Cover Story: The House of Tata restructuring for Excellence

The changing competitive environment has led to the Tata Group's largest-ever change initiative: the Tata Business Excellence Model. BT examines the new mechanics of change at India's premier family business group

They had congregated to be told that they were jolly good fellows running jolly good companies that would have to do better in future. After all, it was July 29, 1999, the birth anniversary of the late J.R.D. Tata, when it is customary for the Chairman of the Tata Group to address senior managers of group companies, review the financial year gone by, and set new targets--all of it in a non-threatening, unassertive manner. So, when Ratan N. Tata, 63, strode to the podium, the assembly was not prepared for what followed.

The normally mild-spoken Tata heaped no encomiums on anyone. There were no self-congratulatory platitudes, no gentle reminders of the need to do better. Instead, he launched into one of the most passionate indictments of the present at the Rs 33,000-crore, 107-company, 37-business Tata Group, warning everyone that the transformation the competitive environment was undergoing could leave the Group in smithereens unless each and every company began grappling with the challenges of change--now.

All these years, said Tata, the Group had amassed physical assets under the impression that these would insure it from competition in the marketplace and from dawn raids by hostile predators. The result was that most of the Group's companies had acquired huge dimensions. But this very size, Tata elaborated to a by-now-stunned-into-silence audience, could prove to be an albatross. It would prevent companies that had become used to operating in sellers' markets from being fleet of foot and responsive to customer requirements. The Group, declared Tata, would have to transform itself fast. Or else, its business leadership quotient, already at a low for all its main businesses, would worsen.

The Declaration of 99--some day, the Tata Group could well refer to this watershed speech with that title--was no empty statement of intent. For a year, Tata had been insinuating into the Group's operations its largest-ever change initiative: the Tata Business Excellence Model (TBEM). Between December, 1998, and January, 2000, 30 companies have signed up to implement the compliance plan laid out by this model. And, beginning July, 2000, these companies will be annually evaluated on the 7 criteria that constitute the TBEM: Leadership, Strategic Planning, Customer and Market Focus, Information and Analysis, Process Management, Human Resource Focus, and Business Results. Each of these criteria has a number of points attached to it, with all of them totalling 1,000. The goal for each participating company is to reach a score of 600 over the next 5 years. The more ambitious companies like Indian Hotels and Tata International have set a target of achieving that magic number in just 3 years. Says Xerxes Desai, 57, CEO, Titan Industries: "What the model evaluates firms on is the least that any company with even a pretence towards excellence should be doing."

The Origins

The genesis of the TBEM lies in the JRD QV Award. Launched in 1994, the QV Award is based on the Malcolm Baldridge National Quality Award that jump-started a small but growing quality movement in the US in 1988. By introducing the award internally, the Tata Group hoped to replicate that passion for excellence, demonstrated by the12 companies that initially signed up to compete for the award.

The JRD QV Award had already put in place the required mindset for the companies that would compete and the focus on process and customer satisfaction. In addition, it had effected the structural changes required to monitor and facilitate the award. For instance, a network of 80 quality champions was developed across the Tata Group, with each champion representing one company. A team of JRD QV examiners was inducted and trained for evaluating the applications and certifying them through an examination. The number of such examiners soared from 14 in 1995 to more than 200 in 1999. Then, in a related move, the Tata Brand Equity Business Promotion (TBE-BP) scheme was launched in December, 1999. TBE-BP laid down a set of conditions for the usage of the Tata brandname. For the first time in the Group's history, there was a code of conduct and ethics for group companies. In addition, the Tata logo was revamped, and its specifications laid down.

Both the Group's initiatives--the TBEM and the TBE-BP--have ambitious objectives as they attempt to take the Group's 100-odd companies, organised as they are in a loose federation, through one of the world's toughest certifications of excellence. One indication of the magnitude of the task is the fact that despite competing for it since 1995, no company in the Group has as yet won the beautiful Baccarat crystal JRD QV trophy, designed by Titan. Although a handful of firms, like Tata Steel, Titan, Tata Honeywell, and Tata Infotech, are hovering around the 500-mark, none has touched 600. While Tata Steel is the only company that has crossed the 500 mark, Titan is a close second at 450 points. There is an entire clutch of third-tier companies, like Tata Infotech and Tata Honeywell, that are closing in.

The size of the Group is a concern, but not as much as attitudes. Sudhir Deoras, Managing Director, Tata International, has a pretty typical challenge ahead of him: convincing his employees at the leather exports division that customer management is critical although they might never see these customers. With 59,000 workers in one coffee estate and 55 tea gardens across 25 states in India, Tata Tea has the unenviable task of communicating the message of the TBEM across its divisions.

For years now, the Tatas have been associated with a lethargy and stodginess that hardly befits the image of India's premier family group. One would grant the Tatas impeccable values, ethics, and the ability to function at a high level of social responsiveness. But, process-orientation as well as quality-consciousness have been the prerogative of a few of the Group's companies like Tata Steel, Tata Engineering, and Titan Watches. In fact, the reason that Tata Steel is way ahead of the others is that its cycle of improvement started as far back as 1991.

