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

 
 

Too Good to Fail

The founder’s Parsi beliefs continue to exert a strong influence on Tata’s culture. Historically, most of the inner circle of Tata company leaders have been Parsi, and there are many lifelong employees whose modest backgrounds fit naturally with the company’s self-effacing style. “They are extremely modest,” says Ruth Kattumuri, a codirector of the India Observatory at the London School of Economics. “They have sponsored several events for us in India, often without wanting any publicity.” Tata is known for hosting lavish celebrations, but in general it rewards employees less with giant salaries and bonuses and more with a sense of belonging to an elite organization with an impact on the world.

This blue-chip attitude is reinforced by strict standards for integrity and ethical conduct. For example, Tata companies have always carefully avoided any activities with even a tangential link to “sin” industries — a term that for the Tatas encompasses not only tobacco, liquor, and gambling but also motion pictures, given the association in India between Bollywood and organized crime.

In the mid-2000s, the leaders of the group’s publishing company tested this stance, asking for funding to start a film division. “They said, ‘Everyone else is making money in this, why shouldn’t we?’” recalls Jamshed J. Irani, vice chairman of Tata Sons. “The inner circle discussed it and decided that this was not acceptable.” The publishing company’s management team made plans to go ahead anyway with a movie production unit using outside investors. In response, Tata sold its shares in the company and removed the Tata name.

“That gave them second thoughts,” relates Irani. “They told us, ‘We don’t want to leave the family.’ But it was too late.”

Global Stretch

The “expansion” era of Tata’s history (as it is called on the group’s website) began in 1992, one year after the Indian government lifted foreign investment and exchange controls and eliminated many restrictions on outside companies. Suddenly, multinationals such as Sony, Philips, Ford, and Toyota entered India, exposing the quality problems of many local companies and using their marketing prowess to outpace popular domestic players like Tata.

Ratan Tata and other company executives concluded that they would have to revitalize their businesses and move outside India’s borders. All Indian companies faced the same pressure to globalize, but Tata moved fastest and furthest. The new strategy kicked into high gear in 2004, when Ratan Tata hired Alan Rosling, chairman of Hong Kong’s Jardine Matheson Group (an investment bank with large holdings in Tata Industries) and former director of a Jardine–Tata automotive joint venture, as an executive director of Tata Sons. Rosling later said that his personal admiration for Ratan Tata had compelled him to take the job.

In the acquisition strategy that Rosling designed, Tata has sought two types of companies: prestigious consumer brands like Jaguar, Eight O’Clock Coffee, and Good Earth tea; and critical industrial enterprises. The latter include Corus; the soda ash mining companies Brunner Mond and General Chemicals; and Tyco Global Network, an undersea fiber-optics asset once held by the disgraced Tyco telecommunications company.

One way that Tata hopes to quickly turn around its overly leveraged units is through equity offerings, once global investors are willing to participate. In mid-2009, for example, Tata Motors used about $1 billion in financing from fresh stock and asset sales to whittle down its 10-to-one debt-to-equity ratio. It remains to be seen how the broadening of Tata’s investment base will affect its magnanimous corporate culture. But global expansion increases the pressure on Tata to provide rapid returns, and it could diminish the family’s ability to fund philanthropic projects in India or elsewhere.

 
 
 
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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.