Corporate restructuring: a boon for competitive advantage.

"Whenever you see a successful business, someone once made a courageous decision"--Peter F. Drucker

INTRODUCTION

Restructuring refers to multidimensional process. However, the term corporate restructuring is used here for operational restructuring as long term strategy of business. Operational restructuring is an ongoing process, which includes improvement in efficiency and management, reduction in staff and wages, sales of assets (for example, reduction in subsidiaries), enhanced marketing efforts, and so on with the expectation of higher profitability and cash flow (1). Rising competition, breakthrough technological and other changes, rising stock market volatility, major corporate accounting scandals have increased the responsibility to managers to deliver superior performance and enhance market value to shareholders. The companies which fail to deal with the above successfully may lose their independence, if not face extinction.

According to a study by the Harvard Business School (2), corporate restructuring has enabled thousands of organizations around the world to respond more quickly and effectively to new opportunities and unexpected pressures, thereby re-establishing their competitive advantage.

In India, corporate houses have recently witnessed an increase of restructuring in different organizations. The main reasons for the sudden impetus to restructure in India are as follows: a) deshackling of strict MRTP (3) provisions and new government policy of relicensing b) increased competition is another key element for giving rise to corporate restructuring. c) mounting pressure on margins have necessitated higher volume of business, resulting in mergers and acquisitions or the grand concentration of strategy has led to demergers of non profitable businesses, and d) all round resource optimization in existing businesses to streamline operational profit and to stay fit in competition. However, some organizations have done their restructuring through acquisition and mergers and some through demergers. There is also corporate restructuring done through changes in corporate structure and optimization of resources including financial structuring. When the market price of shares are rising, the companies like to use their shares to acquire other companies. Acquisition is a process of taking over companies and merging with the entity in order to improve the margin. Here the advisors of the company may suggest and encourage mergers after taking over the other company. Demerger is a process of corporate restructuring in which single or multiple business units are spun off as a new entity. Demerger is just the opposite of merger. In a market of falling prices, mergers and initial public offers are less popular and the merchant banks, who normally earn their fees from corporate activity, start to look at demerger possibilities of their clients (4). A framework of corporate restructuring shown in Figure 1 below explains all about corporate restructuring

[FIGURE 1 OMITTED]

OVERVIEWS

There were various corporate restructurings in India during the last few years. However, this paper deals with successful corporate restructuring of three Indian companies which immensely enhanced the shareholders' market value and strengthened their competitive edge in recent times. These are Reliance Industries Ltd., Larsen and Toubro Ltd., and Siemens Ltd.

For example, the acquisition, merger, and demerger of Reliance Industries Ltd. like their acquisition of IPCL (5) mergers of Reliance Petrochemicals Ltd., and the recent demergers of four entities like Reliance Communication Ventures Ltd., Reliance Energy Ventures Ltd., Reliance Natural Resources Ventures Ltd., and Reliance Capital Ventures Ltd. which spun off from Reliance Industries Ltd. (RIL), and were perhaps the most prominent restructurings in recent times.

Even the recent demerger of the cement division of Larsen and Toubro Ltd. (L&T), named Ultratech Cement Ltd., seems to be one of the L&Ts grand strategies to concentrate more on infrastructure, engineering, energy and turnkey businesses. Other kinds of restructuring through structural changes, to improve sales and profit, or all round optimization of products, processes and systems in Multinational like Siemens Ltd. are worthy examples of successful restructuring in Indian industry. This article discusses in detail the tools and techniques used by these companies for successful restructuring in their organization.

RESEARCH METHODOLOGY

The entire research was carried out into four stages, and each stage was approximately of three months duration. The first stage was solely devoted to exploratory studies. The second stage was on annual company report surveys. The third was on operational study, and the fourth was on action research. The objectives of the multilayer studies were i) to obtain insights as to why restructuring in organizations is necessary ii) what relationship exists between restructuring and competitive advantage iii) examining samples of three successful companies like Reliance Industries Ltd., Larsen and Toubro Ltd., and Siemens Ltd. which practiced restructuring processes successfully iv) drawing inferences if restructuring could lead to shareholders' market value as well as competitive advantage.

CASE OF RELIANCE INDUSTRIES LIMITED (RIL)

Background

At the age of 16, a young man left his rural Gujarat village for the Arabian Peninsula in 1949. His first job was pumping gas at Yemen. Soon he demonstrated his entrepreneurial spirit and managed to negotiate for people whose insurance claims had been rejected, splitting the settlements he managed to negotiate. He returned to India in 1958 with $3,150 (in those days) and set up a trading company to export spices to Yemen. It was then called Reliance Commercial Corporation. The entrepreneur of this company was Shri Dhirubhai Ambani. By the late 1960s, with 70 employees, Reliance was manufacturing textiles with four wrap-knitting machines. To explore the need of the society, Dhirubhai applied his innovative spirit when most corporate bosses were content to sit behind India's walls of protectionism and rake in profits from obsolete, overpriced goods. For example, to overcome the wholesaler's monopoly of the cloth market, he set up a chain of franchises. Today the Vimal brand of textiles is one the industry's top sellers. At the starting stage, banks often spurned him; hence, he turned to small investors to fund his expansion plans into synthetics and petrochemicals.

