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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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