Saloni Meghani

Tata Steel has always thought big. The company has donned its thinking cap once more to conquer bigger, brighter dreams

Jamsetji Tata's peers, on hearing him talk about his proposed steel plant, may have thought him a tad irrational. But visionary leaders, when dreaming big, sometimes seem mad as hatters. Their ardour is fuelled by emotional thought or what Edward de Bono metaphorically calls a 'red hat'. The other five of the six thinking hats created by the master of lateral thinking may take the torch forward eventually, but the first step almost always remains a leap of faith.

This red hat still fits pretty well on Tata Steel. Backed by a 100-year-old tradition for pioneering, the company is once again thinking big. After securing its position as one of the world's lowest-cost producers of steel in 2002, the company is chasing another objective: it wants to become a global steel corporation that is ranked among the top 10 in the world.

As soon as the company articulated this desire it got down to the job in earnest. It set itself the first milestone of a whopping 15-million-ton production capacity by 2010. It then made the largest investment by an Indian company in Singapore by acquiring NatSteel. The company also started increasing its capacity at Jamshedpur and setting up a production centre in Orissa, along with a couple of other initiatives. As a result, Tata Steel has taken so many strides towards its ostensibly daunting goal that managing director B. Muthuraman thinks it may already be time to upgrade the target.

The steel giant applied a tidy methodology to convert its ambitions into achievements. First, to keep its tradition of steel-solid strategy, Tata Steel went to the drawing board in the 'white hat', armed with information and objectivity. There was no doubt that its fundamentals were strong — backward integration with raw materials, a committed and innovative workforce, a brand name that evoked trust and loyalty, good corporate governance and social responsibility. It had the characteristics needed to take it to the global plane.

The think tank then hammered out a plan. It reasoned that the global steel industry had excess capacity, even at a time of reasonably high growth rates. It was not deemed a good idea for Tata Steel to blindly set up greenfield projects in such a scenario. So the company decided to take the acquisition path. "In India, where the growth rate is high, it may be logical to set up fresh capacity. But it is different for the areas of low growth overseas," says Mr Muthuraman.

The company also realised that to create the right value in the industry it would have to manufacture steel in the areas where raw materials and energy were available at competitive rates. On the other hand, finishing, processing and distributing the product would have to be carried out close to its customers in growing markets.

All this added up to a historical decision. Tata Steel put on its 'yellow hat' for optimistic ideas, and established one of the strongest pan-Asian steel manufacturing groups by partnering NatSteel Asia. This beachhead investment will give Tata Steel access to seven high growth geographies of the Asia-Pacific region: Singapore, Malaysia, the Philippines, Thailand, Vietnam, China and Australia. "All these are growing markets. But they are not areas where primary steel can be made economically, as is possible in India, Iran, Russia and Brazil. So our investment is based on a de-integrated model where the primary steel from India will create value through finishing facilities in NatSteel's various locations," explains Mr Muthuraman.

NatSteel, which currently produces 2 million tonnes of steel in a year, has its headquarters in Singapore, which also serves as its hub for research and development, engineering, logistics, sourcing and other support activities for all its locations. Meanwhile, Tata Steel's plant in Jamshedpur now makes 4 million tonnes and will add another
1 million tonnes before 2005 runs out. By 2008, the centenary year of Tata Steel, the Jamshedpur plant will reach a capacity of 7.5 million tonnes. During the same year, the new integrated steel plant in Orisa will add another 3 million tonnes to this number. The company is also planning one more greenfield venture in India, in addition to acquisitions.

While its capacity grows, Tata Steel has turned up the heat on its performance. "We may be a benchmark in the country for quality and productivity, but globally we have not yet achieved that position. We are now striving hard to get there," says Mr Muthuraman. From under its 'black hat' the company also keeps a critical and evaluative eye on the competition, not only from the global steel industry but also from substitute materials such as cement, plastics, other metals, alloys and composites. Tata Steel has much to look forward to.

"In the future, global steel consumption should reach a level of about 2,000-2,500 million tonnes, twice that of where it stands now," says Mr Muthuraman. "The maximum growth potential exists in countries like India and China. So we are in the right place and at the right time." The company also has what Mr Muthuraman considers the four pillars of sustainability. "Financial prudence, adaptability to the environment, oneness with society at large, and empowerment and decentralisation are areas in which Tata Steel, and even the entire Tata group, has done very well."

Tata Steel has stuck to financial covenants in years of difficulty as well as prosperity. It has proved its adaptability by reengineering and reinventing itself since liberalisation in 1992. It also has an impeccable record in corporate social responsibility. Lastly, but not least importantly, the empowerment of its people has always been the company's central philosophy.

The company has always relied on its people for the 'green hat' of lateral thinking. It takes pains to set its human resources free from the fear of failure. Once again, for its future plans, Tata Steel will bank on the experimentation and creativity that are part of its DNA.

As long as the management has on its organised 'blue hat' to keep all the soldiers of this mighty force thinking in the right direction, nothing will stop its onward march. The world will doff its cap to tomorrow's global giant.

Uploaded on May 31, 2005