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Published: February 23, 2010
 / Spring 2010 / Issue 58

 
 

Too Good to Fail

India’s Tata, one of the world’s largest conglomerates, is basing an ambitious global strategy on 142 years of social entrepreneurship.

When India’s Tata Tea Ltd. purchased Britain’s Tetley Tea Company for US$450 million in early 2000 — at the time the largest sum ever paid by an Indian company for a foreign acquisition — the rationale for the deal was clear. Tata Tea would not just gain one of the world’s most iconic brands. It would also transform itself from a sleepy farming operation with a core business of barely profitable tea plantations to a high-margin global distributor of specialty teas and other healthy beverages. Soon after the acquisition, Tata made another logical move. It sold its vast plantations in Munnar, a mile-high, economically underdeveloped community in the Western Ghat mountains of South India, where Tata had been the largest employer for a century.

But the transaction was anything but routine. Instead of working out a lucrative deal with eager investment bankers, bribing local politicians to mollify them, laying off workers, and selling to the highest bidder, as some other Indian companies shedding a moribund business might have done, Tata Tea sold 17 of the 25 plantations to its own former employees. Layoffs were generally limited to one per household, and Tata gave a group of voluntary retirees enough cash to buy equity in the new company that was formed. (That company, Kanan Devan Hills Plantation Company [KDHP], still operates as an employee-owned enterprise.)

Although Tata Tea would henceforth maintain only limited business interests in the area (including some equity in KDHP), the company continued its active social role there. It still subsidizes a range of social services and KDHP employee benefits, including free housing for plantation workers, a private school, an education center for disabled children and young adults, and the newly renovated Tata General Hospital in Munnar. Tata still remains a major customer of KDHP, which helps guarantee a stable supply of tea at competitive prices.

Such gestures of largesse and long-term commitment are not unusual for Tata, the massive, mostly Indian group of companies to which Tata Tea belongs. Roughly 90 companies are part of this conglomerate, or “family” (as many Tata executives prefer to call it). Each is led by its own executive team and governed by its own board of directors. But they are bound together by an interlocking governance structure and a set of corporate values passed down over 142 years from the founder, Jamsetji Nusserwanji (J.N.) Tata. As of 2010, Tata is a $70.8 billion commercial enterprise, employing about 350,000 people in 80 countries, across an eclectic array of industries — including hotels, consumer goods, mining, steel manufacturing, telecommunications, trucks and cars (including the much-publicized $2,500 Tata Nano), electric power, credit cards, chemicals, engineering, and IT services and business process outsourcing. Not even General Electric sells such a wide range of products and services.

Since its founding in 1868, Tata has operated on the premise that a company thrives on social capital (the value created from investing in good community and human relationships) in the same way that it relies on hard assets for sustainable growth. With every generation, Tata’s executives and managers say, they have nurtured and improved their capability for “stakeholder management”: basing investments and operating decisions on the needs and interests of all who will be affected. For Tata, this means shareholders, employees, customers, and the people of the countries where Tata operates — historically India, but potentially anywhere.

“We may be among the few companies around the world who think and act first as a citizen,” says R. Gopalakrishnan, an executive director of Tata Sons Ltd., the privately held holding company of Tata, and a director of several Tata companies. Indeed, the primacy of citizenship — a philosophy associated historically with J.N. Tata — continues to be used as a corporate credo: “In a free enterprise, the community is not just another stakeholder in business, but is in fact, the very purpose of its existence.”

 
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Resources

  1. R. Gopalakrishnan, The Case of the Bonsai Manager: Lessons from Nature on Growing (Penguin Portfolio, 2007): “The leader needs to think about issues at the edges of the spectrum of the obvious.”
  2. Ann Graham, “The Company That Anticipated History,” s+b, Summer 2006: How South African power utility Eskom Holdings Ltd. combined social leadership with business strategy to prepare for the end of apartheid.
  3. Ronald Haddock and John Jullens, “The Best Years of the Auto Industry Are Still to Come,” s+b, Summer 2009: The Nano’s prospects in context.
  4. Tarun Khanna, Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours (Harvard Business School Press, 2007): Macro view of today’s two great sources of emerging business creativity.
  5. Nirmalya Kumar, India’s Global Powerhouses: How They Are Taking on the World (Harvard Business Press, 2009): Profiles of ArcelorMittal, Infosys, Hindalco, Mahindra & Mahindra, Tata Group, and more.
  6. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: Impossibly low-cost, high-quality products and services (including one from Tata’s hotel group) that start by cultivating constraints.
  7. Tata Group website: Comprehensive information, original interviews and stories, public media reports, and links to other resources about the company.
  8. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/global_perspective.
 
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