E-building Group Tata click by click
The Economic Times, June 22, 2000 / June 28, 2000

ET: To start with, could you please just set out your thoughts on the New Economy and where you are taking the Group in it?

RNT: If we don't get starry-eyed or get carried away by all the talk about the "new economy" and view this, in a manner of speaking, as an evolutionary development - just like the industrial revolution took place at one time, we are now in a new era where, in fact, there is a sudden surge in the impact - I do not think that this is the end of the road by any means - but there is a certain surge in the impact of connectivity, of information in a very fat time frame and the application of this incremental knowledge that comes with this to improving and optimising business or commerce as such - if we take that view, then we start to discard all the hype and the other things that get said today around dot coms, of whether they are in style or not in style, or internet companies, or web-enabled stuff and how it is growing and the valuation of companies.

So if you take this more sort of matter-of-fact approach in terms of it being an evolutionary thing, then you ask yourself not how do you enter this "new economy" but how do you use this new passage of intense knowledge that is available at faster and faster speed and this great connectivity to enhance your business. Today we are not asking how it is enhancing your lifestyle - at least not in this conversation.

So then I say that what I would like to see is for a group that, by and large, has had older systems which have been heavy on human discretion and human judgement, to embrace systems - that is financial, production and business systems - which utilise the speeds and the accuracy of the knowledge that the "new economy" provides, to benefit its business, to make it closer to it customers, to make it closer to its suppliers and to remove unnecessary costs.

Using this in itself will not remove costs - we have to reinvent the way we perform that transaction to really remove costs. There is no sense in automating something and doing it the same way as you did manually - that is just breaking the surface. So when we employ these systems, we really need to go in and re-look at the process that we use and be willing to redo that. And so we ask ourselves why we need certain forms, why we fill out certain forms, how we need certain information, how we substitute that in keeping with the new systems that we have.

To take a mundane example, if you went to a supermarket ten years ago somebody put into a cash register each item based on the label. That got replaced by using a bar code reader on each item. And now each item just passes over a piece of glass that has a reader in it: the item is [listed] on your bill. You just don't wait for all that time at a supermarket. You pay for it with a credit card or you pay for it in cash and you go out.

Somebody then decided you are not going to do it this way, you are going to do it another way. And took the process all the way back to re-ordering, filling the shelves, deciding inventory levels. And all this came from the cash registers, knowing how much has gone etc. So it becomes a totally integrated system using the benefits of new technologies.

In that same way one wants to apply this technology to the various facets of our business. In doing so, one, as I said, hopes to reduce cost, and get closer to our constituency. This would also apply to our dealings with our shareholders and their grievances and their difficulties in terms of interaction with the company.

Having said this, I think the greatest challenge we have in making this happen is the transition of the human mind to do that, across the board, among the large number of people that we have in our companies and the ability to transition and accept that there is another way to do things. Let me try and tell you how difficult it is. I have been totally committed and totally wanting to have a paperless office here. I think at great cost, I forced the company to put in a document imaging system which would take care of everything and digitise all the data we got. The idea being that, instead of having piles of paper on your desk, you could look at the screen and may be access that in your home in the night and so on and deal with it and put in your comments and have it go back to whoever it needed to go to.

It hasn't worked. It hasn't worked partly because of me. I find it difficult to do that. First of all, you have to push many keys to get that document on the screen, then you have to push some more keys to put your comments on it, you have to type in the comments, you can't write them, and when you look at all of that I would say that I am at fault. We have digitised all our documents now and probably will save a lot of space in filing but in terms of retrieval, in terms of using it in the way that we wanted it, I have to say that the transition is a difficult problem. So what I want to say is that in a large organisation, with many people who come from different ages, who may not even be as committed as I was to seeing something done, this transition is going to be a problem. I think as we have younger people, that becomes an easier issue, but amongst the companies, at the senior levels, among the decision makers, adopting these systems will be painful.

The thing we need to keep in mind is that we must look at this move to enhance our businesses and to make them more cost effective and to be able to grow. So we must look at this judiciously. That is why I started off by saying let us chip away all the hype of just going into it because that is the flavour of the month.

Whatever it will take to make that happen, we will do. My own feeling is that the way this will work within the group is to showcase this application in six or seven major companies in the group and then let it just migrate itself into the rest of the group. Don't just give a mandate for the whole group to adopt this because I think it will just, you know, dwindle. Instead, focus on six or seven major companies who are inclined to use it, who need to use it and then give them all the support they need - to have E-commerce, to put in ERP systems to manage the operations, to really bring IT and communications fully to the extent we have. We have created infrastructure within the group, like we put in a V-Sat network to tie in all our operations - we did that many years ago. We have the ability to move data, although slowly. But we don't have a system that pulls it all together and does something with it.