Reliance was one of the first Indian companies to go public in 1977. On 27th June 1985, the name of the company was finally changed, from Reliance Textile Industries Ltd. to Reliance Industries Ltd. Then there was no looking back. The company continued to satisfy its shareholders through big bonuses and hefty dividends. When India instituted market reforms in 1991, RIL was perfectly placed; it was lean, with state-of-the-art facilities, and a cadre of capable and competent managers. At this moment RIL was not very concerned about competition from Indian companies. That is why Dhirubhai Ambani once said, "My real competitors are DuPont, Shell and ICI." Hence RIL's next challenge was to meet its international competitors. By the mid 90s, RIL aggressively diversified into telecommunication, power, finance, and transportation.

The Dhirubhai Saga Continued

The RIL chairman, Dhirubhai Ambani, was listed among "Asia's 50 most powerful people for 1998" by Asia Week Magazine in 1998. In the same year, he was also the first Indian recipient to get the Wharton School Dean's medal (6). In 1999, the chairman of RIL was again voted as the "Indian Businessman of the Century" by a worldwide multimedia poll conducted between August to October 1999 by Business Baron Magazine.

RIL entered into the telecom segment in the year 2000. The company also submitted open offers to take control of BSES (7) stocks and took over BSES in 2002. It also planned to merge its finance company with another subsidiary Reliance Petrochemicals Ltd. (RPL). In March 2002, RPL merged with RIL. In the same yea, RIL bagged a 25 percent share of IPCL. On July 6, 2002 the great Reliance patriarch Dhirubhai Ambani passed away.

Mukesh Ambani, elder son of Dhirubhai Ambani, was elected as chairman of RIL on July 31st 2002. RIL diversified further into the areas of biotech, life sciences, mining, and insurance.

Ambani Empire Split

RIL, one of India's largest private sectors groups, was split in June 2005 due to differences between two successor brothers. The RIL struggle was not only a clash of egos between estranged brothers, but it was also about big money in the area of Rs.1000 billion which was not easy to share. Also not easy to understand were the complexities involved in running such an empire with two power centers.

On January 17th '2006, a unique trading and investment era was over. As per the demerger approved by RIL board in August 2005, both brothers, Mukesh and Anil--headed different businesses and five listed companies emerged as potential investment opportunities for investors by March 2006.

Among the group companies of RIL, Reliance Energy (earlier name was BSES) and Reliance Capital, were already listed at the exchanges. The remaining four companies were listed by the end of March 2006.

The New Structure

The new RIL structure gave Mukesh complete independent control in the business of oil exploration, refining, petrochemicals, and textile businesses through a stand alone entity in RIL along with IPCL. His shares also included biotech firm Reliance Life Sciences and Trevira, a company in Europe which manufactures polyester fibers. Anil got control over power, communication, and financial businesses through four companies which came under Anil Dhirubhai Ambani Enterprise (ADAE) as part of the Reliance group.

These four companies were named as Reliance Capital Ventures Ltd. (proposed to be merged with another listed company Reliance Capital Ltd.),Reliance Energy Ventures Ltd. (proposed to be merged with existing company Reliance Energy Ltd.), Reliance Communication Ventures Ltd.(these include both Reliance Infocomm and Reliance Telecom) and Reliance Natural Resources Ltd. (which includes businesses in gas based energy undertakings).

Outcome of Demerger

After the demerger, share prices of the listed five companies (8) were quoted differently at the Bombay Stock Exchange and National Stock Exchange. Prior to the demerger, RIL's share was traded around Rs 978 per share, but after the demerger the combined demerged share values of five companies came to around Rs. 1235. This is a gain of almost 26 percent for every shareholder. This overall gain has to be seen from long-term perspectives when the demerged entities will be further merged with the running businesses of Reliance Energy Ltd. and Reliance

CASE OF LARSEN AND TOUBRO LIMITED (L&T)

Background

L&T was established by two Danish engineers H. Holck Larsen and S.K.Toubro in 1942. Within a span of fifty years L&T became one of the most respected companies in India (9). The sales turnover of the company during last seven years rose from Rs. 53.88 billion in the year 1996/1997 to Rs. 115.25 billion in the year 2003/2004 (10). The company is a leading manufacturer and engineer in turnkey projects having diversified activities in electrical and electronics; construction projects; cement manufacturing; medical equipment; shipping; earthmoving equipment; heavy engineering and information technology. From the year 2000, the company was planning to restructure some of its business divisions through demerger and consolidation in order to concentrate more on infrastructure and turnkey businesses.

Reasons for L&T's Demerger

L&T was trying to protect itself from a takeover bid by Grasim Industries Ltd. (GIL) a flagship company of Aditya Birla Group, from the year 2001. GIL was trying to take over control in L&T management by purchasing shares of L&T from the open market. The company first acquired 15 percent stake in L&T and also made an open offer to L&T shareholders to increase its stake. However, it could not get very good response from the existing L& T shareholders.

In this situation, if L&T's demerger plan of cement division had gone through, GIL's stake in the cement business would have gone down to 3.75 percent. At this moment, GIL had already spent over Rs 10 billion in acquiring its L&T stake and was not ready to allow the latter's plan to demerge the cement business. GIL accused L&T that through demerger plan, L&T was trying to retain control of the cement division within itself, without focusing the interest of shareholders. According to GIL, under the L&T demerger plan, L&T shareholders would have only 24 percent stake in the new cement company where individual shareholders would hold very little control in this new entity.

