Sec 7-Group AO-2_case Birla

Birla #1:  The “Unknown” Global Indian Conglomer ate "iteh Takhtani 1$%&1'

(eghana Chore 1$%&!1

 )agannath Akella 1$&*+

Group AO!

A,inah T- 1$%&+! .aunak .ao 1$%&/!

1. In which industries should the Birla Group Focus? Identify by sector, geography and growth/income.  The Birla group hould 0ou on the 2nanial er,ie etor- The group hould la3 0ou on the inurane and the mutual 0und indutr3- Birla Group being a global onglomerate4 earn more re,enue 0rom o,erea than ompared to dometi operation- In India4 the Inurane and the mutual 0und indutr3 i untapped4 alo the working population i inreaing where in there i huge portion o0 the middle la egment whih i working- 5ith a growing net dipoable inome in the hand o0  the 3oung pro0eional4 the3 are ,er3 partiular about their 2nane and need aountabilit3 0or the ame- In the oming the 3ear the ot o0  li,ing would inreae be it in realt34 healthare4 eduation- In India people in,et in multiple port0olio beaue o0 whih the earn inome 0rom multiple oureIn ,iew o0 the enario it i imperati,e the group bring about di,eri2ation in it inurane and the mutual 0und port0olio o a to ater to di6erent la o0 onumer7 in India- 5ith population etimated to grow to '** million b3 !*1+4 and with the 3oung earning demographi people4 thi opportunit3 hould not be mied- The group hould enter in  )oint ,enture with an organiation whih ha the bet o0 the tehnial knowhow o0 the 2nanial er,ie indutr3 and the Birla group knowing the market Thi wa3 the Group ould a,e ot on etting up the in0ratruture and 0ou on the ompan37 trateg3 to beome one o0 the top 2nanial er,ie in the ountr3-

2. escribe the methods the Birla group could use to unloc! possible "conglomerate discount"? A Conglomerate diount i de2ned a a ondition to the tenden3 o0 the tok market to under,alue the tok o0 onglomerate buinee- Conglomerate diount i alulated b3 adding an etimation o0 the intrini ,alue o0 eah o0  the ubidiar3 ompanie in a onglomerate and ubtrating the onglomerate7 market apitali8ation 0rom that ,alue- Thi i the de2nition 0rom in,etopedia- A onglomerate diount arie 0rom the umo0part ,aluation4 and it i the reaon

wh3 man3

onglomerate

are

depri,ed

o0

ubidiar3

poeion- Conglomerate diount in la3man term mean that the market ,alue o0 the ompan3 i le than the etimated market ,alue o0 eah o0 it part- The diount depend on the ountr3 and the tate o0 it tok market The Birla group ha inurred loe in the reent pat in the onglomerate o0  retail a well a AB 9u,o- Birla group ould ha,e taken the 0ollowing ation to unlok the “Conglomerate iount” .etruturing the parent ompanie with muh more e;ient obinall3 more emphai hould be laid on the 2nanial apet o a to redue the ot inurred- ?umara (angalam Birla ha time and then ontantl3 pro,ed hi mettle and ha been highl3 0untional in term o0 keeping the 2rm on the mo,e e,en though ome up and down were 0aed- The abo,e method ould poiti,el3 unlok the poible “onglomerate diount”-

#. Is it possible for a conglomerate to become too di$ersi%ed? i,eri2ation an be de2ned a a trategi initiati,e taken b3 an3 ompan3 in order to grow or e@pand it operation enter into new indutr3 or buine ategor3 it i generall3 done in order to redue reliabilit3 on e@iting inome

oure- It i o0ten rikier 0or an3 ompan3 in partiular produt or indutr3 to takle ompletel3 new indutr3Conglomerate i a grouping o0 two or more than two ompanie whih are in,ol,ed in di6erent buine etor under a ommon orporate groupConglomerate ontitute o0 multi indutr3 ompanie- -g-: The Tata group4 The .eliane group4 The Ba
&d$antages

of

di$ersi%cation'

An3

onglomerate

would

be

doing

di,eri2ation in order a To redue rik o0 rel3ing on onl3 one or 0ew inome oureb Attain higher growth rate b3 generating pro2t  arnDahie,e higher pro2t and apture the market4 beome market leaderd Birla group AB 9u,o di,eri2ed in to high growth ompan3 whih inluded regulated and tagnant growth indutrie4 it wa di,eri2ed into growth buinee uh a garment4 teleom4 IT E IT enabled er,ie a well a ,alue buinee etor uh a Inulator4 0ertilier and te@tilee i,eri2ation redue the in,etorF rik hene it attrat more no- o0  in,etor whih will lead to oure o0 apital-

isad$antages of too much di$ersi%cation in any conglomerate leads to' a i,eri2ation reult in lower growth rate o0 ore buineb It might lead to high bureaurati omple@it3 i-e- need to ontrol and oordinate ati,itie in addition with the regular ati,itie Too muh o0 di,eri2ation lead to dealing o0 intriaie o0 the politial and legal re=uirement o0 ,ariou ountrie in whih the organiation ha ontrolling interetd It might alo lead to 0ailure a a one=uene o0 mimath between the ore ompetenie o0 the a=uirer or a=uired buinee Too muh di,eri2ation alo lead to dilution o0 earning highl3 growing ompanie-