Says J.J. Irani, 64, Managing Director, Tata Steel: "In the post-1991 scenario, a completely different set of parameters have guided the corporate and business objectives of the company. The strategy, the vision, and the objectives had to undergo a sea change if we had to be successful. There was no alternative." Asked whether the atmosphere in the Group was one of recognition that things must change, M.N. Bhagwat, 52, Advisor, Tata Sons, and Head (Corporate Assurance Group), Tata Group, says: "Truthfully, about a year ago, I was worried. Today, I'm not." Elaborates Jamshed Daboo, 48, CEO, Tata Quality Management Services (TQMS): "People are excited now, and the momentum is just beginning."

The Structure

Daboo personifies the change. As a Tata Administrative Service graduate, he joined Titan in 1986, and was moved to the Group's Mumbai headquarters in October, 1998. There, he and a team of 5--4 pulled in from other companies and 1 hired externally--set up TQMS as a division of Tata Sons. This is the body that will drive the TBEM, monitor the application process, and train and certify the examiners. The TQMS will also function as a conduit for sharing the knowledge and best practices across the Group. For instance, it is putting together a series of Pretty Good Practices, culled from group companies. The first one focuses on how certain measures are used to drive performance. One example is the New Product Introduction Process: how it is measured, and how it can be improved. The second in the series will focus on customer complaint management.

The TQMS is given focus by a Group Executive Office (GEO), formed in October, 1998, that Daboo reports to. The GEO was the culmination of structural changes at the helm of the Group, suggested in part by the famous McKinsey report. The report, submitted in early 1998, warned that the Tata Group did not have an efficacious structure or process in place for macro-management and group-wide strategic planning. Says R.K. Krishna Kumar, 61, Managing Director, Indian Hotels: "The realisation is clear now that the Group needs a strong focus. Everything else is incidental to the central task of performance."

Indeed, there is good reason for concern. Aggregate net sales of 38 Tata companies declined by 2.5 per cent in 1998-99. The aggregate net profits have declined by as much as 16.40 per cent in 1998-99, over and above a 20.80 per cent decline in the previous year. Gross profits have declined by 5.2 per cent. The McKinsey report recommended that the Group focus on its core competencies and improve operational efficiencies. One of the responses to this was the GEO, and a closely-guarded list of businesses and companies that are to be divested. The rest are grouped into 7 business sectors: materials, energy, chemicals, engineering, communications and information systems, services, and consumer goods. Says R. Gopalakrishnan, 56, Executive Director, Tata Sons: "The process of devising a system to allocate the companies in each category is, at present, under way."

While the board of Tata Sons continues to be the Holy Grail, the executive responsibility for these 7 businesses lies with the GEO that serves as a strategic think-tank for the Group. It consists of Ratan Tata and 3 executive directors: R. Gopalakrishnan, Ishat Hussain (Senior Vice-President and Executive Director, Tata Steel) and A. Soonawala (Group Finance Head). The Group is on the look-out for a fourth executive director. Manab Bose, the former human resources head of General Electric, is now the HR Director for the Group and a member of the GEO, but not an executive director. K.A. Chaukkar, the former head of I-SEC, heads Tata Industries, which performs the Group's venture capitalist role. The model's implementation is being monitored at this level.

Company-level structures are similar. An apex group at the top, a core group at the second level, and task-specific functional teams and a corporate quality head that has overall responsibility for driving the model. At Indian Hotels, the Apex Quality Council drives the initiative from the helm, but the ground implementation is done through 150 cross-functional teams. For instance, at the Taj Palace, Delhi, one of the teams consists of the Executive Chef, Credit Manager, and the Materials Manager. Tata International has a similar format with the 6 business councils reporting to an apex body.

In larger organisations, such as Tata Steel, the range of the structure is wider. Tata Steel set up an Apex Quality Council, chaired by the Managing Director, and staffed by vice-presidents and senior general managers. The council decides broad policy, and meets quarterly to review progress, but the deployment is done by 9 quality councils, chaired by the vice-presidents, and the 36 quality sub-councils, chaired by divisional heads.

"There was a need to re-focus, and look at how your customer sees you"
Ratan N.Tata, the Chairman of the Tata Group, spoke to BT's Radhika Dhawan about the need for the Group's companies to focus on quality in holistic and comprehensive manner, and how the Tata Business Excellence Model emerged out of this need. Excerpts from an exclusive interview:

Tata, thank you for meeting us. There are plenty of tools and models of change that could be implemented in large groups. Why did you choose the Tata Business Excellence Model?

It all started with the need to focus on quality, and an awareness of quality. And we found in the group that different companies' perception of quality varied grossly. After the death of J.R.D. Tata, we thought nothing would be more fitting than a process which would create a recognition of quality. Then, we tried to put some bones and flesh on the idea, and decided to install the Malcolm Baldridge Award as a model because, internationally, it is a coveted quality award.