Demerger: The Three Steps

Finally, at the extraordinary general body meeting held on 3rd February 2004, shareholders approved the demerger of L&T's cement division. The name of the demerged entity was made public as UltraTech CemCo Ltd. (UCL). This extraordinary general body meeting witnessed a lot of heat amongst the shareholders. On two main resolutions, two polls were conducted on the scheme of arrangement, involving the reduction of share capital of residual engineering from Rs. 2.48 billion and demerger of L&T cement division.

The face value of L&T share was also reduced from Rs.10 to Rs 2, awaiting poll results. L&T wanted 51 percent of the shareholder's approval who were present in the meeting and voting of 75 percent of value to go through for demerger. GIL was interested in acquiring the cement division of L&T and was confident that all the above objectives would be comfortably achieved. The proposed open offer of cement division closed after the listing with the new company. With the demerger of the cement business, L&T needed to restructure the equity capital.

In a three step demerger plan, it was decided that in the first phase L&T would spin off the cement business into a new company, UltraTech CemCo Ltd. (UCL), where L&T would hold 20 percent and the balance of 80 percent would be held by existing shareholders of L&T.

In the second phase, GIL would buy 8.5 percent of UCL from L&T @ Rs. 342.60 per share and make an open offer to other shareholders of another 30 percent at the same price. It would take GIL's stake to 51 percent in UCL, if this offer was fully subscribed, and on the sale of its stake in UCL, L&T would realize Rs. 3.62 billion.

In the third phase, L&T Employee Welfare Foundation would acquire the GILs 15.3 percent stake in the residual engineering company.

Hence, after the demerger, GIL gave an open offer to UCL shareholders and purchased the shares to cover a 51 percent hold in UCL. Table--2 below, shows in short the sequence of the demerger process in L&T Ltd. Immediately after the acquisition, GIL finally changed the name from UltraTech CemCo Ltd. to UltraTech Cement Ltd.

Outcome of L&T Demerger

There were two important issues in this demerger. The first important issue was that to protect the interests of both existing and former employees, L&T Employees Welfare Foundation was given a stake in the company. The second issue was how shareholders at large also could benefit from this demerger. During early 2003, L&T's ten-rupee face value share prior to demerger was hovering around Rs. 350/400 per share. After the demerger, for every 100 shares of L&T, shareholders got 50 shares of L&T of Rs. 2 face value each and 40 shares of UCL with face value of Rs. 10 each.

Around April 2004, the entire demerger process was complete. Although initially there were some corrections in the market, later share prices of both L&T and UCL started rising. Within three years shareholders of erstwhile L&T increased their wealth with a growth more than SENSEX or Nifty. In March 2006, the face value of Rs. 2 a share of L&T was quoted between Rs. 2375 to Rs.2616 (11) per share, while of UCL was quoted between Rs. 562.5 to Rs 689 12 per share on the Bombay Stock Exchange. This means shareholders' value went up by more than 100 percent within two years, which was unprecedented in the history of demergers of any company. Financial highlights shown in Table 3 endorse the point as to how this company's restructuring strategy has been implemented successfully.

CASE OF SIEMENS LIMITED

Background

Siemens Engineering and Manufacturing Company of India Limited was incorporated in the year 1956, as a subsidiary of Siemens AG., Germany. The company started manufacturing switchboard products at its Worli Factory, Mumbai. Thereafter, as the business grew, the company expanded its business into other product segments of power generation, power distribution, and medical engineering products.

By the year 1966, the company had four factories in different parts of the country employing more than 2500 people. In 1990, the name of the company was changed to Siemens India Ltd. In the same year, the company was divided into six products divisions and formed into strategic business units. In the year 1991, there was further restructuring of business divisions. Again, in the year 1994, the name of the company was further changed to Siemens Ltd. In the same year, product divisions were further sub-divided to achieve operational efficiency. The number of business divisions was increased to ten. However, to be very precise, from the wide range of the above-mentioned businesses--the major business segments of Siemens Ltd were in power, communication, medical solution, industrial automation, and railway and transport systems.

Despite many changes and repeated divisional restructuring, the company could not get the desired result to counter all-time competition. Then in the year 1996 -97 (13) (18 months period), the company made a loss of almost Rs.1.5 billion for the first time since its inception in the Indian business. This situation compelled the Siemens management to go for intense all-round corporate restructuring. The meaning of this corporate restructuring was to give a new structure to rebuild and rearrange the organization.

Manpower Downsizing 

As a first step in July 1997, the company introduced a voluntary retirement scheme (VRS) followed by three such schemes till the year 2001 for all its employees in the factories at Worli, Kalwa and Joka, especially for those who were above 40 years of age or had completed 10 years of services. Those who were interested in VRS were paid a maximum lump sum amount of six hundred thousand rupees as compensation and those who were not interested in the VRS scheme were offered alternative jobs in different functions / locations. However, regular dialogues with the employees helped the management to reduce and adjust employees at the Worli, Joka and Kalwa factories. At the same time, the company faced the new problem of training the remaining employees who were required to do different jobs in new areas and with new skills.

