in targeted markets overseas. Characterised by
professionalism, high standards of corporate governance and sustainability, L&T continues to evolve,
seeking better ways of engineering to meet emerging challenges.

PRODUCT STEWARDSHIP

We recognize our responsibility towards minimising our environmental impact in everything we build
or make. Our products and services are designed, manufactured and constructed by taking into
consideration their impact on the environment. Our products are engineered for eco-friendly
operations, while accounting for their health and safety impact across their life-cycle. We are
conscious of the sensitive and strategic nature of many of our projects and products and maintain
complete customer confidentiality. Detailed user manuals are provided and training imparted to
customers and their employees in plant operation and product usage.

LABOUR PRACTICES AND HUMAN RIGHTS

Our people are valued and we nurture individual learning and development. Being a project oriented
engineering company, amicable labour relations are critical to our success. In our constant quest to
work towards the health and safety of employees, we follow conventions of the International Labour
Organisation and applicable local laws covering the Factories Act 1948, Building & Other Construction
Workers (Regulation of Employment & Conditions of Service) Act 1996, Central Rules 1998, and
Industrial Disputes Act 1947 and amendments thereof.
The implementation of policies is ensured by dedicated managers throughout the Company. We also
offer extensive opportunities for training and skill enhancement with our Any Time Learning (ATL)
web-based module, Leadership Development Programmes and functional and technical training
programmes. Our HR policies and practices comply with ethical and human rights standards.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

We believe in inclusive development and have been partnering with communities for many years. In
2014, we conducted a large-scale interaction with 3600 stakeholders to understand our influence,
need assessment and the community’s expectations from the Company. We then crafted our CSR
theme ‘Building India’s Social Infrastructure’, to develop focused CSR programmes on Water,
Sanitation, Health, Education and
Skill Development. We have dedicated teams to implement these initiatives and also encourage our
employees in all businesses to participate in these initiatives through ‘L&Teering’ – our employee
volunteer programme.

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5. Implementation Plan
Materiality Assessment is conducted for identification of sustainability issues that have the potential
to affect our business, and/or our stakeholders. It is an ongoing process, incorporating stakeholder
inputs, compiled through regular interaction. The outcome is condensed into a list of topics which
provides information on company strategy, targets, and reporting. Our methodology attempts to
identify the economic, environmental and social issues material to us and society at large.

Materiality Assessment Inputs

Focus on significant sustainability challenges

Strategic sustainability roadmap development

Structured internal assessment of our risks and opportunities

Feedback from customers, supply chain and employees

Business strategy and market insights

Parameters evaluated by third party

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Description of Material Issues
Focus Issues Relevance
Occupational health & safety Our work requires utmost safety standards to work towards zero accident
of employees and contractors, goal, and it is important to comply with regulatory requirements.
and emergency preparedness
Project risk management, The Company is predominantly in the ‘projects’ business and faces challenges
quality like land acquisition & right of way (ROW), pending approvals, clearances from
of construction and EPC Government agencies, working in difficult/harsh weather conditions/terrains,
services skilled manpower availability etc., which make it critical to manage project
risks and maintain the quality of construction and EPC services delivered.
Employee training & Training is a necessary ingredient for growth. The Company has prioritised
development and leadership employee training as a key focus area. All talent investments are focused on
development increasing productivity, efficiencies, building a robust leadership pipeline.
Climate change mitigation & The future competitiveness and progress of companies are linked to low
adaptation and use of carbon economy. Regulatory and client requirements relating to carbon
renewable emissions are increasing. Progressively, we have been investing in products
energy and processes that promote sustainable growth - enhancing energy efficiency,
developing low-carbon technologies for building infrastructure, using
renewable energy at our campuses and increasing our green cover.
Energy conservation & The depletion of energy sources is detrimental to long-term business
Efficiency objectives. Increasing energy savings directly relate to reduced cost of power
improvement and fuel, and thus reduced operational cost and increased profitability.
Customer privacy and Our services are linked with sensitive customer information and hence
satisfaction customer confidentiality is paramount. Innovation in our products and
services helps us serve larger market segments and repeat orders are
testimony to client satisfaction.
Sustainability of supply chain Suppliers are our strategic partners for timely completion of our projects. It is
important for us to encourage our suppliers to join us in our quest for
sustainable growth. Taking sustainability practices in supply chain will also
help them to improve their economic, environmental, and social
performance.
Corporate social responsibility Under the banner of ‘Building India’s Social Infrastructure’, we are providing
underprivileged sections of society with opportunities. The Companies Act has
given us an opportunity to relook at our CSR programme. We have made it
more robust and included specific thrust areas like Education, Health, Skill
Development and Integrated Community Development.
Human rights We ensure that employees are sensitised to human rights clauses. These are
extended to our sub-contractors as part of their contract documents, and our
Subsidiary and Associate companies are encouraged to follow our Corporate
Human Resource Policy.
Talent acquisition and Our work requires expertise and high engineering skills. L&T is proactive in
retention engaging and retaining the best talent.