That is what I think the new Internet and e-commerce capability will enable. So that is my goal or my dream that one day I can call up at any time and find out about all the key issues or go down to any level of any issue in any company I choose, sitting in my office, on my screen. So if I want to know how many Indicas got sold or how many Voltas airconditioners were sold or how much we have in inventory, although it's not my business, if I wish to access it, I could access it from my office. Those kinds of things, I think, are what this new knowledge base will bring to us in the industry and that is what I hope we can use.

ET: So how are you proposing to take this forward?
RNT: Some time ago I had a view that we had to have one enormous Internet or ISP activity, covering access, connectivity, content, backbone, everything all into one. I really believed that for a period of time. Thank God we didn't go that way because I have now come to the conclusion that, in a manner of speaking, we needed to be much more nimble footed in this area than one large entity could be. On the content side you perhaps want to leave more of it with the companies or in creative pockets wherever they may be. We have Tata Interactive Systems in terms of graphics, but there may be portals that may be best developed in individual pockets. You would like to have a group Internet service provider kind of entity or enterprise on which all these things might hang or be hosted. But then again if for any reason there is a need for one or two of those to be elsewhere and its best for that application then that is where they ought to be.

There is, probably, going to be a need in some of our businesses to be part of an exchange - let's say there is an auto exchange or if there is a steel exchange - that is industry-wise. The greatest mistake we could make is to say that we would necessarily do it ourselves because I think the place we need to be in that particular case is to be part of an exchange.

Then you say to yourself, if you want to be in backbone, we should have an entity that would make the investments and put in fibre across India. And what will that be? That will be a company that will be a project company and then will manage that backbone - sell capacity on that backbone. Then we may have, if you might, an access provider that may use that backbone or another backbone and have routers and servers that will serve clients. And they may serve Tata clients and non-Tata clients.

But if we have one big behemoth that is trying to do everything I think we may have something that will only serve us and serve ourselves badly. So I have moved away from this one single internet-based entity to thinking that may be we still need to be much more flexible on this.

Lastly, the way the business is going, the young, creative people in this business want a piece of that business. Ownership, upside - they want that business to go public. So on the creative part I think what we have to do is to consider creating small enterprises where you give a share of that business to your employees who can grow that business or we shall lose those people. Let us say Tata Engineering has a tremendously creative person, who has a terrific idea. Either he would go and do it himself or you incubate him or provide finance for him. He becomes the entrepreneur, you have a stake in that business, you help him, and you share in that upside. And it may have application to you or it may not.

Therefore, I feel there is no single model. When you talk of convergence, everybody is talking of whether Tatas will enter the Internet business or the ISP business? And if you don't create an entity then you are not seen to do it. But what are we really trying to do? Are we just trying to create an enterprise to sell? Or are we trying to create an enterprise to play a role in that part of the business?

There are not very many all-integrated Internet players in the world because the calls are different. If you look around there are not very many models that we could follow as an integrated player covering everything. And there is a great deal of the chicken and egg thing here. You can't start all of the things at one time. One may lead into another, but if we start at one time, I think what will happen is we will spend enormous amounts of money without the returns and will then finally quit the business and close it down before it really resulted in anything.

Secondly, there has been a lot of development in India, and elsewhere, where companies have started and grown very fast in money terms, in term of being able to get money, in terms of being able to have valuations that are extremely attractive, based not on their bottom line, but based on the number of hits, number of eyeballs etc., that they may get. They make losses but they seem to have the eye of investors in terms of the potential that they have and so they get these extremely high valuations. A large percentage of them predictably will fail and a few will survive. And many of them are formed to be sold and the founders just cash in and go about doing something else. And many of them will go public and have shareholders who are left holding worthless paper in course of time.

What I have often said to our people is let's ask ourselves: what is the Tata style? Have we been in businesses for a short time to cash in and get out? If that is so, then we should look at the business that way. Get in, do something quickly, find AOL or find Rupert Murdoch, sell out for a fancy price and come back to our own business.

But that, by and large, is not what we have ever done. We have usually gone into something to be there in the long term. Given that, we must look at the business as being sustainable. I know there will be companies where after five years, a shareholder will be saying I bought this share for Rs 10 and now it is worth 50 paise, it is not worth anything today because nothing has been gained. And those people disappear into the forest and are never heard of again or come back again and produce another company. But I believe for us, people would turn right to us and say: you are Tatas and we put money into this company because it was you and you are still here because you are in steel, you are in autos and so on, and you let us down. And so I think we have a responsibility in whatever we do, that is on the external side, to do something which is sustainable for the shareholder should we go public. So if you have not seen something that has the comparable hype of what is happening around us, it is for these underlying reasons.

