Topic: TATA Group- Ethical Leadership: Ratan Tata and India's Tata Group

1- What should Ratan Tata do to ensure that the group carries forward the legacy of ethical leadership of the Tata Group and does not view it as a burden while operating in emerging markets like India?

PART . COMPREHENSIVE CASES Financial Snapshot of Tata Group 2010-11 2009-10 Year US $ billion) (US $ billion) change Total revenue 67. 23.6 Sales 82 2 65.6 25.3 Total assets 68.9 52.8 30.5 International 38 4 25.8 revenues Profit after lax 5.8 1.74 233.3 Net forex earnings -0.16 (In Rs. million) Total Sales Value of turnover turnover assets Gross block Exports 2010-11 3.796.753 3.746.872 3.139.601 3.343.376 378.521 2009-10 3,195,339 3.11 1.290 2.501.786 2.922.475 317.210 2008-09 3.253.340 3.218.490 2.372.470 2.612,760 339.870 2007-08 2.515.430 2.474.156 1.772.931 1,935.072 252,801 2006-07 1,299,940 1.283.770 1.135.730 866.127 236,350 2005-06 9.67.230 9.47.140 7.97.660 6,81.690 2,36.430 2004-05 7.99.130 6.80, 180 6,00.290 2,05,870 2003-04 7.82.750 6.54.240 6.14.340 5.50.630 4.58.840 1.41,360 2002-03 5.42.270 5.21.337 5.09.270 4,34.809 1,30.764 2001-02 4.94.568 4.79,999 4.91.622 4.03.647 1.25,738 Market Capitalization 2009 (End 2010 (End 2011 (End As on Jan 19, Rs. million March) March) March) 2012 Tata group 124.97.7 344.13.9 469.96.4 404.89.2 ($24.5bn) ($76.2bn) ($ 105.4 bn) ($80.59bn) Bombay Stock 3,086.07.6 6,261.78.7 6.907.78.8 5,893.15.2 Exchange ($605.7bn) ($1387.2bn) $1550.0 bn) ($1.173bn) Compiled from various sources including Tata Group's website. IBM, to join the Tata Group in 1962 in Tata Iron and Steel Company (TISCO, later renamed Tata Steel). After initially companies." Moreover, the group seemed on its way to dis- working on the shop floor alongside blue-collar employees, integration, with powerful CEOs running some of the group he was made Director-in-charge of The National Radio and companies like their personal fiefdoms and challenging the Electronics Company (NELCO) in 1971 and continued in core structure of the group. Over a period of four years. that position until 1974. In 1975, be completed an advanced Ratan managed to oust most of these CEOs.' To bring in management program at Harvard Business School. In 1977. greater integration among the group companies, Ratan cre- Ratan was elevated to the position of chairman of TISCO. He ated the Group Executive Office, whose members were rep- became the chairman of Tata Engineering and Locomotive resented on the boards of the Tata companies. To protect in- Company (TELCO. later renamed Tata Motors) and Tata dividual companies from hostile takeovers, he also increased Industries' in 1981. A decade later, he became chairman of the stake of Tata Sons in each company. Tata Sons. Recognizing that the culture and the work ethic at the group It was around this time that the Indian government began were no longer relevant to the more competitive post-liberalization to initiate a series of reforms to open up the economy." The cru, Ratan shook things up. In 1998, at a gathering of heads and Tata Group companies, like most other Indian companies at that time, were not globally competitive and found them- Complementing for Complexity: Leading though Staging. wow.cigs selves facing the threat of competition from multinational com, January-Mach, 2005. Robyn Meredith, "Tempest in a Teapot wwe babes cam. February 14, 2005. (467 / 501) P WCASE 9 ETHICAL LEADERSHIP: RATAN TATA AND INDIA'S TATA GROUP 467 EXCH Tell Groups Revenues by Segment innovative products. For example, Tata Steel patented several new kinds of equipment such as a fuel and reducing gas genera Services. 45 tor and an emulsion atomizer and processes such as the inert gas shrouding process and the corrosion-resistant steel production process. More importantly, the company started selling its prod- acts, which until then had been sold as commodities under the Consumer Minerals, 3290 Tata brand. Tata Motors, until then known for its bulky trucks. launched India's first indigenous car, the Indica, in December Begy. 656 1998. The Nano car project too required Tata Motors to come up with innovative solutions to bring down costs so that the car could be priced at an almost unimaginable low price of Rs." 100.000." The Nano was finally launched in 2009. Despite its strong position in India, the Tata Group's Engineering. 