These downsizing processes on four occasions reduced the employee strength by more than 4500 employees. However, the cost of VRS, relocation, and retraining of around 1000 (out of 4600) employees hit hard on the company's financial result. The company during the financial year 1997-98 made a further loss of Rupees 560 million. With the successes of downsizing, the processes of manpower reorganization had been a commanding task in the organization. The employee strength came down to 3896 in the year 01/02 compared to 8322 in 96/97. These downsizing processes revamped the human resource planning in the organization and removed many operational deficiencies.

Financial Restructuring

From the very inception, the company had engaged a renowned auditing firm, M/s Fergusson & Co. Ltd., to carry out its annual financial audits. However, despite good results year after year, the company fell short of working capital every year. Therefore it had to borrow capital from banks and from other investors at a high interest. At the end of every financial year, after paying the interests to the creditors, the company was short of working capital to run the business.

The company, in the year 1997-98, appointed M/s KPMG Ltd. to look after its financial audit. During the process of preliminary findings, it was observed that a large amount of inventory items were in the stocks, both as finished goods as well as raw materials, which were slow moving for a long time and were continuously audited as stocks, year after year. Similarly, there were some customers who did not pay their dues for long periods of time, on some pretext or another, and were shown as outstanding customers. Hence, the KPMG advised the company to write off the old stocks as well as long outstanding payments from customers.

The decision to write off the old stocks and doubtful dues from customers was agreed upon by the company. These measures added further financial loss during 1997-98. However, the company could dispose off some obsolete stocks and recover few pending dues from customers at later dates. The revenue generated was added up as surplus to the organization. This one time action of writing off the old / obsolete stocks and doubtful dues from customers helped the company to stop borrowing from banks and other financial brokers / institutions. The debt /equity ratio of the company in the year 1997-98 was 1.3:1. In the year 2002-03 this figure went down to 0.01:1 (14), which showed how financial restructuring helped the organization to overcome the problem of working capital.

Restructuring of Processes and Systems in Different Divisions of Siemens Ltd.

Apart from downsizing the employee strength in some strategic business units and financial restructuring the company, in the year 1997, introduced Time Optimised Processes (TOP). These were similar to the business process re-engineering segments of its business. The processes started optimizing business processes of every function like sales, marketing, manufacturing, service, finance and human resources which were not tuned to productive performance. The uneconomical processes were removed to cut cost and improve the quality of business.

The company went further to look for economic consideration of its capacity utilization in the factories. It was observed that the return on capital investments made in earlier years in different factories was not paying proper dividends as planned during the budget period. Therefore, the company decided to go for outsourcing of products and services in different factories to achieve operational efficiency through a process of cost reduction. At the same time, the company also introduced stringent measures to follow the ISO 9000 quality system along with resurgence and renewal in all its divisions.

Medical Solutions Division (MSD)

The manufacturing of medical products in Siemens India commenced in the year 1957 at the premises of Worli Works, in Mumbai. The process of restructuring started in the Medical solutions division in early 1993 with the objective of manufacturing high-end medical solutions products for Siemens AG to cater to the South East Asian market. In 1994, a new manufacturing site was selected in the state of Goa, which had the cost advantage as sales taxes were exempted for the first five years for the new companies which set up industries there.

At the same time, the central government also exempted corporate taxes for these industries located in Goa for a period of five years. However, this project did not give any economic advantage to the company, as required by its principal in Germany. The company subsequently decided to restructure the local manufacturing in phases over the next three years to counter the increased manufacturing cost at its Worli factory in Mumbai. In the year 1997, the Medical Solutions Division of the company had manpower of 375 people in the factories which included 340 employees at Worli and 35 employees at Goa, including all officers.

In mid 1997, the company decided to procure the low-end products from outside vendors who had the requisite technology and could spare their machines and equipment for manufacturing these products. The idea was formulated to close down the Worli factory. However, the company continued manufacturing the core technology products like oil immersed multi-pulse X-ray generators at its Goa factory. In mid 1997, despite a lot of opposition from the employees at Worli for relocation, the company discussed the issue with workers and staff unions and offered transfers to relocate people in different departments / divisions of the organization.

With the all-round success of VRS, Siemens was able to transfer 140 employees to other locations and remaining took voluntary retirement from the division. With this action of the management, the employee strength in the Worli factory became zero, while at Goa, it was only 35. By the year 1999, the company was running the business of low-end products at one factory at Goa with just 35 people producing the same sales turnover of rupees 250 million which was earlier produced in the year 1996 at Worli with 340 people. With this restructuring, the low-end medical device products of the company became competitive and the company could regain its strength through a higher margin. Table 4 exhibits the sequence of strategic changes in details that took place in the medical solutions division.