ET: Do you mean sustainable in terms of profits?
RNT: Yes, in terms of profits. You see, if we take a short-term view, a shareholder may buy in to something, make five times that money and get out. But there will be somebody holding that paper at some point in time who might have bought it for thirty rupees and now it is worth five. So by sustainability really I mean that. If you take a safe kind of view on that, the easiest way to do that is to do it within a company which shelters that enterprise. Let us say, the Tata Electric Companies puts in a backbone. If it fails the Tata Electric Companies is still there, its profits may have been battered a bit by it but it is still there. And the shareholder is a Tata Electric shareholder, who sees a rise in Tata Electric because it has gone into this business.

I am not trying to confuse you, I am only trying to say there is no single model of merging everything into one big Internet company.

ET: Is this methodology, of incubating something within a larger company something that you may do in some cases?
RNT: Particularly on the infrastructure side of the Internet. The example I gave is a real one. If you want to have an optical fibre network, which may run into several hundreds of crores of rupees, a company with very deep pockets which could sustain that kind of investment, which could manage it, because they are managing power lines and rights of way may be a good place to locate that. It may have a separate management for that, but it would be within that company. And yes, if it would seem to be a good business transaction that you sell it to an AOL or a Time Warner or whatever, you will still sell that business out of the Tata Electric Companies and unlock that value in the Tata electric Companies for its shareholders. But it is not something that today we see that we want to set up a company that will be called ABC fibre network to do all of this and then not be able to have a profit.

ET: Is there any particular kind of international model that you are drawing inspiration from?
RNT: No. In fact, out of ignorance, I thought that the integrated model was the thing that we should do. But then I realised that there is nothing there, that each one is so different that perhaps it is a mistake to do that. Then I started to rethink what we should do. We were in fact going down the single integrated path - looking at infrastructure, content, access, activity all these things all rolled into one. And I think we would have had a huge disaster on our hands in course of time. So we backtracked and we looked at it again. Now you will continue to be confused because you will keep seeing little Tata things coming up and you will say that this competes with that or this is doing the same thing that is doing and you do not understand why Tata Steel is doing something and Tata Engineering is doing something else.

But the ability to put it all together may only come in hanging thing on an access that you provide. And as far as each individual company is concerned, I think the E-commerce or E-business part of it may need to be its own and at some stage we will integrate some of that into an overall Tata Group thing - but again, our businesses are diverse enough so that probably will not happen very much. It may happen in purchasing but there is unlikely to be any E-business model that will apply to the whole group.

ET: If you were to isolate a few of the strengths in the IT and communication area within the Tata Group, what all would you point to?
RNT: TCS is obvious, though it is not quite in that line of business as its main stay. I think Tata Technologies is another. Tata Elxsi is probably yet another. Tata Interactive Systems is very much dedicated to this type of business and in Tata Industries we are making this new group that is looking at access and connectivity as a business. That is perhaps the only one that is looking at this as a business. It does not have infrastructure in it and it is going to use rented lines from VSNL and MTNL for their purpose. That is the closest thing to looking at an ISP business that we will have. And it will also draw from individual companies and take content from them and try to sell their services to those companies. So there will be some interaction.

ET: Will you look at alliances to take this forward?
RNT: If alliances become necessary then identifiable enterprises can be carved out of wherever they are. You know, if you have a department, you can create that into a company which can enter into an alliance. Or a division may have an alliance - it depends on what it is required for. If you are going to have a merger into a joint business then you need an enterprise, but if you just have an alliance on some business then you can do it between a division and another company.

ET: Do you ever see yourself unlocking the proven value in companies like TCS and the other Tata companies in this sector that are still private?
RNT: We are in fact looking at this but it must make sense to us. Merely to go public, to get a high market cap in itself is not what is driving us. There are some serious tax issues, in terms of capital gains, in TCS for example, which exist. TCS today is the largest provider of cash flow to Tata Sons and therefore enables us to grow the group. There are a whole host of issues of that nature. But if we have the right mix of problems being solved, we would certainly consider it, or any of the other IT businesses, going public.