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6. Evaluation & Control: Balanced Score Card
The balanced scorecard suggests that we view the organization from four perspectives, and to
develop metrics, collect data and analyze it relative to each of these perspectives:

 The Learning & Growth Perspective

 The Business Process Perspective
 The Customer Perspective
 The Financial Perspective
STRATEGY MAPPING: Strategy maps are communication tools used to tell a story of how value is
created for the organization. They show a logical, step-by-step connection between strategic
objectives (shown as ovals on the map) in the form of a cause-and-effect chain. Generally speaking,
improving performance in the objectives found in the Learning & Growth perspective (the bottom
row) enables the organization to improve its Internal Process perspective Objectives (the next row
up), which in turn enables the organization to create desirable results in the Customer and Financial
perspectives (the top two rows).

Strategy Map: Diagram of the Cause – and – Effect relationships between strategic objectives

Strategy Map: - Diagram of the Cause and Effect relationship

The vision & Strategy

Effect Financial

To satisfy our shareholders, what

financial objectives must we accomplish

Customer Results

To achieve our financial goals what

customer needs must we satisfy.

Cause Internal Business Process

To satisfy our customer in which internal

business processes must we excel.
(Service capability)

Innovation, Learning & Growth Actions

To Achieve and maintain a competive
position, how must the organization
learn and improve.
(Customer insights)

Balanced Scorecard is to be positioned as top-level business intelligence linking operational

achievements to vision, strategy and financial & non-financial measure in combination with various
business intelligence such as knowledge management; data warehousing, data mining and business
analysis to identify, track and improve key processes and data, as well as identify and monitor trends
in corporate, competitor and market performance.

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Emerging Operational Strategy

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 Cause & Effect Relationship (SBU Goal : Improve EVA to 8 Crore)
Strategy Map Target Strategy Themese Relationship Score Rank
Financial Perspective 8Cr Improve EVA
To create value what financial 4%
objectives must we
Improve margin average ● 9
3.75 Cr
accomplish Increase export ○ 3
11%
Increase sales ○ 3
Customer Perspective Redefine the discount structure ◊ 1
To achieve our financial goals, 0
what customer needs must
Reduce product related customer complaints ○ ● 12
2 days
we statisfy improve availabilty of products ● 9

Offer full range of spares ● ● 18

24 hrs
Faster service ● ◊ 10

Emerging Operational Strategy

Branding ● ● ○ ○ 24

Confidence building ● ○ ○ ○ 18

Offer complete technical solution ○ 3

Internal Process
To achieve or finanical goals
in which internal busines
process es must we excel. To
satisfy our customer in which
internal business processes
we must excel
Learning and growth
To achieve and maintain our
competitive position what
must the organization learn &
Improve
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7 days Order execution ● 9
7 days
Customer complaints handling ◊ ○ 4
24 hrs
After sales and service ● 9
FPY
Qualtiy ● ○ ● 21
25%
Customer contact and awareness ○ 3
20%
Working capital management ● 9
Start
Activity based costing ○ 3
ON tgt
New variant introduction ◊ ● ○ 13
Activity based costing ● ● 18
2
Best NPD into process ● ● ○ 21
100%
● 9

Value Engineering
ACB
manage
Paperles order tracking ◊ ○ 4

ment Full solution provision ● 9

9 9 9 1 9 X 9 X 9 13 4 12 12 9 12 X X X 55 30 X 19 X 6 15
● Strong linkage (Score 9) ○ Moderate Linkage (Score 3) ◊ Weak Linkage (Score 1)
 Strategic Initiatives – Identification process (SBU Strategy as example as Corporate Strategy
are more complex)

