The Tata Group started in the mid 1990’s as an integration of freely coupled firms. This case analysis will major its focus on the leadership of the then-newly elected Tata Group CEO, Ratan Tata and his rise to prominence. It will further analyze some of the strategies he used in an attempt to strengthen the much needed interrelationship among the companies in the Tata Group of companies at a time when most of his critics were proposing for the complete dismantling of the alliance. Ratan Tata has been described as a very honest professional and unfailingly ethical man who never believed that the end always justifies the means (House of Tata, 1995). He took over from his relative, the legendary J.R.D Tata who had been the chief at the Helm of Tata sons company for a period of more than half a century. All through his expansive career, he had never failed to remember the core goals of Tata, which were to encourage industrialization in India and promote intellectual development. However, some of Ratan Tata’s strategies brewed debates from both his supporters and critics. I will analyze some of these initiatives undertaken by Ratan and clearly explain their pros and cons. Some of these initiatives are the creation of a group brand, the equity interlocks built among the Tata companies, revitalization of TAS and the selling of a portion of TIL a to Hong-Kong based group Jardine Matheson at a time when India was discouraging the excessive dominance of foreign investors in their country. A careful analysis is required in order to determine which of Ratan Tata initiatives can be considered more successful when weighed against the others. This may be achieved by paying close attention to the results of the initiatives on the Tata Group after a decade since its implementation.
- Creation of a group Brand, was it necessary?
I would consider this as the most positive and important initiative that Ratan Tata implemented in all his career life. The move to create a group brand contributed to the immense growth that Tata is nowadays enjoying. Since he was elected the chairman of Tata Industries Limited (TIL) back in the year 1981, Ratan Tata had the desire to transform TIL from just a small holding company with profits of Rs.35, 000 into a group planning think tank. Ratan Tata had a highly progressive mind. With now a much bigger task at hand, he wanted Tata sons to adopt a group Brand which included many other different companies dealing with an array of products so as to make a corporate Brand that would be able compete in the global market. He proposed that each company subscribing to the Tata Group brand would be paying 0.1% to 0.25% of the company’s net income before taxes. In addition, the subscribing companies must subscribe to a code of conduct that promotes high levels of business ethics and a uniformly high quality output. This initiative had numerous pros as well as some few cons to the group companies and to Tata as the host company.
- Advantages of having a Tata Group Brand
One of the key advantages of forming the brand group was because the Tata name was a very powerful force in the Indian economy and was an incredibly valuable commercial asset. Therefore, with it, the Group companies in the Tata Brand would be able to take advantage of the numerous opportunities that were to be created by the sudden and dramatic opening up of the Indian economy. In addition, the group company brand would enable them to ward off the competitive threats from other companies as well as foreign investors whom they anticipated would come to have a share of the opened Indian economy. Another advantage that came with the Group brand was in regard to quality production. All the subscribing companies were required to also subscribe to sets of code of conducts that would ensure that all the companies in the Tata group brand majored in production of high quality products. This would provide an admirable reputation to any company affiliated to the Tata Brand Group. Additionally, all the participating companies were eligible for an outstanding representation recognition in the prestigious J.R.D Quality Value Award. The third advantage that came with this initiative was through creation of a pool of funds both to the affiliated companies and to the Tata Company at large. The annual subscription fee would enable Tata Group to create a national and later a global brand image by highlighting sets of their core values and ethos through advertising. However, Not all the company heads were into this idea of creating a Group Brand under Tata’s name, they gave the following disadvantages of this initiative.
The major disadvantage and hurdle facing the brand group was when company heads started claiming that there would be no immediate benefit to their individual companies emanating from the subscription. Some corporate heads argued that this would make them appear as if they are paying royalty to Tata Company. Most critics opposed the initiative explaining that the Tata Group Brand was not the reason behind their individual company’s success but rather their efforts as a company. However, weighing the pros and cons, the Pros carried a lot more weight than the cons and therefore proceeding on with this initiative was worthwhile.
- Building of Equity interlocks
This was an initiative that was initiated in order to enable Tata Sons raise a total of Rs.7billion in the Financial year 1995(FY95) and FY96 so as to be able to increase their total stake to 1% in all the major Tata Companies from a meager 0.01% minority shares. The major shareholder in the Tata sons was Pallonji Shapooraji Mistry who owned 18.4% of all the Tata sons company’s shares which by comparison, was more than the combined total shareholding of all the Tata Family. In the first place, this initiative was not important at all since it would lead to no benefit to the investing companies.