Low Voltage Distribution Systems Division (LVDSD)

With the increased demand of power in the country due to industrialization immediately after the second five years plan, the company expanded the manufacturing of switchboard products. In the year 1960, the company set up a workshop at Hide Road, Kolkata, for manufacturing and repair of power distribution equipment for the eastern region. In the year 1980, with the further demand of energy equipment, this factory was relocated to a new plant at Joka, just a few kilometers away from Kolkata. This division was then considered as a part of switchboard division. In the year 1999, the name of the switchboard division was changed to Energy Division. When the manufacturing facility at Joka was transformed into a sub division, it was named Low Voltage Distribution Systems Division. (15)

However, in the year 2000-01, the low voltage industry was suffering from excessive manufacturing capacity due to the presence of a large number of players and dwindling demands as a result of depressed market conditions. The overall market for Low Voltage Distribution Systems Division remained stagnant and was characterized by intense competition, putting the price under tremendous pressure. As a consequence, the Lower Voltage Distribution business posted a 40 percent drop in both turnover and order value. In its endeavor to make operations viable, the division proposed to introduce several measures; this included an offer of alternative jobs to its workers at the Siemens Metering, a plant in the neighborhood. This process of implementation made some delays resulting in the unit making even more production losses, thus affecting the result. At the end of the year 2001, the company closed down the Joka factory and adjusted its employees to Siemens Metering Ltd. After the closure of this factory, the division started procuring the low voltage products from the switchboard factory, thus making full-scale utilization of free capacity at its Kalwa factory.

The twin initiatives of closing down the high cost manufacturing operation at Joka and implementing a completely new business process of deploying a lean cost structure whilst maintaining high quality standards supported the division's turnaround. The entire business restructuring was achieved within a time period of less than two years.

As a result of focused market approach, the division achieved an increase in the market share. Customer loyalty and satisfaction was evidently demonstrated as it received several orders. The division developed new products. The concentrated focus on its spares and service business helped it record a four-fold increase in turnover in this line of business over the last three years. To further augment its service network, the division entered into a franchising arrangement with a Kolkata-based company, which utilizes the services of former employees of Joka works. Table 5 below gives a short detail of strategic changes in Low Voltage Distribution Systems Division.

Personnel Division

The process of renewal and resurgence was not confined only to factories of a few divisions, but also to the other areas of corporate systems. Being a part of corporate systems, the personnel division handled the human resource functions in the company. During the year 1994, the personnel division for the first time introduced an Enterprise Resource Planning (ERP) system, People-soft, to upkeep the employee data, and created an information highway for its concerned executives and managers. Then in the year 1997-98, the personnel division of Siemens Ltd. achieved a milestone for successful downsizing and implementation of corporate goals and objectives by retraining and relocating people for the emergent needs of the organization.

Apart from downsizing the manpower in other divisions, the personnel division also initiated VRS and relocations of some of its own employees and managers and outsourced some of the human resource processes and activities from outside parties who had much more experience in this field. For example, the company outsourced the entire process of employee benefit schemes like handling of Provident Fund (PF) and gratuity payments to an outside agency, M/s India Life Pension Services, with headquarters at Bangalore. This outside agency maintained all accounts of PF, gratuity and other pension schemes, and advised the personnel division of Siemens to make necessary payments after the retirement or separation of employees. The personnel division also outsourced the processes of salary payment to one of its affiliates, Siemens Information Systems Ltd. (SISL), which developed a software package of such services.

Then in the year 2000, in order to systemize its operations in personnel, the division opted for the ISO 9000 quality system, to regulate all the processes of personnel function and became one of the very few companies in the country holding independent ISO 9000 certification for its personnel function.

In the year 2005, the company introduced a new HR initiative on performance management to be known as EDGE (16). EDGE stands for Employee Dialogue for Growth and Entrepreneurship. EDGE was developed looking at the overall growth and development of employees from a holistic and long-term perspective. In the same year, as per companies shared service initiative, HR processes across all Siemens' entities were now streamlined and aligned with Siemens BPO global processes under one organization.

Outcome of Restructuring

The overall restructuring in Siemens started showing results after a few years of operations resulting in all-round satisfaction of stakeholders. The financial highlights beginning from 1998-99 in Table 6 exhibits the unique results of corporate restructuring. The share price of Rs. 10 (face value) which was hovering on the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE) around Rs. 140 / 150 in 1997 rose to Rs 5500 / 5600 in March 2006. As per ET 500 (Feb.'06), Siemens ranks one of top ten performing companies in India and a leader among 49 listed multinational company at BSE / NSE. While in the same footing Siemens AG stock price on 30th Sept 2005 was quoted 64.10 [euro] compared to 41.89 [euro] in Sept. 2001. The five-year summary of Siemens AG., shown in Table-9 could be a point for discussion.

Initially, restructuring processes followed by Siemens resulted in some amount of uncertainty in the minds of the employees. However, after the positive results of restructuring started pouring in, the cloud of uncertainty cleared. These were the moments when Siemens took care of handling the remaining productive employees.

The company which had losses for the first time since its inception decided to undertake a cleansing operation by downsizing manpower, optimizing all processes, outsourcing products and services and keeping the quality standards ahead of all future actions. These also included maintaining high employee morale at this juncture of productive changes.

Even when there was a need for financial restructuring, the company did not spare much time to take action. Continuous shortage of working capital forced the company to change auditing systems. Initially, this action made incurred losses for the company but it helped the management to reduce heavy interest payments in the long run. Above all, this course of operational restructuring finally helped the organization to go into the black. From the year 2000-01 onwards, the company did make a turnaround and started earning regular profits, resulted from the processes of progressive restructuring which are still continuing in the organization. Financial highlights shown in Table-6 above prove that point.

