The Last Rajah Ratan Tata Case Analysis

Ratan Tata – a living legacy responsible for the eminence of the largest conglomerate, Tata Group in India. The Tata Group is usurping global existence rapidly, with ownership of organizations in almost every major international market. It vested a combined market capitalization of more than $32 billion in a diversified range of operations, including consumer products, energy, engineering, information systems, communications, consultancy services and materials (Dobbs and Gupta 2009).

The liberalization for India’s economy in the 1990s (Pawan 2001), coupled with the bold yet accurate foresight of Ratan Tata had a part to play. Despite Tata Group’s exceeding achievements in gaining meaningful presence geographically, uncertainty lurks ahead. McClearn (2005, 49-53) wrote that the information technology powerhouse requires at least a trillion dollars on infrastructure investments to overcome poverty. The underdevelopment fundamentals of the country’s facilities may deter the furtherance of Tata Group locally. Ratan Tata admitted to another imminent problem – the lack of a suitable successor for his position. Tata Group will be deprived of an able leader to help the organization in soaring greater heights (Luthans and Doh 2009).

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SECONDARY PROBLEMS

1. Short Term
a. Difficulty in Talent Development and its retention:
The case study revealed a few looming issues that may result in the downfall of this mega-group. The unsatisfactory working environment, together with the high income disparity has compelled locals to leave for greener pastures overseas (Murray 2008). There is constant pressure as Doh et.al. (2011, 85-100) had stressed, the incumbent to have a committed team of leaders that addresses talent development and its retention in Tata’s business strategy.

b. Struggles with owning Corus:
The acquisition of Corus has burdened Tata Steel with $7.4 billion of debts. To worsen the matter, the Trade Union representing Corus workers wanted the new management to pump in a further $600 million for assurance of their livelihoods. To execute social responsibility over the workers or for the betterment of the whole business, Tata Steel surely has a tough decision to make (Luthans and Doh 2009).

c. Procurement of Jaguar and Land Rovers – wrong move : Tata Motors may rack up more losses than profits with the buying of Jaguar and Land Rovers from Ford in 2008. The instant stardom that Tata Motors enjoyed due to a rise in prestige was nothing compared to the mammoth loss that both automobile brands had incurred – $510 million in 10 months since their acquirement. The real challenge is its sustainability in the next two years, while waiting for an upward stir in the premium segment (Srivastava 2009).

2. Long Term
a. Slimming down of the Group’s business:
The diversification of Tata Group’s businesses has grown too wide, losing focus on the core industries that are actual profit churning. Ratan Tata has failed to streamline its existing 100 business involvement to just 12 during his stint (Luthans and Doh 2009). As the baton of leadership passes on, the new successor will shoulder this heavy avocation on top of his portfolio.

5. ANALYSIS

The tight labour market and intensification of the mergers and acquisitions have brought many talented employees to the driver’s seat. Bidarka and Ajay (2008, 72,74) explained on the reality of a talent crunch in India, which will directly impact the total workforce of Tata Group since 90% of its employees are locals (Tata Sons Ltd 2012). To aggravate the situation further, Gupta (2011) reported on the extreme poor working conditions in Jamshedpur that may subject the 20,000 workers and 700,000 residents into considerable health hazard. Employees will avoid negativity at all costs and look for better opportunities elsewhere.

Since acquisition of Corus took place in 2006, Tata Steel was pressured under the aftermath of the recession concurrently. The steel production in UK has hit rock-bottom for years because of the volatile demands from user industries such as automobiles, consumers’ durables and capital goods (Gopalakrishnan 2011). The high operational cost in UK marginalized the profit yielding which made recovery more precarious. Guarantees of jobs for workers in UK are impossible, with themselves in hot soup.

Tata Motors has a long-standing reputation for truck-making, but are new to continental car-makes. Many dealers ponder if the Indian manufacturer could uphold the quality and reliability associated with the brands, and more essentially, revive the ‘already tarnished’ repute due to complaints of land rovers in Britain (Luthans and Doh 2009). Nonetheless, even if Tata Motors was prepared to propel its whole business strategy to an extravagant sphere, justice cannot be done to the two brands. SUVs have lost its novelty among consumers, resulting in a drastic drop in demand. Bad economy has stagnated the desire in owning premier-line cars, putting Tata Motors at tough spot (Srivastava 2009).

Ratan Tata believes in not putting all eggs into a basket when it comes to investment of businesses, but loses his head when the intention of rapid international growth overtakes his rationality. His over-diversification has resulted in causalities such as absorbing substantial amount of debts and employment resentment due to downsizing (Luthans and Doh 2009). Such unfavourable circumstances can be mitigated with better management and putting himself ahead of the curve.

Getting ahead of the curve means envisioning what the future may hold, and that requires a degree of courage. Mr. Cyprus Mistry, the deemed ‘dark horse’ took everyone by surprise when Ratan Tata appointed him to takeover his reins in December 2012 (Udas 2011). Though Ratan Tata sang full praises of Mr. Mistry, analysts remained conservative. Corporate watchers are skeptical about this new successor’s leadership capabilities as little was known about him (BBC News 2011). Afterall, he was appointed to lead the group out of the economic slowdown and debts.

If Tata Group is the only organization in India in debts, it is obviously an understatement. Goyal (2011) revealed that India’s public debt has made up 70% of her gross domestic product. Apparently, borrowing was made for the development of infrastructure to bring Indians out of their financial scarcity. What had hindered the progress was the mindset deeply embedded in most Indians, asking ‘why’ instead of ‘why not’. The nation’s mentality had created intolerance for laziness, for shoddy products and for open corruption (Rajan 2005). Tata Group will need to bite the nail in order to flourish its business in its home ground.

