Seven years after he took over as CEO of Tata Steel, J.J. Irani is ready to hang up his boots. What's more, he's leaving a new company behind for his successor.

By Debojyoti Chatterjee

In early 1994, soon after taking over as the managing Director of Tata Steel, Jamshed J. Irani put down a list of things he'd like to achieve. Last month, he added a small postscript to the list: ''Make life easier for the next man.'' In many ways, the 65-year-old Irani has already ensured that. The Tata Steel he will leave behind on July, 2001, is a different company from the one he took over. Every aspect of its management, from production to supply chain, and human resources to marketing, has undergone radical change. And Irani will have the added satisfaction of signing off a seven-year period that began with the company setting off on a south-bound net profits trip by witnessing it declare its highest-ever net yet.

Anyone who had occasion to visit Tata Steel in the tempestuous spring of 1994 (when Rustomji Hormusji Mody and the Tata clan were busy playing Billy the Kid and Pat Garrett) is sure to be surprised by the new Tata Steel. It's slimmer; it's faster; and it somehow seems more confident. It is also an organisation built around efficient business processes and two-way communication lines between the senior management and the rank and file, not one individual manager's charisma. Put simply, under Irani, Tata Steel has sought to reinvent itself along three axes: management structure, production processes, and human resource management. That may sound like management-gobbledygook, but it is the recipe on which the company has orchestrated its turnaround. In plain-speak, the formula is all about how Tata Steel will be structured, who'll replace Irani, and how the successor will go about managing the steel behemoth.

Restructuring management

The agenda: reorganise the structure of top management and, eventually, the entire organisation so as to move away from the hierarchical model to one that believes in empowerment and performance-based pay, creating, in the process, a younger company. Institutionalise the use of information technology and create one of the lowest-cost producers of steel in the world.

The climactic chapters of what has, arguably, been Irani's toughest challenge are playing themselves out now. The process, which started out, as an exercise of identifying managers for the company's top 100 executive positions (called performance ethics programme)-over a year back with the assistance of management consulting firm McKinsey & Co-has now been extended to the next level of between 250 and 300 positions. ''I want to achieve a truly modern management structure that optimises the company's performance and pep is a step in that direction,'' says Irani.

Today, with the help of another consulting firm Eicher Consulting Services, Tata Steel is working towards a non-linear, impact-based management structure. The company expect this to make business processes far less bureaucratic. That apart, once work on the second-level position is done -this should take till end-February-Irani plans to unveil his new SBU (Strategic Business Unit) driven structure for Tata Steel. ''This should see the age of the decision makers coming down by at least 10 years,'' claims Irani.

Indeed, decentralisation and empowerment seems to be the dominant thread in Irani's restructuring tapestry. His successor to the post of managing director could be one of three executive directors: Tribidesh Mukherjee, Firdose Vandrewala, or B. Muthuraman. While some reports in the popular press suggest that Muthuraman could be the next MD with Mukherjee and Vandrewala occupying newly-created positions of a Chief Operating Officer (essentially in charge of production) and a Chief Portfolio Officer (who will look after the company's non-core SBUs), Irani himself is loath to put a name to his successor.

Restructuring operations

The agenda: to overhaul the production process and turn Tata Steel into a customer-driven company. To identify market segments and get around to dominating them. To admit to being a niche player with global economies of scale (on a unit basis) and undertake ruthless cost-cutting exercises.

In hindsight, Tata Steel's approach to streamlining its operations is steeped in common sense: it is driven, not by the company's production processes, but market dynamics. But to do that, it first had to ensure that its manufacturing processes were comparable to those of the world's best steel producers. By benchmarking itself with and adopting the best practices of companies like Nippon Steel, and POSCO, Tata Steel has been able to reduce its cost of production from $225 a tonne in 1998, to $150 a tonne, today. Boasts the company's Executive Director (Operations), Tribidesh Mukherjee: ''This is amongst the lowest in the world.''

