R. Gopalakrishnan is Executive Director of Tata Sons and Vice chairman of Tata Chemicals, as well as a Director of several Tata Companies and of ICI India. He was earlier Managing Director of Brooke Bond Lipton and Vice Chairman, Hindustan Lever. After 31 years in Levers, he joined Tata Sons in August 1998.

Gopalakrishnan spoke to J Ramachandran about his perception of the Tata Group in the perspective of Indian business; how the Group has been able to straddle their traditional businesses with the New age, knowledge and IT based industry; the awesome reputation that the Tatas have built up, and the personal, operational and values challenges he faces in directing an essentially 'Indian' company after three decades in a leading multi-national.

JR: How do you see the Tata group in the perspective of Indian Businesses?
RG: The Tata Group, involved in diverse sectors ranging from automotives and engineering products to energy and consumer products, is held together by its common pursuit of improving the quality of life of people. The Group accomplishes this by targeting sectors that impact the national economy. Jamsetji started a steel plant because he said India must have steel. There was a bit of pioneering, patriotism and philanthropy, and of course profits - all P's by the way. In the same way, the Tata group went into hotels, chemicals and automobiles. The Tata Group is all about leadership with trust in chosen areas of national economic significance.

The Group is a market leader in many fields. It dominates the heavy and medium utility vehicle market. It is the largest manufacturer of soda ash, it has the largest infotech and management consultancy in the country and Indian Hotels Company Limited manages the country's largest chain of premium hotels.

The trust that the Group has come to symbolise encapsulates the four Ps I mentioned. Making a profit is essential for any successful business, but all the market research that I have shifted through indicates that for consumers across the board, the Tata group and trust go hand in hand.

The Group set up the country's first fully integrated steel plant in 1911. Nineteen thirty two saw the birth of India's first airline, Tata Aviation Services that was later called Tata airlines. In many ways the Tata Group is a pioneer and leader, even though subsequent policy changes saw the aviation sector being nationalised and public sector steel plants being established. Before and after Independence, Tata companies were managed through the Managing agency system. Companies were encouraged to manage themselves as a group and bring in managerial expertise. In 1969-70 the managing agency system was abolished and the Monopolies and Restrictive Trade Practices (MRTP) act was enacted Dominant undertakings were defined and such undertakings were required to take permission from the Central Government before substantial expansion, establishing new undertakings, mergers, amalgamations, acquisitions and take-overs.

The Tatas' response to these developments was analogous to a family patriarch's advice to his grown-up children in the joint family to set up their independent homes. And so the Tatas changed from being a Group to a loose Confederation and Board of Directors of each company began to function independent of the parent. The glue didn't vanish completely but there was a great burst of entrepreneurship and it spawned some terrific entrepreneurs like Sumant Mulgaonkar, Darbari Seth and Faqir Kohli, who are legends in their own right. Over the years, such powerful managing directors stamped their own identities on the companies they ran.

JR: The top ten Indian Business Houses of 1965 - the Sarabhais, the Shrirams, the Thapars and the Mafatlals - had declined sharply in terms of market caps by 1996. What was interesting was that the portfolio of activities of these companies hadn't changed in that period, whereas in Tata's case it had. Secondly, the firms that had declined had not adapted to the New age, largely knowledge and information technology based, customer intensive business. Thirdly, these companies didn't do what the Tatas did - they didn't let go. And that's why the Tatas are where they are today. 
RG: That's an interesting argument. Karl Marx said, capitalism has the seeds of its own destruction sown in it. Likewise, many companies have been so patriarchal that they have got into family feuds. The Aditya Birla group, like Tata's, has avoided this. They have also ventured out into other countries through joint ventures, and they have a different portfolio. One reason they have done well is that their group strategy is clearly articulated.

