B. Muthuraman, MD, Tata Steel: Breaking through the commodity cycle

It's a day after Tata Steel has announced its best-ever results-bottomline up a stunning 500 per cent-but its Managing Director of 24 months, B. Muthuraman, is as stoic as the product his company makes. "The results are very good, but the company has a long way to go if it is to sustain its performance even when the market conditions are not as good it is now," explains the 59-year-old.

Self-deprecating? Well, realism is more like it. After all, prices of steel have been on a roll since April 2002 with prices of hr coils rising from Rs 11,500 per tonne to Rs 19,500 per tonne currently. The going has been so good for steelmakers that even debt-ridden public sector giant, Steel Authority of India, reduced its net loss from Rs 1,706 crore to Rs 304 crore. But industry analysts expect prices to settle down in the second half of next year. Exports, which surged a million tonnes last year to touch 3.7 mt, are expected to decline due to lower global demand and trade restrictions. That means Muthuraman, who joined Tata Steel as a graduate trainee in 1966, will be back grappling with the industry's worst enemy: business cyclicality.

Industrial FMCG

Muthuraman knows as much and that's why instead of celebrating his company's record performance, he's already looking ahead. His single-point agenda is to figure out how to beat the commodity cycle. And going by Tata Steel's new initiatives over the last four years, the right-handed batsman and former captain of IIT Madras' cricket team may already have found the answer.

(After he was named to succeed J.J. Irani, Muthuraman was playing a management cricket match when, in a moment of inspiration, he dived across to take a catch off his own bowling and nearly fractured a finger. Irani's last piece of advice to his successor: "Muthu, now that you are the Managing Director of Tata Steel, stop diving across cricket pitches." Muthuraman seems to have heeded his advice. He now spends more time on the golfing greens, sharpening his 14-handicap game.)

Humming to a new tune: Tata Steel's cold-rolled steel plant in Jamshedpur

Drive through the company's 4-million-tonne-per-annum (TPA) facility at Jamshedpur and you can feel the steel giant humming to a different tune. No longer is the buzz about tonnage and spot prices. Instead, talks of customer value management (CRV) and retail value management (RVM), and branding make up the conversations in shopfloor offices. Walk down the corridors of the main works building and you are accosted by green belts and black belts from the Aspire programme, which combines principles from TPM, TQM, and Six Sigma. Says Muthuraman: "It's an institution that is breaking the commodity cycle and redefining itself as an industrial FMCG company."

Not surprisingly, then, Tata Steel's strategy to beat the commodity cycle is not unlike an FMCG's. It involves two things: One, branding and, two, gearing the product mix towards higher value. Over the last four years, the company has launched a slew of branded steel products, primarily for the retail consumer such as the construction steel brand Tata Tiscon, the galvanised sheets brand Tata Shaktee and in the tubes segment Tata Tubes.

The strategy is already working. The share of branded flat products, Tata Shaktee GC and Tata Steelium cr, in the overall segment has risen from 6 per cent. In long products, almost a fifth of the sales come from branded products. And overall, a good 14 per cent of steel sold is branded. Says Kabir Seth, chief of brand and corporate marketing: "What is important is that we are now being able to clearly build brands and go for capturing mind- and heart share of our customers." By the end of fiscal 2004, the share of branded steel is projected to double to 28 per cent, and the year after that to 34 per cent.

Branding, however, is only part of the strategy. A bigger thrust, which is more important from the customer point of view, is on creating a better product mix. What does it entail? Essentially three things: identifying key opportunities and segments, growing in high value segments such as auto skins and white goods sheets to pre-empt competitors, and getting out of the spot market in favour of long- and medium-term contracts.

The rationale, as the company's Deputy Managing Director Tridibesh Mukherjee explains, is straightforward. Long-term contracts allow 'relationship pricing" and, therefore, are less vulnerable to market vagaries. The first signs of success came when spot prices declined in March and April this year and yet Tata Steel was able to get better realisation for its products than it did the previous two months, when spot prices were higher.

Today, Tata Steel is the only Indian steelmaker that makes carbon wire rods, and steel for automobile and white goods. And the goal is to increase cold-rolled steel sales to automarket from 30 to 39 per cent and to white goods from 13 to 40 per cent. "We want to achieve strategic supplier status and partner with major customers in auto and white goods," says Muthuraman. Adds Mukherjee: "That means a large segment of our b2b business is with clients who look long term and work on an agreed price mechanism." In the retail segment, the company is stressing on brands and distribution to create loyal customers.

Back To Basics

For a steel company, making the transition from commodity to brands wasn't easy, though. As a first step, it focused on channel management and putting together feasibility reports from as early on as 1999. Once the exercise seemed realistic, a branding taskforce was set up in the MD's office in January 2000. By April, there was a full-fledged brand management department, and the first brand Shaktee was launched. By 2002, a brand protection group was put in place and another brand (Tata Pipes) launched. And in February this year, Steelium-a cold-rolled sheets brand-was introduced.

The company also realised early on that mere branding would not go any significant distance, unless it was accompanied by meaningful changes in customer experience. To do that, it launched customer value management and retail value management programmes, which bring the customer directly in contact with the company instead of the distributor. For example, when a customer wants modifications in product specs, it is often the people on the shopfloor who get in on the act. Says Mukherjee: "We have completely debunked the top-down model and it is now a knowledge-based initiative where anyone can contribute to solve a problem."

On the retail front, the company is setting up a dedicated channel, the first of its kind in the country. The idea is to get customers to ask for steel by brand name rather than category. In fact, so enthused is the company by the response to Tiscon and Shaktee, that it is planning to add a new bar mill in Jamshedpur and also replace one of its blast furnaces to ensure better production.

But should a company rated by World Steel Dynamics as the third best in the world after Nucor and Posco, really worry? The men in Tata Steel would rather that they do. "We know we have a long way to go and to travel that road, harvesting and managing knowledge will be the key," says Mukherjee. And that is the priority within the company right now. New ventures in ferro chrome in South Africa, boosting chrome exports from India and a titania project in Tamil Nadu along with a one million tonne steel expansion project are on the anvil. "Chrome is a special focus area and our South Africa venture will clearly mark a new beginning for us," says A.N. Singh, Deputy Managing Director.

But more than all these ventures what the company wants to improve is business processes. "We understand that this is going to be the key to success in the next 10 years if we are to remain EVA positive on a sustainable basis," says Narendra Sharan, Chief of Business Practices. No doubt, financial health is important. But as the 93-year-old company is learning, surviving the next 100 is definitely going to take a whole lot more.