RELIANCE INDUSTRIES LIMITED Where growth is a way of life Mise been wntten by Sumantre: Ghoshal, Robert Po Bauman Professor of Srategic Leadership at The London Business School and J Ramachandran, Protessor of Management at The Indian Institute of Management. Bangalore. The authors are urateful to Reliance Industries Ltd for their help and support in writing the case and to the European Foundation for Management Development (EFMD) for funding the project of which this case is a pan."We are happy to announce Dhirubhai Ambani as the Businessman of the Year 1993. As in the past years, the selection was made by a panel of eminent and independent persons.......The panel was unanimously of the view that due recognition must be given to the amazing rise of Dhirubhai fram nowhere to the top of Indian Industry.....H is the fundamental impact that Dhirubhai Ambani has had on the Indian business scene that singled hint out as the Businessman of the year 1993. Business india December 20.1993 ‘The announcement made in one of India's leading business journals followed the emergence of Reliance Industries Limited (RIL) as India's number | private sector company. fulfilling a long cherished ambition of its founder chairman and managing director. Dhirajlal Hirachand Ambani - known and admired commonly throughout India as Dhirubhai ( "Dhiru. my brother "). From an initial investment of a mere Rupees 15000 ( less than $2000) in 1958 to start a trading house. followed by the setting up of his first tiny manufacturing facility in 1966, Dhirubhai had managed to build up a synthetic yarn. textiles and petrochemicals empire that, with a market capitalisation in excess of Rs. 80 billion ( about $2.7 billion) in 1994, was the only Indian entrant in Business Week's listing of the 50 largest companies headquartered in developing countries. In India. Reliance was the foremost non-government company by almost every measure including revenues. profits. net worth and asset base. Between 1977, when RIL first went public. and March, 1993. RIL's turnover had increased from Rs. 1.2 billion to Rs. 41.06 billion. operating profit from Rs. 150 million to Rs. 8.81 billion. net profit from Rs. 25 million to Rs. 3.22 billion. net worth from Rs. 140 millian to Rs. 26.13 billion and the asset base from Rs. 310 million to Rs. 46.41 billion tsee Exhibit 1 for financial summary). To fund this staggering growth REL had mobilised over Rs. 30 billion from the Indian public increasing the number of its sharchalders trany 38.000 in 1977 to ever 3.7 million in 1993. An overwhelming majority of them held less than 100 shares and of every four Indians who directly or indirectly owned company shares. one owned shares in RIL This breathtaking growth rate of the past. however. would appear positively lethargic i the company achieved its plans for the future. "Growth has no limit in Reliance” according to Dhirubhai. "| keep revising my vision. A vision has to be within reach, not in the air, It has to be achievable. 1 believe we can be a Rs. 300 billion ($10 billion) company by the end of the century.” To achieve this ambition of anothe? erght fold growth in six years the Reliance group was planning to invest over Rs. 100 billion between 1994 and 190K (see Exhibit 2), 40% of this investment was varmurked for expanding the polyester fibres and libre intermediates businesses that would help the company emerge as the world's largest integrated producer of polyester. A bulk of the remaining 60% was earmarked for setting up one of India's lar: oil refineries - a fesse! next step in Reliance's relentless drive for vertical integration. Not included a the Rs, 100 billion investment plan was the bid it had made in partnership with Enron. one of the world’s fastest growing producers of crudeoil and natural gas, for production of oil and gas in the offshore fields in India. By March, 1994 the bid had been successful. raising the company's growth prospects enormously, but also its investment requirements by another Rs.13 billion. Amid all the external acelaim for its past accomplishments and the internal excitement of its future plans, the leadership team within the company was grappling in 1994 with a set of issues that would have a huge impact on the kind of company Reliance would be in the years to come. |. First. there was a need to review the company's most fundamental strategic logic. The historical growth of RIL was built on a step by step process of backward integration from textiles and fibres to fibre intermediates and feedstocks and finally, all the way to oil refining and exploration (see Exhibit 3). The company took great pride in being the only large company in India to be totally focused in a single vertical value chain, The radical changes in India’s business environment raised the question: Should the company not think beyond this growth logic? With fast paced deregulation, a number of one-time opportunity windows were opening up in India in potentially giant sectors like telecom. power and insurance. Should the company use its proven competencies in mobilising large amounts of capital. in creating large new markets and in managing mega-projects to jump into these relatively unrelated businesses? 2. Inexorably linked with the question of future strategy was the issue of how the company should be organised and managed. Historically. Dhirubhai and his two sons, Mukesh and Anil Ambani, had been clearly and firmly the ultimate decision makers in the company. They were supported by a group of senior managers whose relative role . and status within the company changed frequently within 9 loose organisational structure that was always in flux. With increasing size and complexity. this relatively ad-hoc but highly effective way of organising and managing the company might have reached its limits. The leadership team was reviewing various alternatives for its future organisation. almost all of which would require some significant changes in the internal roles and relationships within the senior management group and some “adaptation” in the management style of the family members at the top of the hierarchy, 3. Finally. perhaps the biggest challenge for the company lay in the domain of people, It had so far managed the break-neck speed of growth by continuously bringing in talent from the outside. There was no time for consolidating the management team, lor creating a team spirit or for systematic development of people from within. Having emerged as the largest company in India. there was a need to create a more organised process for nurturing and developing the company’s human resources and this might require a far more radical change in the company's management style than any change in its Strategy or its formal structure.