JR: This raises a very fundamental conceptual issue. With the challenge that multi-business, multi-entity organisations like yours face, what is the value addition of being part of the Tata Group?
RG: A study was undertaken a few years ago to gauge the value of the "Tata" brand name. A valuer of international repute who studied three or four large companies in the Group, arrived at the figure of Rs.37 billion. We did some extrapolation and updating and came to the conclusion that the Tata brand name is worth approximately Rs.100 billion. It's probably India's single largest brand after the Taj Mahal. So far, it was managed intuitively through the charisma of its leaders. Now there is an opportunity to manage it through contemporary marketing techniques.

The image of the Tatas has always been associated with trust. If you were a widow or had a small pension, you would put it in Tatas - it would be safe and it would be steady. This raises the question of whether the Tata brand can be leveraged to benefit shareholders. Should the Tata prefix be taken away from any company in the Group, it would rob it of something intrinsic to it. There are indeed compelling reasons to look at the structure of the Group as it exists.

JR: If one did a brand valuation of Tatas, would its value have diminished or increased? What value can the Group add?
RG: I haven't done the sums so it's very difficult for me to say anything. But I wish to comment about the value that the Group can add.

Each corporation is run by its own Board and ultimately, the fiduciary responsibility rests there. One may well question the value that a Group Executive Office (GEO) could add, and whether this could be detracted by higher costs. So I think the first challenge lies in promoting the Tata brand and facilitating the osmosis of that value to the company. The second value of this group is its human resources. In the last three decades there was attrition at Tata Administrative Service and the Tata Management training Centre. The GEO is aware of this decline. We are now in the process of identifying quality human resource talent within the group and readying it to take up leadership positions in the future.

JR: But why do you think the recruitment market mechanism will not operate effectively here?
RG: We could opt for external recruitments, but in my experience some of the finest corporations in the world recruit young and groom very aggressively. Typically, senior people in the company are characterised by several years in the business in different avatars. It would be very foolish to generalise that the model of hiring senior people off the market doesn't work and even more foolish to generalise that Indian companies are weak in succession planning. However, there is stunning evidence that buying your fillies young and developing your own racehorses is a good strategy and I don't see why the Tatas shouldn't do that when they have the scale and the capability. A large company like Telco or Tisco could do that within itself but in general individual companies don't have the advantage of being able to develop outstanding talent through rotation in multiple roles and functions. I've done campus recruitments and if you want to attract the IIM whiz kids, you have to offer a much wider career. You ask the studnets if they want to joint Company A or B and you get a certain kind of response; ask them if they'd like to join the group and the response is totally different. The horizons are totally different.

JR: The point I'm making is that there are two alternate notions of management, one that uses hierarchy as a device to manage transactions much more effectively, and the other that just leaves the market mechanisms to handle the transactions.
RG: I hesitate to apply the dynamics of market mechanisms to human resource management which is akin to biology, and not physics. Organisations are works of biology, not engineering or physics. And human resources are like cells of that biological entity. Every company claims that its people are its greatest asset; implementing this in practical terms is a different cup of tea. I think the Tata Group has the capability to do so and this is another value addition from being part of the Tata Group.

The corporate ethos in India has undergone a change, and the Tata Group has not remained untouched. There is a need within the Group to implement a governance mechanism which captures the energy of all our people and provides the friction which generates motion. Friction is not a bad thing as many people think. A unique product emerges from the quality of challenge and intellect around the table. The Tata group, with its leadership in diverse business sectors, can aspire to and achieve that. To attain this, Group Human Resources has to take centrestage in the strategy for transformation and change.

At a Group, level, we plan to aggressively develop future leaders by identifying first rate professionals with potential and entrusting them with responsibility at an early stage, testing them under pressure as it were. Adhering to this focused strategy would require Group companies to reshape their portfolios, develop a common financial lexicon, set hurdle rates, and urge people to shape up. There are 80 companies that come under the Tata brand umbrella, but the total number of businesses they operate in are 45. Putting those 45 through all filter parameters, the number is being reduced to seven.