POINTS FOR DISCUSSION

From the above cases of restructuring, the point may arise that, prior to restructuring, none of these companies were managed properly. They were huge in size; the company management could not select the right strategic options to push their businesses ahead of other priorities. Or, even, the core competency levels had reached to its saturation points when these business units were no longer viable and therefore restructuring was the only option to avoid losses or stagnation. The above arguments may be well suited to L&T Ltd. and Siemens where these companies had enough strength in power, infrastructure, medical equipment and Turnkey projects. L&T had its weaknesses in the cement business and Siemens had its advanced technologies but with huge manpower and multiple operations which were not cost competitive. All these forced the above companies to go for all-round restructuring. L&T took a wise decision and demerged its cement business.

Siemens Ltd. took a cultural shift and made an all round resurgence and renewal in its business through corporate restructuring. Even the parent company Siemens AG., despite having vast sales regions as shown in Table 7 and business areas as shown in Table 8, could not do that well compared to its counterpart in Siemens India Ltd., as can be seen in Table 9.

All these studies finally reveal how progressive organizational restructuring can be incorporated in an organization. When any company makes losses or is likely to face odds in business, all-round pro-active changes are needed for the survival of that organization. For Siemens, in implementing the processes of manpower downsizing in different divisions, the company started making changes in a progressive manner.

But for RIL, the recent demerger was the outcome of a family feud between two brothers, which lead to the demerger of four strategic business divisions. This was more of a balancing act between two brothers to gain control in their areas of business. However, this demerger has definitely brought some transparency in the working of RIL which one may say was more complex prior to this arrangement.

However, all the above process of restructuring have added shareholders market value and can be construed as successful restructuring from the point of competitive advantage. Such innovative restructuring should always be made in the strategic plans for the survival, growth, and remain competitive in the market.

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Porter, M. (1980). Competitive strategy: Techniques for analysing industries and competition. New York: Free Press.

Pomerleano, Michael., and Shaw, William. (Eds.). (2005). Corporate restructuring: Lesson from experience. Washington D C: World Bank.

Schonberger, R. (1982). Japanese manufacturing techniques. New York: Free Press.

Siemens Ltd. 1998-99, 1999- 00, 2000-01 & 2001-02, 2005.

Siemens AG. 2005.

UltraTech Cement Ltd. (2005-2006). Annual Report.

www.rediffmail.com

www.finnanc-glosarry.com

www.hindu.com

(1) Corporate Restructuring--Lesson from Experience (2005). Edited by Pomerleano Michael, Shaw William

(2) www.exed.hbs.edu/program/crma/index.html

(3) MRTP--Monopolies and Restrictive Trade Practices rules, 1970.

(4) Global Investor Glossary, http://www.finance-glossary.com

(5) Indian Petrochemical Corporation Limited

(6) A medal instituted by Wharton Business School, Wharton for the best businessman of the year

(7) Bombay Suburban Electric Supply Ltd, a power generation company in Mumbai

(8) The five companies are, Reliance Industries Ltd., Reliance Capital Ventures Ltd., Reliance Energy Ventures Ltd., Reliance Communication Ventures Ltd., and Reliance Natural Resources Ventures Ltd. Capital Ltd. However, it appears that the cornerstone of all these demerged entities will be Reliance Communication Ventures Ltd., which may further add value to shareholders. In addition to the above, the financial highlights of RIL (shown in Table 1) witness how the profit after tax in the company has grown over the years.

(9) Independent survey conducted by Business Word and MARG, 1993

(10) The Challenging Face of Indian Inc--ET 500, Feb. 2006, an ET Intelligence Group Presentation, Mumbai

(11) Larsen and Toubro Ltd. Annual Report 2005-2006

(12) UltraTech Cement Ltd. Annual Reports 2005-2006

(13) Siemens Annual Report 2003, India

(14) Siemens Annual Report 2005, India

(15) Low Voltage Distribution Systems manufactures Power Control Centers, Draw-out, Non Draw-out Motor Control Centers. Automatic Power Factor Control Panels etc.

(16) Siemens Annual Report 2005, India

G.C. Nag, Ph.D. ([e-mail]) is Adjunct Professor, Icfai Business School, The Icfai University, 71 Nirlon Complex, Western Express Highway, Goregaon (West), Mumbai--400 063, India , Tel No. + 91-22--40434392 / 300, Fax--91-22 26850066

R.D. Pathak, Ph.D. ([e-mail]) is Professor, School of Management and Public Administration., The University of the South Pacific, Fiji Islands. Phone--(679) 3212489 / 3313900--ext. 2489, .Fax No. (679)3301487

TABLE--1
Performance Highlights Reliance Industries Ltd

Particulars              FY00        FY01        FY02
(Rs.in mil.)

Net Sales              178,499     254,293     420,889
%yoy                                    42       65.51
Other Income             6,282       3,830       6,590
Operating Profit        38,185      46,235      79,993
%yoy ~                                  21          73
Interest                10,458      12,473      18,251
PBT                     21,235      21,797      40,170
PAT                     24,033      26,456      32,427
%yoy ~                                  10          23
Export                  18,110      93,700     109,688
EPS ~                       22          25          23
DPS ~                        4           4           5

Particulars              FY03        FY04
(Rs.in mil.)