I know that if TCS were to go public, we would probably say that the Tata Group has the largest market cap or Tata Sons is the largest company in India or something but that it is not really a driving force for us today. Our concerns ought to be: does TCS have enough funds to grow its business in the manner that it wants, as a private company? The answer is yes. Does TCS have the operating freedom to go into the line of business that it wants to or is there a constraint by being a private company? The answer to that is no. Perhaps the only thing that is not there is that employees cannot earn a piece of that company, which is something we are concerned about and we would like to find a solution for.

ET: So what will be the solution?
RNT: Ownership in a company is only the value of what you hold as paper - it is not necessarily that you have a say in the management or anything. So it is somehow an issue of equating what that private company is worth and giving it to you in a monetary form.

ET: Do a lot of employees from the "old economy" Tata companies want to move to the companies in the "new economy"?
RNT: As you may have noticed, in most of our "old economy" companies we are going to the shareholders this year with plans for ESOPs. And many of those that don't have ESOP plans will also have to adopt these ESOP schemes. And so there is nothing there that can attract them (to the "new economy" companies) other than the excitement of being in this new business.

I don't think I have seen a tremendous migration from established companies, even in the TAS, which is comprised of a young group of people. Those that we do attract - many of them may not come to us - but of those that do come to us, I do not think we have a tremendous pull in terms of their wanting to be associated with those newer companies as against the others.

ET: Are there any other lessons that you think that Groups like yours need to keep in mind to enable the transition you spoke about to begin with?
RNT: The bigger you are and the older you are the harder it is for you to make a clean break and a transition to something new. You have much in the form of legacy, both computer legacy systems and legacies of a software nature that you have. A younger company can make that transition or start afresh in the new field much better. I think that's one of the disadvantages of having an old, established business.

But come to think of it, may be also we are not doing enough of what similar companies elsewhere in the world have done, namely create a focus and transfer that company to that new economy environment and make investments in having a focal point that is dedicated to make that company move to that new environment. That we have not done. One way to have this move is really to create a very high level focus, department or a division, whose sole task it is to enable that transition.

ET: In your view, would the Group's forays into the IT-telecom sector help in globalising the Group?
RNT: Depends on what you mean by globalise, because to me globalise means that you extend your business to other parts of the world, and that is not merely through exports. It means actually acquiring companies having a manufacturing base or a service base in a variety of companies and making your business a global business, whatever it may be. I do not think our ventures in IT/telecom are a passport to that. I think it may be that in order to survive in a broad environment this is the only way to go - either you operate in this manner or you are a defunct company. But I don't think it is a passport to going global.

ET: Are you planning some moves to cash in on the high decibel level around Indian software, IT-Telecom being the flavour of the month all over the world? Something that probably TCS now is.
RNT: But what did TCS do in terms of creating high noise? Nothing. We are not planning anything for the sake of making a noise. No, we will not be driven by that. Indeed, if we choose to go public, we will have to make noise but it is again not to grow our business, it is to attract investors.

ET: You are supposed to be a very hi-tech person yourself. How closely involved are you in all three businesses?
RNT: Not so tremendously close. I have great interest in these businesses and hopefully I would like to think that I would drive the group into these areas. I certainly will not be the one who will hold them back. But I don't consider myself to be someone who has my arms around this technology and the person to whom everybody comes to understand what it is. No, not at all.

ET: But you do have an interest…?
RNT: Yes, tremendous interest in where this is going.

ET: Of all the things that you probably have at the top of your mind, how much space does this take, how much time?
RNT: It comes in during your day in various forms because it is all around you but to say that I am dedicating four hours to this or two hours to this, that would not be a true statement, that would be a hypocritical statement.

ET: No, not may be the number of hours you spent on it, but in terms of your top of mind, your mind space, your agenda. Is this one of the three most critical things that you wish to do for the group within the next few years?
RNT: As I said, right now one is asking oneself how should you do it in the best way possible and it seems like every time you talk to somebody or read something that is happening elsewhere, you want to sit back and pause. So I cannot really say that I have a plan that says that we want to be x crore of revenue or x crores of income in this area because as I have told you, that model has not emerged as yet. But at the end of a period, may be over the next three to four years, if you were to ask: are our major companies doing business by way of E-commerce or E-business in terms of how they are structured and will it have an impact on them? I'd say yes. If you ask will it achieve the task of bringing down their cost and making them more efficient, I would hope that would be a driving force. But if you were to ask will Tatas have an internet company of the size of Satyam or any of these others and will you be in this area or that, I can't answer that question just now because I think we are not there. But will the group be interconnected for communications, will it have, in course of time, video conferences, will we deal with each other using state-of-the-art processes? I'd say yes. And if we didn't, I would have failed.