355 overseas ventures had never been large enough to be worth a Adapted from Tata Group's Annual Reports. mention. Ratan was keen on the group companies entering new markets to take advantage of global opportunities. " He felt that senior officials of group companies, he made a speech on the global operations would make them more competitive and ef- changes in the external environment and cautioned the senior man- ficient. Ratan said. "Perhaps the most graphic moment came in agement that inaction would cost them dearly. He introduced the 1997-1998 or 2000 when we had that economic downturn and Tata Business Excellence Model (TBEM), a customized version when Tata Motors, at that time. produced that [Rs. 5 billion] of the globally renowned Malcolm Baldrige model, to support loss. That told me that we had to do something where we would the group's largest change initiative. Once a company signed up, not in the future be dependent on one economic cycle, but we it was annually evaluated on seven criteria: leadership, strategic had to have more irons in the fire in different economies and if planning, customer and market focus, information and analysis. one economic cycle was down, the chances are that the other process management. human resource focus, and business results. might be up. That accelerated the move to go and search, not for Each of these criteria was allotted points, totaling 1,000. Bach par- acquisitions, bus for markets in a serious way.""' In 2001, Ratan icipating company aimed to earn 600 points, at the least, over five acquired a controlling stake in VSNL, a government company. years. Ratan also established the Group Corporate Center, an apex In 2004. VSNL (renamed as Tata Communications), purchased body that was to review the Group operations on a monthly basis. Switzerland-based Tyco International's undersea telecom cables Using the TBEM framework, Ratan was able to transform the Tata to become the world's biggest carrier of international phone Group's companies into much leaner and agile companies. calls. In the same year, Tata Motors acquired South Korean con- When Ratan assumed leadership of the Tata Group, it was glomerate Daewoo's commercial vehicles operations, making it Involved in many businesses: automobiles, steel, tea, oil mills. the first Indian company to acquire a major foreign automobile. chemicals, cosmetics, power, and so on. In 1997, the group had company. In 2005, the group acquired Incat International, a 84 companies; however, only a few large companies contributed major vendor for American auto and aerospace companies. ignilicantly us the group's revenues and profits." In order to bring In this period, India Hotels Company, the group's hotel busi- in greater focus, Ratan divested the group of businesses that he fell ness, acquired renowned hotels like The Pierre (New York), the did not fit in with his vision for the group. In subsequent years, the Ritz-Carlton Boston, and Camden Place (San Francisco). In group sold its stakes in Merind (including Tata Pharma), Goodlass January 2007, Tata Steel acquired the Anglo-Dutch steel com- Nerolac (a paint company). Lakme (a cosmetics company), and pany Corus. In March 2008, Tata Motors acquired the iconic ACC (a cement company). In addition to this and in order to create car brands Jaguar and Land Rover from Ford Motor Company. a single brand image, all the group companies that had earlier had Ratan's perspective on going global was not just to increase the individual logos began to use one common logo in 1999. Some of turnover; it was also to engage creatively in the development of the group companies were also renamed. the countries in which the group entered. Keeping this perspec- Ratan's broad direction for growth of the group was live in view, the group ventured into developing and emerging two-pronged. One was targeting the emerging mass market in countries such as Bangladesh and Sri Lanka. india through product development and innovation. The other As of early 2012, the Tata Group was a globally renowned was to globalize, wherein the group planned to expand the name with its brand ranked 4Ist among the world's 100 most markets for its existing products. Ratan strongly believed that valuable brands in 201 1. BusinessWeek ranked Tala 17th on to achieve growth at the Tata Group, it was necessary to create the 50 Most Innovative Companies list, and the Reputation technologically superior and exciting products, According to Institute, USA, in 2009, rated it 1 1th on its list of the world's him, the Tata Group would have to distinguish itself from most reputable companies. other companies through innovation and tow costs. Under his Kuadd N. Tulgen and leadership, the group companies came up with several new and IfDriving Global Survey Sww.L.U..COAL. I Always Envisaged Tata Could be . Global Group: Rabin Tom " hup:/ The New Raj . Then Bates ather 27. 1597. ummkels moneycontrol.com, December 8. 2007. 