Larsen and Toubro: managing subcontractor network

Abstract

Larsen and Toubro (L and T), a major construction and infrastructure company, cherishes a culture of investing in the skill development of its employees to enrich them and enable them to take up leadership roles. L and T s MDC program is a tie up with IIM Bangalore where they conduct workshops for the senior managers of L and T. The sessions are conducted by distinguished IIM B professors, through case analysis method. One of the requirements which had been raised over the past few workshops has been the need to use cases which is more relevant to L and T, instead of the HBS cases or cases based on other Indian companies. Our project is the first step in that direction. We have to develop teaching cases based on L and T s own experience in various projects executed earlier. The project chosen for this first series of cases will be the 5500 crore worth project to develop and upgrade the Mumbai International Airport. Mumbai International Airport Ltd (MIAL) Project is unique in its challenges and complexity. Mumbai Airport is a major Airport in India. Further the project is a brown field project, i.e., the upgrade has to be done to an Airport that is operational and handles more than half of the air traffic in south Asia. This is in contrast to a green field airport project such as the Bangalore International Airport project that was to build a completely new airport .The location of Airport is within city limits, that adds to the space constraints and as well as difficulties in mobilizing resources. Further, the scope of the project at the beginning was not well defined. We have identified four main areas for the analysis: a) Significance of fast strategy in gaining competitive advantage in situations of ambiguity. b) Relationship with subcontractors. c) Risk management. d) Project management In this project, we plan to work on the second area i.e. managing the subcontractor network of L and T. In a brown field project of the size and complexity of MIAL project, how should L and T manage these subcontractors? Should they follow a strict control policy based on contract terms with these vendors and subcontractors? But won t that result in collapse of the vendors who are already stretched to their maximum, because of the strict financial controls from MIAL side coming through a squeezed mutually approved commercial bid? But if a relationship based policy with trust as the backbone is pursued with these vendors, won t L and T be in trouble and answerable to MIAL for the delays and schedule backlogs, as well as the penalties coming from the EPC contract? How is L and T Striking the balance between the two approaches? This is the primary area of study for this project. The study includes field visit to MIAL site office and interviewing the L and T senior managers responsible in various aspects of the projects. We also plan to study their documentation and understand their processes. In the end we plan to develop a framework that can be used to connect the dots together