"We now operate more as a group than we did in the past"

Ask Ratan Tata what's the first thing he thinks of every morning and he replies without batting an eyelid, "Coffee." The funny thing about it is that he probably means it. Never mind that he has 95 companies to manage and 22.99 lakh investors to answer to. But that's quintessential Tata: down-to-earth, witty and plainspeaking, if a little shy and reclusive. Even today, this licensed Falcon 2000 pilot-an architect by education-will fly his own plane while doing his whirlwind tours in the country. And given half a chance, he would rather cruise around in his new indy red Chrysler Sebring than sit through board meetings. Two days after the Tatas bagged VSNL, Tata sat down with BT's Sanjoy Narayan and R. Sridharan for a two-hour interview on his decade gone by and the one ahead. Excerpts:

Q. There have been a lot of major visible changes happening over the last few years. How do you look back in terms of what you had in mind when you started off in 1991 and what you have achieved 10 years later?

A. When we undertook the restructuring exercise, it was the first major restructuring the Tata Group had undertaken. Earlier, the environment was so protected that you didn't have to do any major restructuring. The first phase of restructuring required some basic foundation building. We developed a common corporate identity for our group companies, leveraging the strengths of the Tata brand. The group companies were required to sign an agreement to use the Tata brand, which entailed compliance with the quality standards and business ethics that we codified at that time. We developed the Tata Business Excellence Model to measure the quality and corporate performance of our companies, and required them to achieve specified levels of performance in order to continue to use the Tata brand.

We then instituted the Business Review Committees (BRCs), which constituted the formal interface between the group and our companies. Keeping in view the legal authority vested with the boards of our companies, we integrated the membership of the BRCs with the Executive Committee of each individual board. The BRCs review the strategic direction of each company, and the Executive Committee of each board reviews the operations and the budget of the company.

"I'd be happy to see people in their 40s leading the Tata group"

To oversee the entire restructuring exercise, we created a central group which we called the Group Executive Office (geo). Its primary task was to look at the strategic direction of each of our companies, in the process of which it set some tasks for our companies in terms of bottomline and topline growth based on historical growth trends, as also industry leadership in terms of being number one, two or three. Ultimately, the geo takes a view on the fitment of companies within our group.

The geo has also put in place certain important hooks such as a central hr, and central financial coordination with a view to standardise the MIS systems of our companies for financial reporting. The net result of all these initiatives has been that we now operate more as a group than we did in the past. This is a refreshing change from the times when we prided ourselves as being a loose confederation of companies, but what this really meant was that each company had the stamp of its own CEO and went its own way, and if you removed the name of the enterprise you could be looking at different companies with no connection to the Tatas.

You mentioned various steps that you had taken. But what about increasing shareholder value?

One of the first issues that struck me when we embarked on the restructuring programme was that there were several companies where it was really questionable whether we had the right to manage, because our shareholding was small. We therefore set ourselves a task to raise the group's shareholding in these companies to at least 26 per cent. The biggest 12 companies in the group made up 85-odd per cent of group sales and 90-odd per cent of the group's profits, and so, in fact, a lot of what I've said earlier was focused on these 12 companies.

Where in the past perhaps the boards of these companies tended to focus more on statutory issues, the BRC process forced them to look very critically at their businesses, in terms of issues like where they are going, will they be globally competitive, benchmarking against the best, and so on. Many of them had never done that before.

With the first phase of restructuring behind us, what we are now doing is not looking at our companies per se but rather at the businesses within a company. We will look to shed businesses that do not fit in our group, or that do not make business sense for our companies, and ensure that companies focus on their core businesses.

There has been talk about a movement from commodities to branded services and products. Would you tell us more about that?

I don't think that is a direction where we have put some specific goals in place. We just saw that we have a unified brand that we can leverage. There were many products that could have been branded but were not branded in the past because it didn't seem to matter. Now we have put a strong focus on what we could brand.

More importantly, we have been gravitating to the realisation that India will not be the factory of the world like China or Korea. The focus, therefore, from our side is much more on looking at industries or businesses that are not so much capital-intensive as skill intensive or technology intensive.

Is there a future for Tata Engineering at least in the passenger car segment without an alliance partner?

Smaller auto companies (globally) will have to look for market niches to operate. In the case of Tata Engineering, the niche may be the lower-end car. The unfortunate part is that the lower-end market does not offer much by way of margins. But you need volumes and that kind of scale, and production processes that will give you those advantages. That is what we have to look for. And there we can even stand on our own if we find markets beyond the shores of India. All that would come from having a niche product that is globally competitive.