67 (468 / 501)ICMR IS Center for Management Research Case 9 Ethical Leadership: Ratan Tata and India's Tata Group Maybe I'm stupid or old fashioned, but I really want to go to bed at night saying I haven't succumbed to this." RATAN TATA Chairman, Tata Group, on paying bribes Ratan Tata has set an example with his transparency and integrity. In a milieu haunted by wheeler-dealers and a business climate where companies will stop at nothing to pouch contracts, [ Ratan] Tata is an inspiration for young entrepreneurs." RAJEEV CHANDRASEKHAR An independent member of the Indian Parliament and a former telecom entrepreneur "[Wje have endeavoured to uphold a value system that has been part of our tradition, and we've been disadvantaged On his commitment not to indulge in corruption, Ratan said repeatedly in that we have lost projects, projects have been this had resulted in his group getting a raw deal because he had delayed ...." said Ratan Naval Tata (Ratan), Chairman of Tata had to forsake a significant amount of business. He lamented that Sons Lid., the holding company of the Tata Group, on the dif- he had not been able to expand more in his home country due ficulties of doing business in his home country, India. "And to bureaucratic delays, arbitrary regulatory decisions, and wide- in that sense, we would like to keep the Group ferociously spread corruption in such sectors as steel, power, aviation, and protecting this one asset. ..." As he prepared to hand over the telecommunications. Despite this, the group upheld the traditions reins of the group to his successor by the end of 2012, Ratan's of the Tata Group and did not indulge in corruption, he said. job was to ensure that his successor carried forward the legacy of the Tatas and did not view its ethical standards and values as About the Tata Group a burden while operating in this key emerging market. The Tata Group, which was founded by Jamsetji Tata in 1868, had Ratan was credited with transforming the Tata Group under grown to comprise over 100 companies in seven business sectors: his leadership and bringing it into the 21st century. Although the communications and information technology, engineering, materi- septuagenarian was applauded as an astute leader and for con- als, services, energy, consumer products, and chemicals. Initially tinuing the Tatas' tradition of ethical leadership, his name was inspired by the spirit of nationalism, the group had pioneered also drawn into the infamous 2G scam that surfaced in India in several industries of national importance in India: steel, power, 2010. Allegations that the Tata Group had not "walked the talk" hospitality, and airlines. As of early 2012, the major Tata compa- and that it was involved in what was being described as India's nies were Tata Steel, Tata Motors, Tata Consultancy Services, Tata biggest scam, had dented the image of the group. For genera- Power, Tata Chemicals, Tata Global Beverages, Tata Teleservices, Lions of Indians and even outside the country, the word Tata had Titan, Tata Communications, and Indian Hotels. The group had been synonymous with "trust" and "integrity." The group was operations in 80 countries across the globe, and its companies well known for its corporate social responsibility and principles exported products and services to 85 countries. It had revenues such as the "Tatas don't bribe" and the "Tatas don't indulge in of US$83.3 billion in 2010-2011, with 58 percent of this com- politics." Strict adherence to these principles had led to the ing from business outside India. Tata companies employed over group prospering under the predecessors of Ratan and under his 425,000 people worldwide. The Tata Group's contribution to the reign becoming the best-known Indian group in the world. Indian exchequer for the year 2010-201 1 was US$6.93 billion out This case was written by Debapratim Purkayastha, IBS Hyderabad. It was of the total US$210.26 billion' (refer to Exhibits I and II). compiled from published sources, and is intended to be used as a basis for class Each enterprise in the Tata Group operated independently, discussion rather than to illustrate either effective or ineffective handling of a with its own board of directors and shareholders. These enter- management situation. This case won the Third prize in the BIR Case Study Competition, organized prises had a combined market capitalization of about US$80.59 by Business Leadership Review, the official journal of the Association of MBAs billion (as of January 19, 2012) and a shareholder base of 3.6 (AMBA), UK. million. The Tata Group had had a series of illustrious leaders- 2013, IBS Center for Management search. All rights reserved. Jamsetji Tata (1868-1904), Sir Dorab Tata (1904-1932), and To order copies, call +91 9640901313 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally. Sankarapally Road. JRD Tata (1932-1991)-who spurred the growth of the com- Hyderabad 501 504. Andhra Pradesh, India or email: info@ icmrindia.org. pany, taking it into newer businesses. However, it was Ratan www.icmrindia.org Tata, who took over the reins of the company in 1991, who was Amol Shanna, "India's Tata Finds Home Hostile," http://online.wsj.com, April credited with making Tata a truly global group- 13. 201 1. Ratan, great grandson of the founder, was a graduate 2Tala Juggernaut Stirring," Business India, www.tala.com, April 30-May 13, 2001. from Cornell University in architecture and structural engi- Shekhar Gupta. "The Most Noise Usually Comes from the People Who neering. He turned down a position at leading IT company, 465 (466 / 501) - W