Tata Steel is not content with being India’s only world-class steel maker. The urge to improve and to emerge as the most cost-efficient steel producer induced it to consider quality- and performance-improvement initiatives. It adopted the value-engineering technique, ISO 9000, ISO 14000, QS 9000, Six Sigma, and the JRD Quality Value, among other things. So why did the company choose to go in for one more value-based management initiative?
The company had been lagging behind in shareholder returns. Traditional measures like operating profit and price earnings ratio placed the company at the top. But it still had a long way to go. As a performance-monitoring tool, EVA speaks about value creation for shareholders. "EVA is more relevant for us as we are in a capital-intensive business, and EVA lays stress on investment management," says B Muthuraman, Tata Steel’s managing director.
Tata Steel had not expected major benefits in the short term. But it expected to identify the levers that would help plan future initiatives. In the medium to long term, it plans to create a mindset where initiatives across all levels can be linked to EVA growth. Cascading accountability and decision making downwards is challenging. "Stern Stewart and Co will be providing extensive training to 40 of our officers, who will customise the training programme and take it down to each employee," Mr Muthuraman adds.
Luck of the team
Tata Steel is lucky in many ways. Despite its size and historical baggage, the teams have a lot of enthusiasm and ability to undertake and improve upon the number of large initiatives concurrently. They have the best team to extract the best out of consultants, says Tej Pavan Gandhok of Stern Stewart.
Tata Steel adopted a five-stage process for implementing EVA:
- Sharing the vision: Creation of awareness among employees
- Value diagnostic: Identification of gaps and opportunities
- Value audit and goal setting
- Measurement and management
- Training and knowledge transfer from working groups to employees
So far the implementation has progressed along expected lines. Tata Steel’s experience with ‘total operating performance’ and the performance ethic programme (PEP) have helped. These initiatives have instituted a meritocracy-based management structure, which has improved decision-making processes even prior to the EVA rollout. Earlier initiatives, like the balanced scorecard, helped align employee goals with the company’s objectives. Tata Steel did not have to spend time on identifying EVA centres and drivers as the PEP was already structured on those lines. The company was able to integrate all initiatives and make speedy progress on multiple initiatives."We have set ourselves the target of turning EVA-positive by 2007, which implies that we should be able to meet the expectations of our investors," says Mr Muthuraman. If the recent capital expenditure plans are anything to go by, there is every reason to believe EVA is on a roll.
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