This was good initiative by Ratan Tata; however, it was not a necessary initiative to be implemented. Though Ratan argued that the shares would appreciate if they were to go public, the whole initiative lacked any benefit for investing but rather would end up putting Tata Sons company in huge debts. For instance, the interest cost on the 3 billion rights issue invested was estimated to be Rs 450 Million , whereas only Rs.30million was to be yielded even if a 100% dividend would be announced by Tata Sons. This shows how non-viable the initiative was and would only burden Tata Sons Company.
- Sale of a part of TIL to Jardine Matheson Group
Through this initiative, Ratan Tata demonstrated the high level of independence practiced by the Tata Sons Company. He totally ignored the Indian Industrialists concerns over entry of foreign investor companies. He contemplated selling to the Colossal Hong-Kong based group, Jardine Matheson a 20% stake in Tata Industries limited (TIL). Although The Hong-Kong based group would not receive a single dividend for half a decade, it would be enjoying all other rights that Tata was having in India. To be involved in the management of Tata’s projects, Sit in the Tata Son’s board and also be investing in any other project proposed by Tata. The 20% stake sold to jardine for Rs.1.26 Billion was expected to reward TIL with a share capital of Rs. 595 million from the previous share capital of $76million. This was a major boost in the financial part of the Tata Sons Company. Another advantage would be that, Ratan and his company would immensely benefit from the High level of expertise by Jardine Group in regard to business activities such as distribution and retailing as well as venturing in other fields in the economy. Through this initiative, some investors perceived Ratan as just “a careful planner whose long –term goals are always on point “ but is not effective when consumer demand patterns are changing rapidly. However, this initiative was a major boost in Tata’s Corporate Portfolio and enabled it to be able to venture and capitalize on new opportunities.
- Revitalization of Tata Administrative Services
The Tata Administrative services (TAS) initiative was among the key boosters in India’s Managerial market. TAS, which is a department in the Tata services recruits talented individuals and accelerates them into managerial careers. Ratan Tata promoted this initiative that was being carried out by the Tata’s since 1950. He elevated the programs status through media and through presentations to prospective employees. He encouraged the New TAS recruits who were mostly MBA’s to take up opportunities and work by rotating among the Tata Companies. This was a source of motivation, teamwork and a good strategy to foster Leadership in the labor market.
Question 2: Evaluating the corporate portfolio in 1995
In order to effectively evaluate Tata’s corporate portfolio of 1995 and determine if the house of Tata was just an opportunistic group of business or a rational corporate, I will largely base my argument from the Triangle of corporate strategy. The triangle of corporate strategy is an essential tool for clear comprehension of the process of strategic management. The three sides of the triangle represent: the resources, the business itself; and the structures, processes and systems.
Resources are the first side of this corporate strategy. These corporate resources range from Human resources, physical resources to capital. They form the foundations of any business organization. Evaluating the corporate portfolio of Tata for the year 1995 in regard to resources, it is evident that they have a lot of resources at their disposal. Since the company was started in the 19th century, it has grown immensely over the years through innovative and outstanding management such as that under J.R.D and Ratan Tata. They have highly skilled human resource that they nurture through their Tata Administrative Services (TAS) program. They have enabled professionals to acquire MBA’s then later offer them places in their chain of companies under their group Brand. After Ratan Tata took over, the capital base of the company rapidly improved as a result of his numerous initiatives that were designed to propel Tata Sons Ltd into a globally recognized brand, which they later achieved.
- structures, systems and process
The final side of the triangle of corporate strategy is the company’s structures, systems and their process. This refers to basically how a business conducts its business and how it is organized in order to achieve its objectives. As the Chairman since 1991, Ratan Tata launched numerous initiatives that totally changed how Tata Sons Ltd operates. If I were the CEO of Tata Sons, I would have also dwelt on initiatives similar to those implemented by Ratan Tata, since I find them futuristic and which applies high levels of logic. I would have also scrapped out a good number of companies that were becoming unprofitable such as the Textile and cooking oil segments.
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Khanna, Tarun, and Krishna G. Palepu. The House of Tata, 1995: The Next Generation (a).
Boston, MA: Harvard Business School Pub, 1998. Print.
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