JR: Will the Tatas follow acquisition as a strategy?
RG: Well, they have acquired Tetley! But as I said, Tatas are already divesting, reshuffling portfolios within the group. You first have to reshape your portfolio. Then you can decide what you don't want and what you want to acquire.

JR: But you've had some experience of divestiture - I'm talking about Tomco.
RG: I'm told it was a very painful, traumatic event. They spent two years drafting it, discussing it, getting the Board to accept it. In Indian business houses, it's not done. Your don't sell your business. But they had to come to a trade-off between heritage and ability to add continuing value.

JR: How have you adjusted to the work atmosphere at the Tata Group, having spent more than 31 years in a more actin-oriented, get-it-done kind of a company?
RG: The Indian manager functions in a distinctly local mindset onto which a western intellectual tradition has been superimposed. He is unique, and unlike other Eastern managers, he is almost exclusively exposed to Anglo-Saxon literature on management. He probably can't read his mother tongue, and if he can he doesn't and if he does then he can't find management literature in it. I couldn't have survived and prospered in Unilever had I not behaved in the mode demanded there. Here (at the Tata group) the way to get from one point to another is different from the route taken at HLL, not necessarily better or worse, just different. The challenge for me today is to work with the GEO to bring change without sinking the boat. Ultimately, it boils down to what the earstwhile Chinese premier Deng Xiaopping once said, "I don't care whether the cat is black or white, so long as it catches mice."

JR: How would you describe Tatas, is it family managed?
RG: No, certainly not. There is no family there and no direct descendants of Jamsetji.

JR: But in terms of succession, it has been lineage -
RG: No, it's just that they're all called Tata. There is no rights transfer. The Chairman of Tata Sons is elected by the Board. It's just like the Unilever Board - there's no Lord Lever up there, just the Board.

JR: From what you've described, Unilever seems to have had this practice of a bunch of people fiercely debating issues across the table. If that has not been the model in the Indian social ethos how do you expect yourself to make such calls…. And more generally how do you expect Indian managements to make such calls? 
RG: I said earlier on that the Indian manager is uniquely placed compared to his Asian counterparts in that he is exposed almost entirely to Western management traditions. The attitudinal transformation that this brings bout, creates as atmosphere of constructive challenge, friction, and debate that is uniquely Indian. Deference to age and seniority doesn't necessarily ensure acquiescence. HLL, and even Unilever, are fairly international in outlook. (Incidentally the glass ceiling for Indian CEOs and professionals in the multinational corporation seems to be breaking. In Unilever you find more indians

Outside than there are foreigners in India.) Challenging a senior colleague intellectually is not looked down upon. There is a gradual easternisation of hitherto solely western management traditions. Changes in the style of people management indicate that in the times ahead, corporates will have to work towards confluence, not congruence. I have experienced this a HLL and I can see the stirrings at the Tata Group as well. The catalysts of this metamorphosis are the changing rules of the market place-deregulation, liberalisation, globalisation and intense rivalry between competition. 

I also believe that a transformation is underway in the way Indian corporates operate. One reason why Indians do so well when they go abroad is that they are adept at overlaying their Indian heritage with the new one they encounter to adapt better. If one tried to change the orientation of that cultural tradition rather than remove it then the chances of a better fitment between the two increase.

JR: What prompted the change?
RG: Most importantly, I was very attracted to the task at hand. I don't want to give the impression that it was the pioneering and the patriotism that I was taken up with. I liked the task that had been set, and I have to say, I somehow took a liking to the individual, Ratan Tata, he was a man who seemed too good for these times. Perhaps, it was a bit of, 'If the Tatas succeed, Indian succeeds' and vice versa. Tata is a microcosm of India and managing it is a bit like managing India. The Tata group wants to reorient itself and if I can play a small role in helping it do so, it would satisfy me immensely.

