Ishaat Hussain is executive director of  Tata Sons and member, Group Executive Office. In an exclusive interview with Rajarshi Roy, Business Standard (issue dated 10 March 2000), Ishaat Hussain outlines what is on the drawing board in the Bombay House.

The Tata Group has embarked on a process of restructuring of its operations so as to be in tune with the changes in the economy. If everything goes according to plan, in three years the group will be quite different from what it is today.

Business Standard: Over the last couple of years the Tata Group has undertaken a series of restructuring initiatives. What is the gameplan?

Ishaat Hussain: Underlying all the initiatives is a very broad idea of what our business portfolio is going to be; which areas we want to be in and which areas we do not wish to be in. The underpinning of what we like to be in and what we do not like to be in is determined largely by growth and profitability.

We want to be in businesses with growth potential. A recent Mckinsey study shows that 70 per cent of the share price of a company is driven by its growth strategy. This is a good indicator of the market perception of growth.

BS: Is the restructuring related to the emergence of the new economy?

IH: Absolutely. We are now faced with a paradigm of old economy versus the new economy. While in the Indian context the old economy will also witness very high rates of growth it will not be in the same region as that of the new economy companies.

BS: Does that mean that you will exit the old economy businesses like cement and steel?

IH: No. I think it is too premature for us to take that sort of view in India. But having said that what we are planning to do is to have a better mix of assets between the old and the new economy, between commodities and services, between the branded versus unbranded products. In the specific case of cement which you referred to we have clearly exited or are in the process of doing so.

BS: Will this result in a shift in the group’s balance in favour of the new emerging sectors?

IH: Yes, the balance in the group will shift to the new economy companies. It may not be so in terms of assets but certainly in terms of profits and sales it will be so. We are moving from a commodity group to a more balanced group with services and branded products playing a more significant role.

BS: Could you be more specific as to what the new economy will comprise and how much it will contribute to the sales and profits of the group as a whole?

IH: We today, have eight sectors classified under materials, chemicals, energy, engineering, comprising products and automobiles and services, financial services including consumer products, consumer services and finally communications and information systems.

Today the composition of the group’s sales in terms of branded versus non-branded products is 51:49. Our target is to go up to 66:34 by the year 2002/2003. The bulk of materials and chemicals would remain unbranded. But in all other sectors we will move into branded products. For example, Tisco which has initiated branding of steel will go in for branding of cold rolled steel in a major way. Hot-rolled sheets which are not brandable will be the only product left.

As for profits, the communications and information sectors currently account for about 20 per cent of the group’s profits. It is targeted to increase these to about 50 per cent of the group profits by 2002/3.

BS: Would this mean that the Tata group is now coming close to the consumer, moving away from the image of an infrastructure group, doing what the economy wants to, something that the consumer wants?

IH: At a fundamental level, what the economy wants is what the consumer wants. I think that the basic shift that has taken place is from a controlled to a demand-driven economy and we as a group are responding to this basic change. We have to address the consumer now that we are n a market-driven economy. So we will have to move closer to the consumer and this will be done largely through branding of products and services.

In fact our chairman, Ratan Tata, has constantly been emphasising that the centrepiece of all action is the consumer. All our companies will therefore, have to shift focus to the consumer, which is a challenge and we have a way to go to meet it.

BS: Will this not mean a major restructuring of the group in terms of asset, organisational structure, and even the culture of the group?

 IH: In a way it will. At present our assets are largely based in the manner in which the old economy is configured which is hugely vertically integrated. The vertical integration is a consequence of the old economy structure. Hence, to gear up to new economy challenges, you see all these initiatives on the part of Telco or Tisco in recent times. There is no need for Telco to produce everything, similarly for Tata Steel, which I think is farthest down the road on that side.

The re-organisation will also be done in a specific manner sticking close to the consumer. Many of our companies will remain, but their shape will be different. Second point is that there definitely will be a bias towards branded products and certainly there will be a larger allocation of resources to the new industries.

BS: What about restructuring of capital in terms of M&A activity? Will that play a role in the process of re-organisation?

IH: As we go forward mergers and acquisitions will play a significant role in the way we grow. There are many sectors, both in the old economy (Like steel) and in the new economy, which are crying out for consolidation. There are structural impediments but realities will force people to merge.

BS: As you move away from asset / capacity-based growth, what is going to be the growth story for the older companies?

IH: We will look for growth through acquisitions and efficiency enhancing measures. This doesn’t mean hostile takeovers. This strategy is already in evidence. In hotels the growth has been through acquisitions. Indian hotels have bought over Blue Diamond and their venture in Hyderabad. The result is that 700 rooms have been added this year. And of course, Tata Tea has acquired Tetley brand.

 As far as efficiency enhancement is concerned, that is also in evidence; Tisco has set up its cold rolling mill two months ahead of schedule. There is a cost-cutting exercise on at Tisco, Telco, and Voltas. In face, Tisco has had an amazing success in the cost-cutting which has resulted in the per tonne cost of steel produced by Tisco being 5 per cent lower this year than last year. Telco, even as it is embarking on a growth strategy, has reduced costs by Rs.200 crore.

BS: How will you blend the sectoral plans with the plans of individual companies?

IH: We have started on the road of restructuring. A huge amount of business process reengineering is on across various companies.

We are striving towards making this a seamless organisation, take ownership, address complaints, adapt to the new emerging scenario.

BS: How are you addressing the issue of old economy companies coexisting with the new economy companies within the same group? Does it mean a change in the way the individual companies operate, with the GEO laying down the sectoral plans and guidelines as it were?

IH: We have always been pretly independent, in the way the companies have operated. The desire to pull back is not in the operational aspect but in the focus of corporate strategy, corporate governance and group portfolio, but implementation action lies in the companies and the individual companies are reengineering themselves. But surely the responses will be different.

The newer companies like tele services and cellular are definitely more agile to respond to consumer issues. There will be transitional issues, but in the long run we are looking at a seamless organisation.