McKinsey&Company

A. M. Naik joined Larsen & Toubro, one of India’s largest engineering and construction firms, as a junior engineer in 1965. He was appointed its CEO in 1999 and was elevated to chairman and managing director in 2003. Naik soon embarked on a restructuring mission. He says that today the transformation is about 65 percent complete but has already had a powerful impact: over the past decade, the company’s equivalent market capitalization has multiplied about 30 times, dramatically outpacing the market as a whole. From 1999 to 2010, annual revenues grew to about Rs 44,000 crore (US $9.5 billion) from Rs 7,402 crore (US $1.6 billion).

Founded in 1938 by two Danish engineers, L&T began as a company that imported equipment from Denmark and grew rapidly through the rest of the past century. By 1999, when Naik became CEO, the company was a complex organization. It had multiple divisions in a wide range of businesses—some small, others large. In HR appraisals of the company’s 20,000 employees, seniority seemed to matter more than performance or merit. The stock price was stagnant, and employees were leaving because they saw little chance for advancement and because the external market for talent was buoyant. L&T was ripe for a takeover and indeed was embroiled, on two separate occasions, in takeover battles by two of India’s biggest corporate groups.

As chairman, Naik’s main agenda was to keep the company independent. His gambit: create shareholder value and attract and retain the best employees by restoring a merit-based performance-management system and by instituting greater rewards for high performance. Naik worked on multiple fronts, pushing for scale and competitiveness in all business lines.

Naik met with McKinsey’s Ramesh Mangaleswaran and Adil Zainulbhai at L&T’s Powai complex, in suburban Mumbai, and discussed the role of leadership in transformation, creating value, and how he changed an entrenched culture, in part, by involving thousands of employees in the planning process.