Adaptation holds the key and my efforts will be to make that the hallmark of the Group's corporate purpose. The Tata Group will still strive to improve the quality of life of the people it touches, it will still operate in areas of national economic significance. However, the specific areas should and will change. There will be a greater focus on creating the resources to achieve this by periodically reviewing portfolios, releasing cash that is blocked and through human resource development. There will be a greater focus on genuine value creation and customer satisfaction. In fact, many group companies have already gone through a phase of bringing marketing and the customer back to centrestage.

The overriding theme, leadership with trust, will stay unchanged since it is a corporate identity that is deeply entrenched in the psyche of employees. Perhaps the Tata group is the only Indian corporate that can lay claim to this heritage. I see it becoming a very key player in the Communication and Information systems business segment in the future.

JR: When you look at this converging industry, especially if you classify it in terms of infrastructure industries, what you are saying is that the sustained value addition that the Tatas provide will be in the infrastructure dimension.
RG: No, not really. Through the group's presence in telephony and fibre optics for the power company, there is some infrastructure in place. More can be built. The real value addition is in internet service, software, portals and content.

JR: Post liberalisation, is a good idea for Indian business houses to pursue joint venture models?
RG: Only if the value addition by each partner is clear and sustainable.

JR: But then do you see a scope at all? If local fixing is something we cannot do, if we don't bring enough capital to the table, then what does an Indian firm bring to the table vis-à-vis multinational firm?
RG: For an Indian company to have a successful partnership with an overseas firm, the circumstances have to be unique. For example, the laws of the land require the new entrant to have an Indian partner or the local company has an expert knowledge of the market. In some cases, the Indian company may be a creator of software but requires a foreign collaborator to fulfil its global ambitions. The next few years will see an increasing number of Indian business houses getting involved globally. The acquisition of Tetley by Tata Tea is an example.

JR: How do you expect Indian firms to catch up? What kind of model do you think they can pursue?
RG: Indian firms need to become more competitive and brand their services or products. This is iterative with scale in several industries, but not all sectors. Competitiveness and scale will build up in a zigzag sort of way. Initially they could start as contract suppliers to others, and graduate to exporting their brand as they gain in confidence. Software is a very good example. IT-enabled services too will follow this pattern, as will generic drug intermediates.

JR: Do you see an Indian MNC emerging? What will it take for one to emerge?
RG: Intense rivalry in the domestic market will force Indian companies to rethink market drivers such as the consumer, product design and innovation. In the absence of intense rivalry, companies tend to concentrate on production technology and manufacturing method efficiencies. The first signs of this rivalry are in evidence now. The two-wheeler market is a prime example; rivalry forced players to wake up to the importance of incorporating consumer relevant appeal factors in the product and design. The biggest hurdle Indian players face while trying to go global is customer innocence. The traditional view that the \number of players in the market determines competition doesn't hold true. It's the intensity of rivalry that determines competition. 

There are three fairly reliable meters to judge the intensity of competition. If the top players increase their market share progressively, one could say that one condition is being met. However, this is not sufficient since it could lead to oligopoly. The second criterion is that the rate of increase in prices is equal to or slightly less than the general rate of inflation. The third criterion is the level of frenetic activity in terms of innovation and how it impacts the consumer. If all three are fulfilled, then one could claim intense rivalry in that market.

Indian firms need to become more customer, marketing and innovation savvy. In order to do this, they need to break a mindset. Take computers-everybody knows computers have changed the world. But you still find people who aren't computer savvy. One fine day, they have to download something from the internet or send an email and their assistants aren't around and they get utterly frustrated. The next day they call their 10 year old son and say, "Son, show me how you do it." You need that kind of shock. But Indian firms are getting there. Bajaj may have produced one scooter in 1965 which could go on right up to 1995, but now they are looking at styling and features, they are getting marketing savvy-the Tata Indica car, again, has been styled meticulously by Telco with the help of an Italian design house.

What prevents Indian firms from being adventurous is they aren't innovation savvy. They have a mental block. We all make mistakes, but-no pain, no gain.