Strategic Initiatives Impact Resources

Financial perspective Link rewards to increase in EVA H L
Improve EVA Increase asset utlisation H L
Improve Quality of accounts receivable in 30 days H H
Reduce transfer price by 5% H H
Improve
Reduce CST absorbance by 50% H L
To satisfy our margins
Priority to vendors for high margin products L L
shareholders, what
Implementation of incentive / rewrads scheme of sales staff H L
financial objectives Improve
Open more Government / infra accounts L L
must we accomplish sales
Enhance direct cutomer / User contacts L L
Estabilsh offices in target countries H L
Increase
Participate in foregin exhibition H L
Exports
Expand business in Gulf H H
Customer Perspective Get International certification for full range H H
Confidence
Do field trials at foreign locations L H
building
Bring more foreign visitors to see the facility H H
To achieve our Improve ambience of the factory H H
financial goals what Branding Look for branding partner in Europe L H
customer needs must Buy brands in China H H
we satisfy. Reply customer complaints in 7 days H H
Reduce
Conduct audits in regional stores H H
complaints
Implement improved packing L H
Internal Business
Process Improve Aesthetics L L
Quality
Target FPY of 95% H H
To satisfy our 100% Vendors self certified H H
customer in which Adopt cross functional team approach H L
internal business New variants Acquire IDEAs software package H H
processes must we Have regular market surveys L L
excel. (Service Increase vendor payment credit to 90 days L L
Working
capability) Implement Lean manufacturing L L
capital
Release assets in store L L
Innovation, Learning
& Growth Implement Benchmarked New product development process H H
Best NPD
To Achieve and Learn and implement DFSS tools L L
process
maintain a competive Form a focussed skill group. Learn and implement H L
position, how must
the organization learn Train all staff in value engineering methodology H H
Value
and improve. Train value engineering to top 10 vendors L L
Engineering
(Customer insights) Have tie up with research institutes L H

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 Prioritisation

Participate in foregin Open more Government /

exhibition infra accounts
P5
HIGH

P6 Expand business in Gulf

Resources (Cost, Effor & Duration

Estabilsh offices in target Link rewards to increase in

countries EVA

Enhance direct customer / Improve quality of account

MEDIUM

user contacts receivables by 30 days

P2
P4 Reduce Transfer pricing by
5%

P3
Increase asset utilization Reduce CST acceptance by
50% P1
LOW

Priority to vendors for high Implementation of incentive

margin products / rewrads scheme of sales
staff

LOW MEDIUM HIGH

Impact (Financial & Non Financial)

1. Once the classification is completed, pick around 6 to 10 initiatives in each based on their
priorities.

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 Review of Balanced Scorecard
Perspecti Code Strategic Meas Targ Champ Strategic Measure Target Status as on
ve themes ure et ion initiative 15.03.17
F11 Achieve EVA Rs Cr X MFD Focus on high Monthly X% Fair
Rs X crores margin monitoring increase
product in scale
Financial F12 Achieve EVA Rs Cr X EOG Improve Build X Value OK
Rs X crores logistic – Stocks
Reduce Tax
absorption
C11 Availability of Plan Plan GRG Motivation to Give Z date OK
products dealers display
C12 Availability of Plan Plan MZ Increase Factory X Dealers OK
Customer
products dealer visits / Qtr
coverage /
Activity
B11 World class Plan Plan JJC Factory Install X date Fair
Manufacturing ambience Machinery
Business
B12 World class Plan Plan KR Factory Improve Y Date Fair
Process
Manufacturing ambience Elevation
(Office)
L11 Employee Plan Plan SKN Exposure to No of visits 6 OK
Training employees to
visit world
class factories
L12 Employee Plan Plan APP Develop As per At least 1 Fair
Learning
Training domain schedule training in
& Growth
knowledge Domain
through
Training at
MDP –
Lonavala

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7. FINDINGS & INTERPRETATIONS:
Thus by evaluating the four perspectives in balance scorecard with L&T’s current and future strategies
it can be considered that transformation journey can be taken as viable option for the company to
create the next big move. The major benefits transformation journey can bring about include:

Better customer deliverables & differentiation

Enhance firms performance and stability

Revenue Generation

Helps to achieve competitive advantage & customer lock in by increasing dependency

It also helps in better resource utilization

Gain insight in customer needs through a closer relationship

Increase reputation and brand value and Increase future competitiveness

8. CONCLUSION:
Considering the operational side of L&T along with its capabilities, it can surely venture more into
service side. The concept being new in Indian manufacturing this will surely give a first starter
advantage. Considering the scale and operational expertise as well as the client portfolio of L&T this
will add up to the capability of the company. On the other side inducting services into core
manufacturing is not that easy. Starting from the organizational culture to the thinking of the
employees need to be realigned for the successful transformation into a transformation journey
organization.

9. REFERENCES:
1. L&T Press release of 71st AGM August 26th 2016.
2. L&T Sustainability report – 2016
3. Strategic Management Concept & Cases By F. R. David
4. Concepts in Strategic Management and Business Policy towards Global sustainability by L.
WHeelen & J. David Hunger.

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