Corporate: Culture Smelter

M&A
Culture Smelter

Only after a cultural integration is in place can K.M. Birla synergise Hindalco's strengths with Indal's skills in value-added products.

By Rakhi Mazumdar

In the past three months, routine decisions have gained importance at Indal. For instance, in June this year, when Indal's chairman, Kumarmangalam Birla, was searching for a CFO, he insisted that an insider be groomed for the post. The new owner-Birla's Hindalco acquired Indal in March, 2000-added: ''Indal will continue to enjoy a high degree of operational autonomy and empowerment.'' Clearly, Birla was sending a signal to the 11,000 employees that there will not be cataclysmic changes.

Fortunately for Birla, such signals have helped reduce the uncertainty among Indal's workforce. That is evident: there has been no spate of resignations after the takeover and Indal's 14 unions have realised that they have little to gain by opposing the deal. But the good news ends there. Birla has to integrate the vastly different work cultures at Hindalco and Indal.

Cultural Mismatch

The issue of cultural mismatch is critical as Birla's eventual plan would be to merge Indal with Hindalco to reap the benefits of operational synergies. According to sources, the group has given itself 33 months to complete the integration process. So, Birla has initiated moves to iron out the differences between the mindsets at the two companies. Agrees Birla: ''Our aim is to leverage the collective strengths of Hindalco and Indal that would stem from such a convergence.''

From day one, the cultural differences have been in everyone's mind. And the contrasting styles stem from their history as well as geography. Flanked on the South-West by the picturesque Rihand Dam, Hindalco's only plant in Renukoot, Uttar Pradesh, dominates the town's economy. No wonder, Hindalco's 14,000-strong workforce has imbibed a disciplined, family-like culture. There is no trade union in Hindalco, as is the case with most of the group's companies. Explains Birla: ''We try to combine the best aspects of the culture in transnationals with that of an Indian family-owned firm.''

Compare that with the culture at Indal, where systems and processes are more important and decision-making powers are delegated to the divisional heads, who report directly to the CEO. In fact, there is tremendous interaction between the 14 unions and the senior managers on issues like offering voluntary retirement scheme or evolving a strategy to thwart the takeover attempt by Sterlite in 1998. For Birla, the challenge would be to evolve a new culture at Indal that would fit in with Hindalco's. Agrees B.N. Srivastava, 45, Professor (Behavioural Sciences), IIM-Calcutta: ''The cultural convergence could bring about a re-culturing of Indal. But it will take time for a hybrid culture to develop.''

However, it should happen soon. For, cultural problems are the single-most important reason for failures of global mergers. In a survey of 115 global mergers by A.T. Kearney, 53 per cent of the respondents felt that ''the post-merger integration phase bears the greatest risks''. The study also found that ''speed is the driver of successful integration.'' But Birla has the advantage that he does not need to merge the two companies immediately. Explains Askaran Agarwala, 64, President, Hindalco: ''We believe that people in both the companies have a desire to excel and grow. Thus, I don't envisage any problems in Indal imbibing the best practices of Hindalco.''

Integrating Operations

But before a merger between Indal and Hindalco can be contemplated, there are operational issues to be addressed. Birla has already constituted a six-member Steering Committee whose mandate, he says, ''is to ensure a quick integration of the processes and systems, and usher in the benefits of the synergies (between the two) faster.'' Adds S.K. Tamotia, 61, CEO, Indal: ''We expect results within the next three months. But the people issue could take a little longer as it is a sensitive topic.''

The operational areas that the Steering Committee has identified include fine-tuning the marketing plan for similar products manufactured by the two companies, and rationalisation of Indal's product-mix to optimise capacity utilisation. For example, in sheets, Indal's capacity utilisation is low due to uncertain supplies of aluminium metal and wild fluctuations in prices. But Hindalco can now sell the raw material to Indal.

Apart from these, the committee needs to look at critical issues like rationalising the designations in the two companies, and allowing growth prospects for Indal's managers within the large, A.V. Birla Group. Explains Tamotia: ''We can offer our employees a wider career option across a number of sectors the group is operating in.''

However, Birla's real test will be in his ability to integrate the diverse mind-set in the two companies. Explains Akashdeep Jyoti, 30, Analyst, ICRA: ''The crucial aspect of the integration would be to synergise the divergent operational mindset. While Hindalco's strategy is oriented towards primary metals, Indal's focus has been on value-added downstream products.''

In fact, on paper, Indal and Hindalco are a perfect match. For instance, in 1998-99, 33 per cent of Indal's turnover came from sales of specialty chemicals while the remaining came from rolled products and extrusions. In comparison, Hindalco has no presence in the former, and it manufactures only lower-end foils. Similarly, Hindalco, with captive bauxite mines and power plant, can become a source of raw materials for Indal.

Growth-Driven Strategy

Exploiting such synergies will definitely improve Indal's bottomline. But Birla will have to go further and chart out an aggressive growth plan for Indal. That's because, according to the A.T. Kearney survey, four-fifths of global mergers were based on the rationale of higher growths and managers tend to expect it in the post-merger era. In the case of Indal-Hindalco, a growth-driven strategy is critical because Hindalco has witnessed an average turnover growth of 15 per cent in the past three years. In the meantime, Indal has seen severe cost-cutting measures in a bid to improve profitability.

Not surprisingly, Birla's target is to achieve a combined turnover of Rs 10,000 crore in the next three to five years, up from the current Rs 3,200 crore. For one, Birla wants to revive the sick units in Indal's fold-Orissa Extrusions and Annapurna Foils-and expand Indal's capacity in products such as speciality alumina, foils, and extrusions by investing Rs 100 crore in the next 12 months. In addition, Hindalco wants to buy the government's stake in both Balco and Nalco, as and when the two public sector units are privatised.

Finally, Birla has decided to hike Indal's stake, from 20 to 51 per cent, in the proposed Rs 4,000-crore Utkal Alumina, a 100-per cent export-oriented unit, in Orissa. Agrees N.K. Choudhary, 57, Managing Director (Operations), Indal: ''The foreign promoters have been apprised of Indal's intent, and a decision is expected by September this year.'' But mere intent will not help Birla. Only concrete results will protect him from the merger blues.

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