ET: Are you planning more dramatic alliances like the one with Birla-ATT?
RNT: Sure. We are open to that. And I don't know what is dramatic about this particular alliance other than what people have traditionally read into Tatas not getting into alliances with others and may be Birlas not getting into alliances with others.

ET: It is a cultural change....
RNT: Is it really?

ET: Mutual alliances are.....
RNT: No, we are not talking about an alliance here, we are talking about a merger, which is, in your way of looking at it, worse than an alliance. But if you look around today strange things are happening in mergers. Loss making companies are buying highly profitable companies, companies with no assets are buying companies with greater assets, equal companies are merging with each other. There is no longer the big guy buying the small guy.

ET: Or you would not have been able to buy Tetley.
RNT: That is true.

ET: Are you looking at more of this?
RNT: I think we should. We have been very risk averse. In the case of Birla, I think there has been some kind of public perception that Tatas and Birlas are apart. Yet Aditya Birla was a good friend and Kumar Birla is also a good friend. I respected Aditya and I respect Kumar and I have great pleasure infinding a way that we can come together.

Both the units that have come together are professionally managed and hopefully this will not be just one merger, this will be the first step towards creating a very viable communication entity in the company because we will hopefully bring in other cellular companies into this embryo. So, eventually, it will not be just Birlas and the Tata Group but Birlas and Tata and some more. And what we hope to do is to enable, within a common framework, the entities to continue to exist as they work, in managerial sense and in terms of visibility. In other words, Tata Cellular will continue to be seen as Tata Cellular in Andhra Pradesh because it has gained a brand equity. And perhaps the legal new company will be a neutral name.

ET: How would you like to sum up what you have told us?
RNT: That there will be an Infotech space that Tatas will occupy but it will not be one balloon. In this regard, I think the greatest satisfaction I got was when I was invited to meet a team of technical people in Palo Alto who, I was told, will provide me with great clarity, in terms of what was happening in this industry and where it was going. And I sat there with Ishaat Hussain and other colleagues, and for 2 or 3 hours, we listened and we determined that there was no single balloon that anybody had done, that no one was attempting to make a single balloon and so we asked why and they said because it is too diverse and what was emerging was, there was no group which was trying to go into all these areas, so if we chose one of them, we might have created a smaller balloon in some area. And then when I came away, I said that is exactly what we are doing. We are looking at content in a series of places. So what are we doing? We are doing exactly the same thing. But everybody expects that because you are a Tata Group you are going to do it in one big balloon.

ET: You have been visiting Silicon Valley often?
RNT: No, I used to be in Silicon Valley every 40 days for 2 years. We owned a large part of a company called Elxsi, of which Tata Elxsi was a subsidiary. Elxsi was a very promising start-up company in the late 70s. But it suffered from what many such companies suffer from: it grew very fast and had revenues of $70 or $80 million at its peak. But it didn't see the writing on the wall and continued to sell the hardware it was selling and it died.

If I go back to my Elxsi days, there was the same hype in the computer and biotech business, though those companies required more investment than this does. There were disk drive companies, there were memory companies, there were PC companies, there were workstation companies. They were all around there at that time. They would come up with tremendous multiples. They would have IPOs and they would die or be taken over. It is no different today. You remember there were companies like Genentech - that is still there, but was bought over by Roche - and companies that promised a cure for cancer and everything else those days. We still do not have a cure for cancer, those companies are not there, but it is very much the same and I am wondering whether after this kind of stabilises, and the dust settles after some years, whether we will have another wave of something else.

ET: I see you are saying after the dust settles and not when the bubble bursts.
RNT: I don't think this is a bubble and that is why I said I think it is an evolution. There will be some settling dust, there will be some bloodshed, but if you ask will the effects of the internet, connectivity, knowledge and communication end? No, I think it will increase. There will be more capability, you know, more and more will it be possible to be mobile. There will be far greater capability, far greater connectivity, far greater ability to collect knowledge and deal with it. The keyboard will be replaced by voice recognition, you will be able to talk to computers, interface with computers, you will be able to dictate into computers and get printouts. All that is going to be the wave of the future. It is going to call more and more on the technology that we have today. And so there is not going to be any bubble that will burst. The bubble of the 80s also did not burst, it led to where we are today. The only thing is that there is a lot of dust which settles.

ET: Probably, people when they say bubble, they mean only the stock market.
RNT: Yes, there is that. In a way you have to say that that is not bad either because it is that bubble that spurts all this ingenuity that comes into the market place and provides an incentive for all these people too. So for every eight that die, there are two that contribute terrifically. It is unfortunate, of course, if you are part of the eight and not the two.

ET: This was great fun, thank you so much.