Quality has many faces: the quality of the company and the way it is run, and not just the quality of the product. The Malcolm Baldridge Award is holistic in its approach. There are many other awards that exist for quality, like the Six Sigma, which, in a manner of speaking, are a means to an end. What we liked about the Award is that it's holistic and comprehensive.

We then went about establishing this as an annual award in the Group on JRD's birth anniversary, and tried to adapt it to meet our needs. What emerged from the first cut is the fabric of really transforming some of the companies if they tried to comply with some of the issues that were spelt out in terms of rating. And that was something not foreseen. It was something we saw after we put everything together. Then, our reaction was: "If companies would really try and aspire to climb the ladder on this, then we would have companies which would be setting higher goals of excellence goals in a variety of areas."

As this emerged, companies looked at this as an award process and with a let's-win-the-prize attitude. In our first year, this was a dilemma we faced. Do we give a prize every year or do we uphold the standards that we had set, and since no company had reached that, we say no? We debated this no end because when you have an award, you give it every year. You may give it to the best company, but it was still short of what we had previously said was the threshold for the award. So, we finally decided that we would not give an award till the company met the standard because we would be diffusing and diluting the value of what we created. So, we didn't give the award; we gave some recognition and citation. To date, there has been no award.

By the second year, we really wanted the companies to move away from this award to improving the fabric of the enterprise. We are looking at companies being creators of excellence--in the manner in which you conduct your business, the way you treat your employees, the way you conduct business, and the way you treat your stakeholders. And if you do all of that, you will get the award any way.

We did this because there were companies that said: "Oh! I'm just a small company, and the award will go to a big company because they have the resources to make this happen." We didn't want any company to walk away from this process. We wanted this to have some sort of operating creed. And we have tried to focus on this creed and the model of excellence, and said that we will work with you in focusing what your gaps are and what your weaknesses are, and help you walk this path. That's where we are today.

This is the first initiative of such magnitude being taken up in a group which is not really used to functioning in a cohesive manner. What are the hindrances--cultural or structural--to implementing it?

We like to be considered as a group. But what we have been for the last 30 to 40 years is an aggregation of different companies, some bearing the same name, each one operating differently--each one in the footprint of its leader, different and individualistic. While, on the one hand, this has some advantages, on the other, it has been difficult to rein them into some sort of framework. The battles to make that happen are public knowledge, and ate up many pages of the media.

The more traditional and bigger Tata companies were the ones that operated in the seller's market. They operated in a manner where they did not undertake any action to wilfully deceive the customer or provide him bad value for money. By and large, our intention has always been to deal with our stakeholders in the most fair manner as we could. But there were varying degrees of this, depending on the CEO's view of what was right or wrong or fair or unfair.

A couple of things were quite significant. Over the years, much of our attention in our more traditional companies was on establishing manufacturing facilities because that gave us a good product. The product gave our customer good value, but we didn't benchmark ourselves against the best of the breed, either in India or globally. Some companies never looked at marketshare, and we always compared ourselves traditionally to our past. Better than last year was good enough. I'm not trying to talk against our companies; they did a great job in contributing to our country. But many of them got into the phase of reacting to the market instead of being proactive.

While in the 1930s and 1940s, the Tatas had led the nation in initiatives, now we were following someone to catch up, and, in many cases, losing marketshare. There was a need to re-focus and look at how your customer sees you, and to pay more attention to what the customer wants rather than what you think she wants. Are you really the most cost-effective producer? Are you aggressive enough to grab marketshare? Will you endeavour to dip your toe in the water and do something that you haven't done before? All those things needed to change.

And then you have to focus on the fact that you are not just going to be judged on your turnover growth or profit growth, but on a much wider set of parameters. These are some of the changes that must be made. But a couple of nuances have come in. One is that we are saying we will define our core businesses and focus on some of the business areas. And we will gauge you on how you comply with this more holistic parameter of how you conduct your business. If you don't, we might not decide to carry you.

All 3 things might happen. So, I think, in answer to your question, there will be some instances in the present, or maybe future, where this kind of thing will take place. And that message will be the manner in which some of the companies will take it up and say, "Oh! I need to do something."

You mentioned certain core businesses. What sort of Tata Group are we likely to see in the near future?

I'm not willing to answer that specifically now since we are in the process of doing this. But I will say this to dispel any misunderstanding. No company should steadfastly say, over several decades, that this is our core business. You might add a business which is core, and you might take out a business you thought was core at that point in time. I would not like to be party to necessarily running up a flag, that this is our core business and now it is gone. All I can tell you is that it will be a deliberate exercise. Someone will not come to us and ask: "Will you make toothpaste?" and we will not say, "Let's set up a company to do so," which is what happened in the past. Does that mean that we will get out of some of the businesses that we have gone into the past? Yes, we may.