August 2003 | R Radhakrishnan
Research as a priority
The emerging competition and the quest for cost leadership is forcing Tata Steel to take a close look at applied research
The emerging competition and the quest for cost leadership is forcing Tata Steel to take a close look at applied research. In all probability, the company’s next growth wave will be driven more by its intellectual property than by its physical assets.
Very few people are aware that Tata Steel made a breakthrough innovation in the basic steel making process — the coal-based direct reduction of iron (DRI). This process is now being used by other steel plants.
Even though Tata Steel spent more than a decade in innovating the process, it won no royalty and fame as other majors like Voest Alpine and Mannesman Demag had done. Reason: the invention was not patented. The company lost an opportunity to secure an additional revenue stream.
That was three decades ago. Tata Steel has learnt a number of lessons since then. Today, the company patents everything and sees a strategic competitive edge from its intellectual property rights (IPR). The management sees patents and IPR as products capable of generating revenue streams in the future. The company has designed a comprehensive IP framework that monitors IP activity and creates opportunities.
Research is now a priority throughout the company. Take, for instance, the patenting of the coal injection process in the furnace, which was licensed to the Vizag Steel Plant, or increasing the rate of combustion at the sinter plant. The formation of Tata Pigments was a result of the discovery of new pigment from its cold rolling pickling process. Today, Tata Steel is the only Indian company to have an ongoing industrial liaison programme with MIT and Sheffield University.
"The objective of its R&D is to make Tata Steel an Economic Value Added (EVA)-positive company and serve the company where it impacts most," says B Muthuraman, managing director. It is the business strategy that drives the research objective. R&D has a business score card (BSC) which is aligned to the managing director’s BSC. It contains various strategic measures in the perspectives of finance, customer, internal business processes, people and special projects.
Its performance is measured against the metric set in the BSC. It is important to understand the position of the company and the industry dynamics. Given the cost competition within the industry, it is important to look at new ways to reduce cost on a continuous basis. Tata Steel learnt the lesson from the Asian crisis and the global crisis that took steel prices to a historic low. Today, Tata Steel is the lowest cost steelmaker in the world.
"We concentrate on process improvements rather than process invention and product R&D, particularly in the flat steel segment," says Mr Muthuraman. Process improvements fit into the business requirement and are cheaper, compared to the basic design. Sometimes process improvements meet with resistance, as happened in the case of the eight-hole asymmetric bottom tyre design improvement for LD vessels. Tata Steel could not patent it because of objections from the original equipment manufacturer [OEM]. Its coal injection technology has been patented jointly with the OEM.
As competition intensifies, steelmakers globally are turning to R&D for solutions. "The billion-dollar ultra-light steel auto body research project of the International Iron and Steel Institute is one such example, where top 15 steelmakers of the world have joined hands to develop a light weight steel for the auto body," says Mr Muthuraman.
"Learning from failure and developing an innovative evaluation method is extensively used to improve and differentiate products. The underlying philosophy is to continuously plug deficiencies in the product, resulting in superior steel," says MD Maheshwari, chief of scientific services.
Though product differentiation is still R&D’s prime business goal, Tata Steel has not lost sight of its long-term goals. "Even today steel is an expensive commodity for its utility. The ratio of input to output is high at 3.18:1. Recycling and exploring alternate avenues for waste application is one of the primary areas of focus. Today waste utilisation has gone up to 80 per cent," adds Mr Maheshwari.
R&D is positioned as a complete solution provider, from invention to implementation. Given the vastness of Tata Steel’s operations and applications, the need for a framework to identify, assess and deploy IPRs is crucial. Innovations that find application beyond industry either go unnoticed or are not exploited commercially. Futurist Barker once said, "Intellectual capital undeployed is like gold unmined."
According to a KPMG survey conducted among 300 leading European corporates, about 40 per cent of the companies admitted missing out on IP-related revenues. While 44 per cent said they had never considered IP as a revenue stream, 43 per cent said they expected their IP revenues to rise in the next year. Three decades ago, Xerox made significant innovations in computing and graphical user interface, but it failed to patent it because it thought it would never get into the computer business. It lost a golden opportunity to make revenue from licensing.
This example assumes significance because Tata Steel has made significant innovations in global positioning systems for the mining industry. Its IT department has developed software which finds applications in other sectors. The company has created a process that not only ensures an opportunity to protect and create licences but also links it to business strategy. The inventory of all R&D activities is updated regularly for effective leverage in the business.
To make it functional operationally, Tata Steel has created a position called manager-patents, who has to coordinate all IP-related activities relating to identification, collection and processing of patent applications. A periodic newsletter called IP News is circulated among employees to increase IP awareness. The change in the mindset has been remarkable. Everyone in Tata Steel now sees IP as a big business opportunity.
Although the IP framework is ready, it has a long way to go as far as IP valuation, negotiation for third-party application and commercialisation are concerned. Mr Muthuraman says, "We are at a learning stage in the area of patenting and commercialising. Our experience in this area is sketchy."
The transformation from asset to knowledge-based operation has just begun for this century-old organisation, which is hungry to know more.