JR: But if you are taking initiatives and organisations punish failure, innovation doesn't come about-
RG: No organisation says it punishes failure, but equally no organisation rewards failure. There's no simple answer to it. The only way you can manage it is, if there's a team working on a project, ensure that they move on in their career to other things. I joined HLL in the computer department but thanks to my "untiring efforts and sterling contribution", four and a half years later the department was shut down! But they sent me off to be retrained as a brand manager and an area sales manager. I lost a year or two while my colleagues seemed to be advancing ahead of me and I was very depressed. But if you're the kind who charts his own destiny and doesn't think the world owes him a living, you start learning and a few things start working out for you.

JR: Multinational literature talks in terms of how a subsidiary manages a parent. In some ways you are dealing with this tension in a different sense, sitting at headquarters now and managing a subsidiary or a unit within the group. You see a reversal of roles in your own case. How does one cope with managing a sunbsidiary unit?
RG: I can identify three ways in which the subsidiary manages the parent. The first is to understand that parents don't like shocks. So it's essential to keep the head office informed if things are not going right, both formally and informally, long before that quarterly report from the financial control department. Second, accept and work around the fact that head offices are populated with experienced people who have their own expertise and view point. And lastly, never stop performing. Head offices are a bit like fathers. As long as their sons keep getting good grades, fathers tend to remain uninvolved apart from mentioning the scores with pride.

JR: The problem is that the performance itself often gets restricted by directives from the parent.
RG: Sometimes, not always. This depends on the multinational in question. In Unilever, for instance, one would be questioned only where a strategic issue was involved. If I had wanted to set up a button factory, for instance, someone might have initiated a discussion. For instance, in 1973, HLL wanted to go into sodium tripolyphosphate, they felt it was very important for India. Unilever was dead opposed to it. So the HLL Chairman. T Thomas, took a plane and camped at Unilever. And as I later learned, Unilever is some-what similar to Udyog Bhavan in Delhi. There are a lot of babus sitting there and you go to each of them with your charts and explain your point of view to them. So when the crucial moment comes, all the babus who have to write file notes write the right file notes. My point is, if the subsidiary can look upon it as a challenge to his salesmanship, he has a higher chance of success. The subsidiary manager needs to understand that he's not running a fiefdom. He's part of a solar system where the planets revolve around the sun.

JR: What does it mean to be a global manager?
RG: At a rational level, a global manager would be one who can completely embrace different market models. At a personal level, he would be sensitive to alternative behaviour patterns rather than jumping to conclusions. Managers who have returned after successful overseas stints could have shown the maximum adaptations at these two levels.

JR: What does the young MBA have to look forward to today?
RG: A wonderful life. He's sitting in the world's largest market with hitherto unseen technological opportunities. That's the positive. On the flip side, is the undeniable fact that implementing his learning from business school won't be easy. Opportunities and problems are two sides of the same coin, but management institutes don't stress that enough. Out in the real world, young managers tend not to see challenges as disguised opportunities.

India has never been a prosperous country and I don't believe population has been the cause of its poverty. The best estimation of the population during Harsha vardhana's reign was about 100 million. In Akbar"s reign it was still 100 million. The first census undertaken by the British in 1881 of undivided India, estimated the population at 180 million., Today it's 1.4 billion if you include of Pakistan and Bangladesh. If the issue is population, even when we didn't have that much population, when the mortality rate was less, we were still poor.

We were poor because we didn't have the mechanisms for generating wealth and making people less poor. Today for the first time, we have the means. If we can grow our GDP and we have the mechanisms to do so, by 2020 we can wipe out poverty. Hopefully political leadership issues will fall in place. Thirty years ago, our growth rate was 3.5 percent, today it is 6 percent, with the possibility of rising to 7 or 8 percent. The young MBA of today could well belong to the generation that moved India from abject poverty to modest prosperity. I wish I could change places with him.