October 2007 | Kiron Kasbekar
Only the fittest survive
By cutting the flab and toning up muscle, the Tata group has overcome the challenge of change to emerge stronger than everA decade and a half ago, surveys would show the Tata group scoring high on trust but low on ‘street smart’. The implication: these are nice guys, but they don’t know how to do business in a competitive environment.
There was more than a bit of truth in the perception, at least if being competitive included a willingness to jettison ethics. After over three decades of being fettered by the licence raj and refusing to manipulate the law and the political system to grow, the way some other business groups were quite happy to do, the Tata group looked like it was not going anywhere. In nearly every industry in which it was present, it seemed to be up against insurmountable odds.
As restrictions curtailed growth, bureaucratic ways eroded some of the original dynamism that created many of India’s industrial firsts. In a closed, licence-protected market, managers didn’t have to do much to achieve sales and profits. The Tata brand, built and nurtured conscientiously over the decades, was enough to hold existing customers. Managerial performance, operational efficiency, product innovation — all these seemed irrelevant.
Since government policies prevented the group from utilising its full potential, the impression of it that outsiders got was that of a laid-back organisation resting on its laurels. The sheen on the brand was wearing off.
Meanwhile, the environment was changing. Beginning with the hesitant liberalisation of the mid-1980s (relaxing of controls on cement, for example, and the ‘broad-banding’ of automobile licensing) the momentum was gradually building up for the internal liberalisation of the economy.
The pressures were mounting, slowly but inexorably. Though there was little competition from imports, the 1980s had witnessed the advent of new business groups that were favoured by government policy to grow big. The Tata group’s rate of growth was dwarfed by the growth of some of these groups. In chemicals, in steel, in the automotive business, new companies had sprung up and seemed destined to grow big. The group had fended off this competition, but just about.
Naturally, when the Narasimha Rao government began opening up the economy in 1991, observers wondered what would happen to the Tata group, which seemed just not in a position to give battle. Nice guys, but not street smart.
What people did not know was that while there was considerable flab in the group, there was also much muscle. Over the decades, the group had assiduously built a large pool of competent managers and engineers, and had assimilated technology in many new areas in a way that few others in India had. It was like a coiled spring that only needed the overhang of the past to be thrust aside to break free. The time had come to shake off the flab and flex the muscles.
Look at the odds that were loaded against the Tata group in 1991, when many an Indian businessman trembled with awe at the imminent prospects of foreign competition:
- It was a relatively small local group in a world dominated by giants with deep, deep pockets; it lacked scale, and it operated mainly in one market, India, when its global rivals had the advantage of operations across the globe.
- It was involved in a bewildering assortment of industries, and lacked focus. Also, it derived most of its revenues and profits from commodity businesses, which, with the opening up of the economy, were sure to become vulnerable to more intense competition as well as to cyclical ups and downs; its own few brands were weak compared with global brands.
- It was bound by an older, slower style of functioning, which would just not match the fast-paced competition. It was concerned about quality, but given the lack of customer orientation (a mark of the protected Indian industry in general) it had to do a lot more to match more market-savvy rivals. And quality had yet to pervade all aspects of operations and strategising.
- It was an unwieldy group of over a hundred companies with some large companies functioning like independent fiefdoms. Thanks to the excessive loosening of central control in the past to avoid falling foul of the Monopolies & Restrictive Trade Practices Act, headquarters had become something to be tolerated, even humoured, not heeded.
- It had very small stakes in its own major companies, which made it vulnerable to hostile takeovers.
If all this doesn’t seem daunting, consider the fact that much bigger, stronger and more cohesive companies in the US and Europe have folded up or have folded with others because they couldn’t withstand competition. Only the fittest survive.
Battling the odds
This was the scenario in which Ratan N Tata took over as Chairman of the group in 1991. Back in 1983, Mr Tata had initiated a review of the group’s operations, going as far as to suggest that it should exit some businesses — which was then heresy for Indian industry, and seemed like one even to many senior leaders in the Tata group. Many outsiders saw in it a sign of weakness, of a lack of appetite for a fight. Dominant insiders chose to ignore the call for change.
Soon enough, though, people realised that knocking the group into shape needed more guts than it did to let things slide. It required determination to do the chosen things, to take hard decisions, to work relentlessly to change mindsets and remould ways of working.
Steering a quarter million people to take a radically different path is not a task for the feeble-hearted. Yet that is exactly what Mr Tata set out to do. And he did it while firmly standing by his belief that opening up was good for the economy and business, and refusing to join in the chorus of anti-reform protests orchestrated by many Indian big business houses.
Today, over a decade and a half later, in his characteristically modest but matter-of-fact manner, Mr Tata tells whoever wants to know that he has achieved only a part of what he set out to do. There is still a long way to go. But just look at what he has achieved.