Our challenge today would be to make the Indica globally competitive in terms of costs. If we can find markets to sell 20,000 or 30,000 more Indicas, then we are looking at a very interesting set of numbers. If you add variants to those numbers, you are looking at very reasonable numbers. Then you are in the niche. And if you focus on that niche, invest in technologies required to give that one platform all the variants and changes that you need, you survive.

What about Tata Steel?

Unlike the car business, which reflects emotive purchases, steel is a commodity. Today, we have enormous global overcapacity. And there is more to come. What has hit the global market is the entry of China. It produces over a hundred million tonnes of steel. That means it is a bigger steel producer than the US. And it was nothing a few years ago. Today, China is absorbing all that steel, but when its development process starts to taper off, its steel will hit the world market at whatever price China chooses to apply.

In such a global context, Indian steel makers will play a relatively minor role. Certainly, to the extent that Tata Steel can compete with other branded steel products in India, it will have the Indian market available to it and it will depend on the economy of India in terms of its domestic off-take. But overall, I think it will be a tough go for the entire steel industry, and Tata Steel, which may have in the past exported products, will not have the same arena to play in.

You have been quoted as saying that your dream is to have a Chairman who is 40 years old. Is it a pointer to what might happen in the future?

I didn't quite say that. What I did say was that I wanted our companies to be led by people in their 40s, and that could also hold for the chairman of the group. That would be something I would be happy to see. When I came on to the scene, I was very young in comparison to other CEOs in the group, a number of whom were in their 70s and a couple even in their 80s. I saw ageing CEOs who didn't leave their offices, seldom interacted with people, never visited the plants and certainly didn't visit the market place. I felt that it was a very great weakness that we had. So, despite some turbulence, we reintroduced our retirement age and put that into force.

Recently there has been a fair amount of pressure that the retirement age should not apply to me, which I have been quite openly fighting and saying that it should be applied uniformly to all. And to pre-judge your next question, I would say that I have a responsibility to identify my successor. When I turn 65 this December, I will step down from my executive function, which is today only in Tata Sons, where I am the Executive Chairman. But I will remain the non-executive Chairman and we will function the way we have over the years. I will also continue to be the non-executive Chairman of the companies I have. At the age of 70, I will step down and away from the group, and there will be somebody who will take over as the Chairman of Tata Sons and he will be identified and designated a couple of years before I leave.

But would that person do something that you have done over the last 10 years? Try to bring the group together, keep the values intact...

I would hope so and in fact the challenge would be to find the person who embodies those values and has that kind of objective. In every case of an outgoing chairman, the most difficult decision is whether you have made the right choice.

If I could just go back to the day I took over, I had to ask myself some very hard questions. I was wearing the boots of a person who was a legend, and I asked myself, what should I do? And, I decided, the worst thing I could do was to copy him or be him, because I could never be J.R.D Tata. So what I should do is just be myself, operate on the values that I had in me anyway, and do whatever I thought was right for the group. Similarly, I should not look for someone who is my carbon copy. That would be wrong.

You had the advantage of a Tata surname that commanded respect from the constituents, the stakeholders, and the partners. Would the new Chairman have that advantage?

Maybe not. And sometimes, it is better. When I came in, I faced a fair amount of dissidence that was not visible outside. There were other aspirants for this job who were not Tata, and so I was not the person whom everybody fully accepted. Hence I had to earn my spurs. A person who comes in with that name may have some advantages and some disadvantages.

Again prejudging your next question: why hasn't someone been identified? I think the time to do it is two or three years before you are ready to go. Maybe identify two or three people who are likely to be in the race. Let it then be a collective decision of the board in terms of who it is to be. Of course, the Chairman should influence that strongly and let that person be in place and let there be an overlap. Finally, make sure you are not looking over his shoulder and let the successor operate.

Where do you see Indian industry, and your group within it, over the next five years? What will be your growth thrust?

I would say that our emphasis would not be what it was 15 years ago, looking at capital-intensive industries, for the simple reason that it is difficult to attain world-scale in this country, given the size of the domestic market. We will be looking more at technology-intensive and skill-intensive areas, where scale is not such a big issue but the tech-intensiveness or the skill-intensiveness will be key. Which is why we have placed more emphasis on the services side, on it and telecom, but not on the hardware side.

What kind of legacy do you ideally want to leave behind?

I think I would like to leave behind a group that has been transformed from a patriarchal kind of a structure to an institutionalised structure, less susceptible to personalities. A group that places greater demands on performance than it has done before. But a group that hasn't changed in terms of its value system or its operating ethics. I would like to leave behind a group that is full of younger people, much more nimble footed than it has been, reacting faster and being proactive. If I could leave behind a group where the group companies occupy leadership positions, imbibe the same value system, are manned by younger people and are more agile, I would, from wherever I am, consider that fine.