Net Sales              458,978     518,015
%yoy                      9.05       12.86
Other Income            11,775      13,987
Operating Profit        81,890      97,232
%yoy ~                       2          19
Interest                15,552      14,347
PBT                     49,742      64,401
PAT                     41,043      51,601
%yoy ~                      27          26
Export                 108,519     122,879
EPS ~                       29          37
DPS ~                        5           5

Source: indiainfoline.com

TABLE--2
Sequences of Demerger Process at L & T

Date          Process of Strategic Changes

15.01.2000    L & T to restructure, gain focus
13.11.2001    Low demand pulls cement prices down
20.11.2001    Grasim stake stalls L & T demerger
04.01.2002    Financial Institutions meet on Grasim
14.10.2002    Grasim to buy 20% more stake in L&T
30.11.2002    SAT ruling on Grasim open offer a victory
01.04.2003    Grasim's revised open offer for L & T
03.05.2003    Grasim's revises timeline of open offer
18.06.2003    Grasim signs deal to buy L & T's demerged
                cement business
07.07.2004    L & T hands over UltraTech Management

Source--www.domain-b.com

TABLE--3
Financial Highlights of L & T Ltd.

Particulars                         FY05        FY04        FY03
(Rs. in mil.)

Gross Sales                       132,687      98,068      98,698
Net Sales                         130,918      95,615      93,601
Other Income                        6,965       4,052       2,543
Operating Profit (PGDIT)           14,339       8,899       9,991
Interest                              536         366       1,770
Gross Profit (PBDT)                13,803       7,688       5,102
Depreciation, amortization etc        942         845       3,119
Net Profit Before Tax               9,839       5,328       4,331
Equity Shares Dividend              4,066       2,246       2,107
(including CTD)

Particulars                         FY02        FY01
(Rs. in mil.)

Gross Sales                        81,666      78,254
Net Sales                          77,257      73,903
Other Income                        2,184       2,068
Operating Profit (PGDIT)           10,461      10,131
Interest                            3,161       3,613
Gross Profit (PBDT)                 4,005       3,387
Depreciation, amortization etc      3,125       3,131
Net Profit Before Tax               3,468       3,151
Equity Shares Dividend              1,743       1,784
(including CTD)

Source: larsentoubro.com-INVESTORS

TABLE--4
Sequence of Strategic Change in Siemens Medical Solution Division

Year     Sequence of change to gain competitive advantage

1956     Commenced manufacturing of 6 and 10 Kilowatts two pulse
         generators and manual X-ray examination stand and table at
         Mumbai factory

1964     Introduced semi-automatic production processes and started
         making motor operated X-ray examination table.

1974     Introduced improved vacuum impregnation process in the
         assembly of oil immersed X-ray generators.

1977     Introduced Motor operated X-ray examination table with
         automatic screen frame.

1984     Digital display was introduced into the controls of
         X-ray generators.

1988     Introduced 50 Kilowatts multi-pulse X-ray generators for
         examination tables.

1991     Introduced 4 Kilowatts multi-pulse X-ray generators for mobile
         X-ray units.

1993     Introduced 10 Kilowatts multi-pulse X-ray generators for
         manual operated X-ray examination tables.

1993     Strategic decision to restructure the entire medical
         engineering division in phases.

1994     Selection of a new manufacturing location at Goa to market
         high end product

1998     Suspension of Medical products manufacturing in Worli Factory

2000     Manufacturing of all products at Goa with just 35 people and
         regained competitive strength.

2005     Completes 50 years of manufacturing in India

TABLE--5
Sequence of Strategic Changes in Siemens LVDSD

Year     Sequence of changes to gain competitive advantage

1960     Set up a workshop for repairing energy equipment for power
         sector at Hide Road, Calcutta

1964     Started manufacturing small switchboard for the need of
         Eastern region

1980     The manufacturing location was shifted to Joka works near
         Calcutta

1995     Achieved all time high production of 3500 panels

1996     Became largest production unit for Low Voltage Switchboards
         among all units of Siemens worldwide.

2000     Restructuring of the division

2001     VRS at Joka factory

2002     Closure of the Joka factory and procurement of products from
         Kalwa factory

TABLE--6
Financial Highlights of Siemens Ltd

                           2004-05        2003-04         2002-03

* Sales                       27485          17900           14245
                        (477 [euro])   (311 [euro])   (247 [euro])

* Profit before Tax           3,631          2,299           1,968
                         (63 [euro])    (40 [euro])    (34 [euro])

As % of Sales                    13             13              14

* Profit after Tax            2,548          1,514           1,394
                         (44 [euro])    (26 [euro])    (24 [euro])

As % of Sales                     9              8              10

# Net worth per share        235.61         182.92          148.18

# Earning per share           76.88          45.68           42.06

* Dividend                      481            298             249

Dividend %                      145             90              75

* Debt / equity ratio            -              -         0.01: 1

* Investment in Fixed           277            314             243
assets                  (4.8 [euro])   (5.5 [euro])   (4.2 [euro])

No. of Employees               4777           4094            3811

                            2001-02        2000-01

* Sales                       12905          11572
                        (224 [euro])   (201 [euro])

* Profit before Tax           1,304            964
                        (23 [euro])    (17 [euro])

As % of Sales                    10              8

* Profit after Tax              865            687
                        (15 [euro])    (12 [euro])

