A company does not become global by simply participating in geographical markets around the world. The objective of globalization is to become globally competitive, leverage global opportunities and have the required global capabilities. It implies an organization, which employs talented people without reference to nationality. We are in the process of acquiring such competitive position and global capabilities.- Ratan Tata, Chairman, Tata Sons (Hindustan Times, September 5, 2004)Despite popular perception Ratan Tata has more than lived up to JRD's vision and expectations.- Deepakh Parekh, Chairman, HDFC, (India Today, February 2003)The Unfolding of a CrisisAfter proposing the strategic plan in 1991, Ratan Tata observed: "I think we are in many more businesses than we should have been in and were perhaps not concerned about our market position in each of those businesses. I think the needs today are that we define our businesses much more articulately and that we remain focused rather than diffused, and that we become more aggressive than we used to be, much more market driven, much more concerned about our customer satisfaction" (HBS Working Paper, 9-798-037). Ratan Tata was questioned in an interview-what criteria he would choose in deciding what to keep and what not to, in his groups' portfolio restructuring exercise? He replied, "one is certainly going to be: can we be in the first three in that industry in the country? Secondly, are we willing to continue to put money and managerial resources into that industry to have it continue to be that way? The third is the most serious one, as to whether that particular firm will provide us with the returns that we are expecting" (Business World, September, 1999). Strong resentment followed with the business heads, the all powerful satraps. As a result, marked differences began to emerge within the Tata group with distinct centrifugal tendencies. A senior director expressed the commonly held concern that the group was beginning to break apart:The early 1980s saw numerous investment companies being established by different Tata companies with the aim of carving out their own domains within the Tatas. A number of Tata companies also began competing against one another. Mobility across group companies declined and each company began evolving its own culture and management cadre. Thus, the Tatas became just a social club, with the central group having no legal, financial or moral clout. And, however much senior directors may like to believe otherwise, several Tata executives even violated the Tata ethos. (HBS Working Paper, 9-792-065)JRD commented on his selection of Ratan Tata, "there is no doubt in my mind, objectively and subjectively, that Ratan will do very well as my heir and carry on our family traditions" (HBS Working Paper, 9-792-065). Russi Modi of the steel division, Darbari Seth of the chemicals division, Nani Palkhivala of the cement division, H N Sethna of the electric division and Ajit Kerkar of the hotels division were extremely powerful chairmen of these dynamic clusters. These directors viewed the Tatas as an agglomeration of very loosely held clusters. Regarding Tata group's shared identity, Darbari Seth commented, "in law and theory, all Tata companies constitute a commonwealth of nations" (HBS Working Paper, 9-792-065). While Russi Modi remarked, "today, the Tatas no longer exist as a group, except in their culture and in name. Legally, none of the companies has any reason to swear allegiance to Tata Sons. It is only because of the financial institutions, which are the major stakeholders that Tata management is allowed in these companies. Tomorrow, if the companies decide to go their separate ways, it will be perfectly legitimate-not popular perhaps, but legitimate" (HBS Working Paper, 9-792- 065).The Legacy of JRDIn circa 1938 Tata Sons elected JRD Tata, son of Jamsetji Tata's cousin, as its youngest chairman. Taking over businesses with an asset base of around Rs. 105 mn, JRD was all set to give new directions to the group. The Tata group was always based on a federal structure that reveres a king; the chairman of the Tata Sons' board. That worked fine when people like JRD were at the helm. When JRD took over as the chairman of the group, he was barely 34 years old. At that point of time, there were many senior executives in the group whose understanding of the complexities of industrial environment was much deeper. JRD felt it would have been a virtual disaster if he had chosen to throw his weight around beyond a certain point. Thus, consensual approach to decision making became a part of his career till the end. It is quite possible that his consensual style was a result of the corporate environment in which he had to operate; but it became an integral part of his management style. The result was the development of a managerial environment marked by decentralization, participatory decision making and professionalism. Ajit Kerkar, chairman Indian Hotels reminisced, "he (JRD) was the kind of chairman any professional manager would like to have. He laid down the policies but never interfered with the day-to-day working. Even those areas where he and the board did not agree with me, he never imposed his own will on anything. That was his greatness" (HBS Working Paper, 9-798-037).JRD's helmsmanship was distinguished by his ability to repeatedly recognize, recruit, develop and support highly talented executives. As a result, the senior Tata management became a constellation of very capable and powerful managers whom JRD supported and gave considerable latitude. As a result, it became a matter of pride and status to work for the Tata Group, which was regarded as a highly professional and ethical organization. On the other hand, there was also an inert feeling within the group that it was carrying dead wood because of the tolerant Tata philosophy. While merit was recognized and rewarded, a poor performer rarely left the organization, resulting in the middle management getting clogged with survivors rather than performers. A senior Tata board member observed:Many of our companies are grossly over-manned. We have very high wages and yet we have very high absenteeism. It is very difficult to squeeze work out of our workers. The employees have no fear of punishment. They can always appeal against a harsh decision to JRD and given his tolerant and charitable nature, he would say-we can't have this in the Tatas. (HBS Working Paper, 9-792-065)On a defensive mode since the 1970s, internally the Tatas curbed initiative and encouraged continuity. By 1980s, most of the senior managers were in their late 60s, or even older. Thus, gerontocracy came to rule the Tatas. One of the senior directors defended the practice of senior directors remaining involved in the Tata boards:Most healthy people live beyond 85 years of age these days. By insisting on retirement at 60, do we condemn them to the shelf for the next 25 years? Will you tell them to stop at the pinnacle of their achievements, at the peak of their performance? Besides, all the parameters of our philosophy have been tried, tested, and lay down, and I can't see any new input possible to it. We have to hold on the pattern set by Jamsetji Tata and it is these senior people who provide the strongest support. (HBS Working Paper, 9-792-065)The slow turnover of directors caused some frustration between second tier executives who have been waiting in the wings, for decades in some cases, for that top slot. Fumed a younger Tata executive:Unfortunately, the senior directorships have become a priesthood which is unable to induct new, young people and impart values to them. Just as nothing grows under a banyan tree, most of the charismatic directors do not have a strong second or third line to take over behind them. We have an ageing leadership with very little concern for or understanding of modern management. People held back in their more energetic, formative years are able to manifest their creativity only in the evening of their lives, when they are physically slower and intellectually stagnant. (HBS Working Paper, 9-792-065)To knit the group together, they set up Tata Administrative Services (TAS), composed of management professionals selected by very senior Tata directors and placed in key middle management positions. They could move horizontally within the group and were primarily encouraged to develop a vision for the Tatas as a unified group rather than, as a conglomerate of disjointed companies. JRD remarked on his philosophy of always recruiting the brightest people and then encouraging them to operate freely and...
Tata Group: Transforming the Sleeping Elephant
This paper revolves around the turmoil that shook the very foundations of the Tata group when Ratan Tata was alleviated as the chairman of Tata Sons in 1991. Since its inception in 1875, the group has consistently displayed rare strategic talent by becoming pioneers in industries such as steel, hotels, power, insurance and airlines. As of today, it is the largest diversified business group in... (see full summary)
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