6. CRITERIA OF EVALUATION: GOALS AND TIME FRAME Upon establishment of problems that Tata Group encounter, a framework of the goals and timeline is proposed to help the management forecast the future of the mega-group:

7. ALTERNATIVES
To illustrate the above criteria of evaluation, the strategy statements (S1 to S4) are crafted to assist the management in formulating sound plans to rectify the identified problems:

S1: Tata Group should follow a sound business plan which addresses talent development, retention and occupational health safety of employees.

S2: Tata Group’s strategy for the next three years is to increase the local presence and revenue in India by 20% at the end of the third year, by breaking the vicious cycle of the detrimental attitudes displayed by Indians.

S3: Tata Group’s strategy for the next three years is to concentrate on the
three highest earning holdings: Tata Motors, Tata Steel and Tata Consultancy Services, helping them to recover from their debts as soon as possible and escalate the overall group’s international revenue by 40% at the end of the third year.

S4: Mr Cyprus Mistry should reduce the number of under-performing industries that Tata Group is investing by 10 every year. During the whole course of downsizing, he should refrain from diversifying into other businesses that will subject the organization to more debts.

8. RECOMMENDATIONS AND JUSTIFICATIONS

a. Managing and retaining talents:
These intangible skills of the workers are hard to retain and are important in maintaining the financial health of any organization (Katz 2000). Therefore Tata Group needs to address the needs of talent at all levels of the organization. It can offer the frontline staff and technical specialists with a rise in wage rate. The increase as proposed in the earlier section may not be significant to Tata Group in terms of amount, but can provide a lot more to the lower-income families in India (Guthridge et. al. 2008).

While the middle executives to top management are driven by monetary returns, other factor such as training and development and welfare package may affect their staying power. By sending staff to upgrade their skills relevant to their jobs and re-deploying the senior staff to train the inexperienced are ways to show that the organization values their employees. By insuring all employees with necessary health care benefits and providing a safe, conducive working environment shows that the organization cares their employees. The two methods adopted side-by-side by Tata Group will keep employee satisfaction high because it enables employees to expand their capabilities and grow within an organization. Retaining of employees is expected (D’Amico 2008).

b. Putting the wrong moves right:
If the group desires to attain S3 and S4, the wrong moves earlier must be reversed to turn the tables around. The gradual reduction of the businesses focus is related to the concentration in the three key holdings to the group’s empire. With less distraction in other areas, Mr. Mistry can consolidate the available cash-flow, coupled with soft loans from the European Banks to help make room for the manufacture of Nanos, an economical car costing less than $3,000 that spawn a craze in India and the Western continents in 2010. The new launch is projected to capture the India and overseas market gradually, providing an anchor for steady earnings while re-paying the existing debts incurred by Jaguar and Land Rovers (Srivastava 2009).

c. Government Intervention:
Tata Group’s livelihood in India is grim, unless a total reformation takes place in India. The whole situation is not hopeless with more and more younger individuals being educated in comparison with the older generations. They, freed from past baggage, tend to be more tolerant of competition and open. Complementing with the moral ethics and skills learned in schools, there is a hope for Tata Group to expand locally without human capital as the obstacle (Rajan 2005).

9. IMPLEMENTATION, CONTROL AND FOLLOW-UP

Below is a step-by-step illustration on the proposed strategies, with the limitations, follow-up actions and contingency plans highlighted: a. Managing and retaining talents:

Steps:
1. Increase wage rates at a $0.25/hr every year for a period of 3 years. 2. Send middle to top management for work-related enrichment courses that empower them with more knowledge to handle difficult problems. 3. Group Insurance schemes to be introduced across the board, with better health benefits for workers who are consistently exposed to bad working conditions. 4. Deployment of senior staff to train inexperienced employees to cut down on unnecessary downsizing.

Limitations:

- Interference of Trade Unions.
- Better alternatives available for the same positions at overseas. Follow-

Up: To see if the objectives set in the earlier framework has been met under Contributions to Employees after implementing the strategy for a three-year period. Contingency plan: Outsourcing of jobs to other nationalities like Cambodia or Laos where labour cost is comparatively low (Kei 2011).

b. Putting the wrong moves right:
Steps:
1. Dump under-performing industries gradually, prefably 10 per year. 2. Micro-manage instead of macro-managing by concentrating the fund usage to expand or sustain the three key holdings. 3. Due to the uncrowded market of economical cars in India and overseas, make and deliver as many Nanos as possible to increase market share geographically. 4. Refrain from new investments in untapped business.

Limitation:
- Emergence of other competitors with similar car-make. - Wrong judgment by Mr. Mistry to wind-up possible profit churning business. Follow-Up: To see if the objectives set in the earlier framework has been met under Total Revenue Locally, Total Revenue Overseas, Streamlining the business and Debts Incurred. Contingency plan: To engage market research analysts to assess on the profitability of its existing business before any decision of closure is made.

c. Government Intervention: It is unlikely to draw the implementation steps for this strategy as it is beyond the control of Tata Group.

10. CONCLUSION Tata Group’s survival over a century is not by sheer luck. Ratan Tata has made an imperative difference by elevating the whole group to higher grounds locally and worldwide. Whether Mr. Mistry can carry on the legacy left behind by Tata himself, it is still premature to tell at this stage.

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