"ene an3 onglomerate be0ore di,eri2ation need to take onideration into ,ariou apet uh a ore ompetenie4 3nhroni8ation o0 buine4 oordination and ontrol parameter4 ot inurred and pro2tabilit3 etimation-

(. oes di$ersi%cation create $alue for the Birla group in India? It all began in the 3ear 11 when Ghnah3amda Birla tarted a
o0

other

indutrie

like ioe %taple

>ibber

J%>4 ement4

hemial and ponge iron9o ooner4 Birla7 di,eri2ed and e@panded in te@tile indutr3- Thi ould be alled a the trateg3 o0 “Growth i,eri2ation”- In the 3ear 1+H4 "indalo wa etablihed to pread rik o0 the buine- )o add $alue, a lot o0 a=uiition and merger with ,ariou entitie happened- Thi wa done to trengthen the poition o0 "indalo in Copper and Aluminium indutr3- !**& aw a=uiition o0  9o,eili In- that made "indalo limb to 20th larget poition in aluminium produer in the world whih ga,e them welldi,eri2ed geographial market o,erage The Birla group 0urther trengthened in international arena when in 1'4 Indo  Thai %3ntheti wa 0ormed in Thailand whih upplie raw material to the worldF leading 0abri manu0aturer- 1&H4 Carbon blak launhed a prodution 0ailit3 in Thailand whih 0urther di,eri2ed the rik- The onglomerate 0ollowed not onl3 ,ertial or hori8ontal di,eri2ation but alo 0orward integration b3 0orming o0 Indo Gul0 0ertili8er prodution in 1HHA0ter 1+4 ?( Birla took the rein o0 the Conglomerate and did ma
eonom3 and thu ha been a ,ital element in de,elopment- It wa indeed a right deiion o0 entering an attrati,e marketIn 1+4 the di,eri2ation pree ontinued thi time a inanial In- whih 0ormed Birla %un li0e inurane-

The

inurane market didn7t ha,e man3 barrier and there0ore Birla ue0ull3 entered and ga,e reliable inurane heme that are
Operational relatedne when the3 0ormed Graim indutr3 haring o0 

•

reoure to a,e ot%preading rik: i,eri2ation into metal buine and 0ormation o0 

•

"indalo4 geographi di,eri2ation i,eri2ation into ellular E inurane buine ga,e Birla group entr3 into market whih were attrati,e and had low ot o0 entr3

And hene4 the di,eri2ation ha de2nitel3 reated ,alue 0or Birla group in India whih i ortune +** ompan3-

*+

&re

the

groups

recent

organi-ational

changes

appropriate? 5e 0eel the group7 reent organi8ational hange were appropriate- Adit3a Birla group4 under the leaderhip o0 ?umar (angalam Birla4 had a ,iion to mo,e 0rom a alue Business to a igh Growth Buine"e looked 0orward to penetrating the international water- "e wanted to emplo3 ot e6eti,e e@panion trategie- "i ,iion wa alo to be one o0 the

Fortune *00Gi,en the ultural di6erene and di6erene in work ethi4 ome hange in the organi8ation truture were neear3 tep- The group $ertically integrated it ,ariou ubidiarie- Thi re=uired ompreheni,e knowledge o0 all the etor where the unit were 0untioning- Alo4 ,ertial integration made management

muh more e6eti,e- Thi wa eential ine the group needed to onentrate on globali8ation more than managing di6erent group in the home ground The Birla7 alo emplo3ed a hori-ontal and mo,ed toward a di$isional truture- A decentrali-ed4 Lat truture made ommuniation mooth and =uik- Thi wa eential to 0ailitate the rapid hange4 =uiker deiion making4 >untion pei2 unit helped narrow down the di$isional  0ou and inreae the indutr3 pei2 e@pertieUnder the diretion o0 ?umar Birla4 poliie like Mretirement age7 were implemented- "e belie,ed that the organi8ation need 3ounger blood to keep in pae with the hanging tehnologial hange in the indutr3- The group alo 2nalied a logo whih again ditinguihe 0rom it ompetitor-

iberali-ation and deregularisation wa one o0 the ke3 0undamental during thi organi8ational hange- It wa Malue addition through talent ac3uisitions trateg3 that the3 0ollowed in the hange regime- A=uiring KET ultra teh wa one uh intane- ntr3 into growth etor like >inane4 Apparel4 %o0tware4 and BNO wa een at large- ABG alo trengthen it bae in etor where it wa alread3 a dominant pla3er and 0aed little ompetition- "e alo entruted indi,idual with more reponibilit3 and autonom3 To onlude4 we 0eel that the organi8ational hange upport the hanged ,iion o0 the ompan3 whih i to globali8e the Indian brand4 and 0ou on the long term ahie,ement- Be buine oriented more than people oriented-