As % of Sales                     7              6

# Net worth per share        114.58          95.46

# Earning per share           26.10          19.49

* Dividend                      182            133

Dividend %                       55             40

* Debt / equity ratio       0.02: 1        0.01: 1

* Investment in Fixed           117            119
assets                  (2.0 [euro])   (2.1 [euro])

No. of Employees               3896           4167

                            1999-00        1998-98

* Sales                       11157          10506
                        (194[euro])    (182 [euro])

* Profit before Tax             946            381
                        (16 [euro])    (6.6 [euro])

As % of Sales                     9              4

* Profit after Tax              840            351
                        (14.5 [euro])  (6.1 [euro])

As % of Sales                     8              3

# Net worth per share         79.89          68.50

# Earning per share           24.11          12.37

* Dividend                      224            --

Dividend %                       65            --

* Debt / equity ratio      0.15: 1        0.52: 1

* Investment in Fixed            86            317
assets                  (1.5 [euro])   (5.5 [euro])

No. of Employees               4342           4604

* Rupees or Euro ([euro]) in million (one [euro] is approximately
Rupees 57.6 as on 4th May 2006)

# Rupees

TABLE--7
Sales of Siemens AG. by Regions (Siemens AG Sales in billion)

                                    1990        2005

                                 32 [euro]    75 [euro]

Africa, Middle East & C I S          4%            8%
Asia Pacific                         6%           13%
The Americas                        15%           25%
Europe (exclude Germany)            30%           33%
Germany                             45%           21%

Source--Annual Report Siemens AG 2005

Note: Table made from bar graph.

TABLE--8

Siemens AG Business Areas in 2005

Lighting           - 6%

Medical            - 10%

Transportation     - 19%

Power              - 16%

Information &
Communication      - 23%

Automation &
Control            - 26%

Source--Annual Report Siemens AG 2005

TABLE--9
Five-year summary of Siemens AG

Sales and earnings                     2005         2004        2003
(in millions  of euros)

Net Sales                            75,445       70,237      69,775

Gross profit on sales                21,943       20,645      19,836

Research and development              5,155        4,650       4,730
expenses

  as a percentage of sales                6.8          6.6         6.8

Income from continuing                3,058        3,450       2,355
operation

Net Income                            2,248        3,405       2,455

Sales and earnings (in                2002 (1)      2001 (1)
millions of euros)

Net Sales                            84,016       87,000

Gross profit on sales                23,206       23,105

Research and development              5,819        6,782
expenses

  as a percentage of sales                6.9          7.8

Income from continuing
operation

Net Income                            2,597        2,068

Assets, liabilities and share-        2005         2004        2003
holders  equity (in mil. [euro])

Current assets                       46,803       45,946      43,489

Current liabilities                  39,833       33,372      32,028

Debt                                 12,435       11,219      13,178

long-term debt                        8,436        9,785      11,433

Net debt (2)                         (2,525)       2,357       (379)

Pension plan and similar              4,917        4,392       5,843
commitments

Shareholders equity                  27,117       26,855      23,715

as a percentage of total                 31           34          31
assets

Total assets                         86,205       79,518      77,605

Assets, liabilities and share-      2002 (1)     2001 (1)
holders equity
(in mil. [euro])

Current assets                       44,062       51,013

Current liabilities                  34,712       44,524

Debt                                 12,346       12,610

long-term debt                       10,243        9,973

Net debt (2)                          (751)      (4,017)

Pension plan and similar              5,326        4,721
commitments

Shareholders equity                  23,521       23,812

as a percentage of total                 30           26
assets

Total assets                         77,939       90,118

Cash flows (in million of              2005         2004        2003
[euro])

Net cash provided by operating        4,217        4,704       5,419
activities

Amortization, depreciation and        3,316        3,248       3,230
impairments

Net cash used in investing          (5,076)      (1,689)     (3,848)
activities

Capital spending (3)                (6,511)      (4,481)         (5)

Net cash used in financing          (1,403)      (3,108)       (487)
activities

Net increase (decrease) in          (4,069)           41         953
cash and cash equivalents

Cash flows (in million of           2002 (1)     2001 (1)
[euro])

Net cash provided by operating        5,564        7,016
activities

Amortization, depreciation and        4,126        6,234
impairments

Net cash used in investing            (810)      (5,886)
activities

Capital spending (3)                (8,013)     (11,656)

Net cash used in financing            (859)         (95)
activities

Net increase (decrease) in            3,394          940
cash and cash equivalents

Employees continuing                   2005         2004        2003
operations

Employees (4) (September 30th,          461          424         411
in thousands)

Employee costs (in million of        26,646       25,095      25,434
Euros)

Employees continuing operations        2002         2001

Employees (4) (September 30th,          426          484
in thousands)

Employee costs (in million of        27,195       27,102
Euros)

Source: Siemens AG. Annual reports, 2005

(1) Amounts for 2002 and 2001 are not adjusted for discontinued
operations. Accordingly, amounts for 2002 and 2001 periods are not
directly comparable with the Company's fiscal and quarterly data for
2005, 2004 and 2003 which have been recast for discontinued operations.

(2) Net debt includes four positions of the Consolidated Balance
Sheets: cash and cash equivalents, marketable securities, Short-term
debt and current maturities of long-term debt and long-term debt.

(3) Intangible assets, property, plant and equipment, acquisitions,
and investments.

(4) Without temporary student workers and trainees