Size and geographical spread: In 1991, the Tata group had a turnover of Rs14,000 crore. Today, it is Rs129,994 crore ($28.8 billion). In 1991, the group had little by way of operations outside India, except for the onsite work done by its software people and some marginal hotel operations.
Since 2000, the Tata group has acquired 22 companies around the globe at an investment cost of about $15 billion, pitching itself into the global league. It has also invested in organic growth, with units like a coffee plant in Uganda, and telecom, ferrochrome and automobile operations in South Africa. The group now has operations in more than 54 countries across six continents, and exports products and services to 120 nations.
Suddenly, in barely a decade, the group has catapulted from a small player to one of the biggest operators in the world in tea and steel while its software business has grown by leaps and bounds to rub shoulders with the biggest players in the world.
Focus, brands: The Tata group still has a large number of companies involved in a large number of industries; but they are better focused. The group has exited traditional areas such as edible oil, soap and cement; it has also extricated itself from joint ventures in areas such as industrial electronics, telecom equipment, computer hardware and luxury cars, in which it could not maintain a controlling stake.
More attention is also being paid to building brands rather than depending on commodity businesses, simultaneously with strengthening the group’s presence in new business areas such as telecommunications and retail. Overall, the group aims to be among the top players in its chosen areas of business, and to exit businesses in which it cannot be among the leaders.
Dynamism: The envelopes are being pushed further each year. The old nine-to-five culture has given way to a more deadline- and target-oriented approach to work.
Ratan Tata has time and again personally exhorted managers to do better, and has, on occasion been blunt as a sledgehammer when performance flagged. The group management is encouraging this drive not just by setting tougher targets and enforcing a better reward and punishment system but also through greater training and motivational efforts.
Methodologies like balanced scorecard, EVA and Six Sigma are being used to monitor performance and improve quality. And the Tata Business Excellence Model, with the JRD QV Award as the hortatory goal, provides the overarching umbrella for all these efforts. Managers are citing the concrete improvements they have been able to bring about in operations because of these efforts.
A question of control: The group leadership has steadily and systematically brought its companies under greater headquarter control while carefully assuring them of the independence they need to act as listed companies with their responsibilities to their respective shareholders and other stakeholders.
The important thing is that unlike in the early 1990s, when HQ control was seen with suspicion by many, including some senior leaders in the group, today nobody seems to have a problem with it. That is because Mr Tata and his team didn’t steamroller their way, they have earned the respect of managers and other employees in the companies. The benefits that have accrued from the common vision and working in concert have been obvious to everybody.
Barricading against the barbarians: The group has systematically shored up its stakes in the companies it runs. For example, in Tata Steel, where it owned just 7 per cent of the equity (curiously, less than what the Birla Group owned in that company), the group controls 27.5 per cent. And, instead of being threatened by raiders, Tata Steel has gone and acquired Britain’s Corus, which was three times its own size.
By realising hidden values in large operations such as TCS, and by capitalising on its reputation for professionalism and trust, the group has been able to raise and deploy sums of money that would have been unthinkable just a decade ago. The ‘India factor’ has helped.
It’s not just the money, honey
The key in all this growth, which everybody is talking of today, was not the money. It was the management. Led by its chairman, the group has a large and highly competent team of managers in every business, with rapidly growing experience of international operations. This talent was nurtured over the decades, and has now been given a new impetus by the internal revitalisation. This was the flab that has become muscle.
The group has hundreds of leaders who are hungry for new opportunities, for new products, new markets, more acquisitions, more efficient processes and faster growth. There is a passion for change and achievement as never before. And that is the group’s greatest strength — that the momentum for growth, even innovation, has been imparted at different levels of the organisation.
The group has launched a systematic drive to inculcate innovative thinking in the organisation, which is as important as investing in equipment for research and development. Given its low costs, because of its substantial India base, the group has a bit of slack yet, but banking entirely on the cost advantage is a dangerous strategy. Soon enough it will have to cross swords with the big players in global markets, and will have to match wits with the most innovative companies out there in order to grab market share or even to hold its own.
Nice guys get tough
Ratan Tata has demonstrated that he has the courage and determination as well as the competence to lead a big Indian business group to become a significant global player. The proof: the sale of the Tata stakes in Tata Oil Mills and India’s leading cement company, ACC; the takeover of Tetley; the launch of the Indica car; the acquisition of Corus, in the face of scepticism and even derision — and turning all these actions to the strategic benefit of the group.
Mr Tata has managed to integrate the group into one cohesive whole, to make it move in a common direction. And he has done this without abandoning the traditional Tata group values of ethical business. He has created unprecedented pride and excitement in the group and about it.
What’s equally important is that Mr Tata has a vision of the future, and the sagacity to steer clear of complacence, which can so easily overwhelm ordinary managers when they have achieved some initial victories in the marketplace. He realises that the really tough battles are yet to come, and he continues to brace the group for those battles. He is making them nice guys who are doughty fighters.