Achieving this has involved some amount of innovation. For instance, Tata Steel no longer uses manganese to increase the strength and flexibility of its steel-it uses an alternative method-as the metal is too expensive. Critical to the cost-reduction drive is the company's new make-to-order philosophy. Today, Tata Steel has identified a few market segments and intends to dominate them by delivering the best steel at the lowest cost and the quickest time. The company's delivery-time, for instance, has shrunk from three-four weeks in 1998, to two weeks now (and is expected to become one week by end-February, 2001). ''Tata Steel was always perceived to be an operations company,'' explains Firdose Vandrawela, Executive Director (Sales & Marketing). ''Now it is a business practices company.''

Aligning production process to market dynamics required the IT-enabling of Tata Steel's marketing and sales function. While this provided the necessary transparency in terms of information-everyone from the head of marketing to the most junior salesman to the customer had access to it-a parallel reorganisation of the marketing and sales department provided the motivation. The marketing and the sales functions were segregated; as were the front- and back-ends, ensuring that sales people had to worry about understanding the customer and little else (which they seem to have achieved as most of the company's production is now based on accurate demand-forecasting); and a performance-based compensation system was introduced.

These done, and the entire Order To Receipt (OTR) cycle e-enabled-making it possible for customers to track orders-Tata Steel is focusing on e-business and branding. ''In the next couple of months, we will start our e-business effort called metaljunction.com and intensify the branding process,'' confirms Vandrewala.

More important, Tata Steel's operational improvements have resulted in an increase in profitability. ''Our ratio of profit to revenue is improving with every passing year,'' says Irani. Agrees a Tata Steel tracker at CSFB: ''The company's performance is clearly being noticed. Its profitability is the highest among all steel plants in the country and so is its consumer satisfaction index. It is also the market leader in its chosen high-end segments like the auto sector, galvanised steel business, and construction steel. It's clearly turned the corner.'' The market hasn't been totally oblivious to this turnaround: in the last seven days of January, the company's market capitalisation increased by 31 per cent. Ajay Kayan, a leading player at the Tisco counter is bullish on the stock: ''The current price hovering around Rs 131 and a PE multiple of 10.5 look very attractive in the short- to medium-term. The long-term prospects look good provided the transition in management is smooth. Of course, the lack of volumes in the counter can pose a slight problem to record spectacular gains.''

Realigning human resources

The agenda: concentrate on human resource management. Reduce employee strength by at least 35 per cent through a fair employee separation scheme. Invest in training.

In 1994, Tata Steel had a workforce numbering 75,000. By the end of July, 2001, this number will read 48,000. And as S.N. Pandey, a vice-president in the company's human resources department (the born-again industrial relations dept) is quick to point out, the decrease hasn't just been in the number of workers but the number of designations: from 4,600 to less than 2,300. The company's new cold-rolled steel plant (it went live in mid-2000) is a case in point. ''The 1.2 million tonne mill is run by a mere 500 workers and the plant is highly automated. We also have a performance-based pay system. The same concept is now being extended to older operations,'' exults B. Muthuraman, Executive Director (Special Projects).

Part of Tata Steel's new avatar is the lean mentality: needbased hiring, no attendants to serve tea, and the outsourcing of several activities. Thus, Viviendi Corp of the UK will soon take over the water distribution system in Jamshedpur, and Tata Power is managing the city's electricity network-both services that were part of Tata Steel's responsibilities in the welfare-state past.

Managing the future

What is clear about Tata Steel's future is that it will be one that is market-driven. Thus, although the company has acquired the land for a plant at Gopalpur (in Orissa), it is in no hurry to go ahead with the construction, preferring instead to wait till a port in place and the steel market looks up. And with the global steel industry consolidating, Tata Steel has wasted no time in scripting its own part in the larger scheme of things. ''We will be a niche player with a level of excellence comparable to the best in the world. Our emphasis will be on high-end products like those targeting the auto and the white goods sector. And we will try to sell at least 15 per cent of our output in the international market,'' says Muthuraman.

It is the man on the way out, though, who has the last word on Tata Steel's appeal to potential employees and customers. ''The steel industry has many suitors,'' chuckles Irani, ''but we'd like to think of ourselves as Aishwarya Rai-the boys will always come after us.'' That's certainly a far more market-driven kind of statement than the company's exalted we also make steel motto. But market-driven could well be the perfect adjective to define the character and culture of the company Irani is leaving behind for his successor.

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