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

 
 

Too Good to Fail

All Tata businesses annually earmark part of their operating expenditures for social, environmental, and education programs. For example, Tata Steel sets its budget for social services in the community as a percentage of pretax operating income. In good years, it might be 4 percent, and in lean years, 18 percent, but the absolute amount does not change. At Tata Steel, money goes to employ doctors, teachers, rural development experts, athletic coaches, geologists, social workers, and others — often known internally as members of corporate sustainability teams — in ongoing community service activities in Jamshedpur and the surrounding rural villages.

The group’s social expenditures add up to millions of dollars annually: $159 million in fiscal year 2009 for all the trusts and businesses. The Tatas regard this spending as an operating investment. “For us, [community support] is a fixed cost of manufacturing,” says Partha Sengupta, vice president of corporate services at Tata Steel. In 2008, this unusual level of community involvement helped the steel company win Japan’s prestigious Deming Prize for quality — the first Indian company to do so.

Even Tata’s innovations — its efforts to find new markets through the launch of products and services — tend to have a social benefit component. The $2,500 Nano car, for instance, was conceived (with Ratan Tata taking part in many of the brainstorming sessions) as an affordable and safe family car designed to wean Indians off their dangerous motor scooters, and provide them with a symbolic entry into the middle class.

“Ratan’s main objective with the Nano was to demonstrate to the automotive industry that it is possible to cost-effectively make a vehicle that is so small,” says Elias Luna, CEO of Luna & Goodman, an international corporate finance advisory firm.

Another Tata project brought together engineers from TCS, Titan Industries (Tata’s watch manufacturing company), and Tata Chemicals to develop a compact, in-home water-purification device. Launched in 2009, the Tata Swach (the name means “clean” in Hindi) costs less than 1,000 rupees ($21), with filters that last about a year for a family of five. This makes it affordable for millions of Indians who have no other access to safe drinking water in their homes. The Swach was inspired in part by the 2004 tsunami, which left thousands of people without clean drinking water.

TCS also designed and donates an innovative software package that teaches illiterate adults how to read in 40 hours. “The children of the people who have been through our literacy program are all in school,” says Pankaj Baliga, vice president and global head of corporate social responsibility for TCS. In these cases and others, Tata follows a philosophy of providing some of the poorest people in the world with devices that improve their prospects (and those of their children) at price points they can afford, often with enough profit margin to keep the company competitive.

Tata’s culture of service was on display after the November 26, 2008, terrorist attack in Mumbai, which badly damaged Tata’s flagship Taj Mahal Palace hotel. The hotel was repaired and reopened less than a month after the attack. Indian Hotels, Tata’s hospitality company, directly oversaw the medical treatment of injured staff members and paid generous health and school tuition benefits (including the assignment of a “counselor for life”) to the families of all slain individuals, including railway employees, police officers, and passersby who had had no direct connection with the hotel before the attack. “The organization would spend several hundred crore [tens of millions of dollars] in rebuilding the property,” noted Dileep Ranjekar, a management speaker who met with Tata Hotels senior executive vice president H.N. Srinivas after the attack. “Why not spend equally on the [people] who gave their lives?”

 
 
 
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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.