Professional Documents
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"There is nothing more difficult to take in hand, more perilous to conduct, or more
uncertain in its success, than to take the lead in the introduction of a new order of
things."
Ɯ Niccolo Machiavelli
The Prince (1532)
"In times of rapid change, experience could be your worst enemy."
Ɯ J. Paul Getty
1.m Tata Steel is the largest steel company of the country and at present stands as
the 10th largest steel firm in the world. The company with its headquarters in
Jamshedpur operates in 20 countries with a presence in about 50 countries across the
world. The past few years has seen Tata Steel growing from strength to strength
through the path of M&A, wherein, they have acquired Anglo-Dutch Steel company
Corus(renamed Tata Steel Europe), Millennium Steel (renamed Tata Steel Thailand) and
National Steel Holdings of Singapore. Its annual capacity of production is
approximately 30 million tons of crude steel and has set an ambitious target to achieve
a capacity of 100 million tonne by 2015. Managing Director B. Muthuraman stated that
of the 100 million tonne, Tata Steel is planning a 50-50 balance between greenfield
facilities and acquisitions.
4.m Tata Steel is part of the Tata Group of companies and like any other group
companies, it is known for its good corporate governance, transparent system,
employer friendly atmosphere and excellent Corporate Social Responsibility (CSR).
Therefore, the questions which trouble are Ơwhy did Tata Steel require a change?ơ and
Ơhow was the change managed and was it difficult?ơ. To understand how the winds of
change took place at Tata Steel and what were the hurdles, as well as the strategy to
overcome them, it is essential to understand the History and Culture of Tata Steel prior
to implementation of change in 4005-4006.
Ä.m Tata Steel was established in 1907 in a nondescript place called Sakchi (The
present day Jamshedpur) by Jamsetji Nursserwanji Tata and his son Dorabji Tata.
Establishment of Tata Steel also had a nationalistic fervour, as Jamsetji wanted India to
be self reliant in metals. The uniqueness of this company was that for the first time in
the history of India, the whole company was financed by the Indian populace (masses,
affluent and Mahrajas) with Tata contributing 11% of the stake. The Steel Company
obtained its first colliery in 1910, adding six more in course of time. Several mines were
spread over the states of Bihar, Orissa and Karnataka. The Tatas had a holistic plan,
wherein, they established a township for its workers with all the amenities, which was
named after the founder as Jamshedpur. Today Jamshedpur can boast of being one of
the most planned cities in India with best of the amenities.
4.m The house of Tatas including Tata Steel has always stood for and is known for
their honest dealings, corporate governance, welfare of their workers and CSR. The
following instruction by the founder to his son that ƠBe sure to lay wide streets planted
with shady trees, every other of a quick growing variety. Be sure that there is plenty of
space for lawns and gardens. Reserve large areas for football, hockey and parks.
Earmark areas for Hindu temples, Mohammedan mosques and Christian churchesơ
epitomises their concern for the workers. It is a known fact that even during the great
depression; Tata Steel did not layoff a single worker.
5.m In addition, the Tatas were the first employers to introduce an 8-hour working
day (1914), free medical aid (1915), workersƞ provident fund scheme (1940) and many
other welfare schemes even before they were introduced in the West. The Ơemployee
association with managementơ programme initiated in 1956 gave the workers a
stronger voice in the affairs of the Company. Forty-one joint departmental councils were
formed to encourage their involvement in matters as diverse as production, quality
improvement and safety measures. This clearly indicates their belief that welfare of the
employee takes priority over the company profits.
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entire process and appreciate why it is rated as one of the most difficult change
brought in the history of any industry in the country.
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6.m The Indian trade, industry and economy had been stagnating in the years
preceding 1991 due to Govt regulating the industry, and state protection policies of
licensing, high tariffs and administered prices. These protectionist policies made our
industries complacent and curtailed the competitive spirit of the firms, making them
inefficient in the intensely competitive global market. The state of Indian economy was
in such doldrums that there was a necessity for the Indian Govt to implement drastic
fiscal policies and a controlled deregulation.
7.m "$" # ' ())(. The state of the Indian economy made
the govt realise that they could no more remain isolated from the world economy, and
therefore, brought in economic liberalisation and free economy. Deregulation, free flow
of goods within and outside the country and encouragement of foreign technology
became the order of the day. The new policies brought in a fierce competition, which
epitomised the age old dictum of Ɲsurvival of the fittestƞ. Many firms were forced to
close shop because of obsolescence of their product or technology and lack of skills to
match up with the international standards.
8.m $" ' . The govt policies post independence from 1947-
1991 impinged on Tata Steel from becoming a global steel firm in the face of cutting
edge technology. When liberalization finally came in the early nineties, the company
was ill-prepared to face the emerging business situation that was increasingly
characterized by market determined prices, lower import tariffs, intense competition,
and move from a sellerƞs market to a buyerƞs market. Since, Tate Steel as akin to the
other companies were used to the protected environment there was certain
complacency in the rank and file of the company. This amply showed in their
performance till early 90s, when their performance was worse than SAIL which was a
Public Sector Undertaking (PSU), and the industry experts started questioning the
viability of Tatas continuing in the Steel industry. This period also coincided with a
change in leadership at Tata Steel, when Mr. Ratan Tata took over as the Chairman of
the company and Dr. Irani took over as the Managing Director. Both of them were
progressive in nature and felt that if Tata Steel had to survive in the highly competitive
global steel industry, the company would need to take some far-reaching steps to cause
a turn around. The path of turnaround was filled with many difficulties like the intense
global competition, poor product quality, poor compliance of meeting the deadlines, old
and inefficient plants and over-sized workforce.
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9.m Vn the ensuing years Tata Steel went in for major changes in their process and
organisation structure. This was implemented in two phases. The major features of the
two phases are appended in the succeeding paragraphs.
10.m . The focus of Phase V was reducing the cost and increasing the
profitability. Following initiatives were undertaken during this phase:-
(a)m Harnessed better source of raw material from its captive resources,
wherein their Joda mines in Orissa was made the main source of iron ore.
(b)m Usage of blue dust, which resulted in uniform mining operations.
(c)m Benchmarked their plants with the best in the world like Nippon Steel, CST
Brazil, Posco South Korea, which increase their production by 60%.
(d)m Launched a programme for new coke making technology, which obviated
the use of much costlier imported coke which acts as a life line for a steel
processing unit. The success of this technology made considerable reduction in
production cost and the resultant increase in the profits.
(e)m Took aggressive steps to increase the utilisation of blast furnaces for
increasing the daily tonnage of production by means of process optimisation.
(f)m Vmplemented energy saving processes by stopping the liquid fuel taken
from other refineries and using gas produced by their own processes (blast
furnace, coke ovens and LD converters) for downstream processes.
(g)m Along with the other cost saving and productivity related steps Tata Steel
also went in for major modernisation of its plants.
(h)m However $ '" + ##
*'' . When Tata Steel went to international investors in
early 90s, they were told that though the company was good for investment,
however, it was grossly overstaffed and much beyond the international norms.
This went on to become the most challenging task Tata Steel ever faced due to
the Tata reputation, which was known for employee friendly organisation.
11.m . During the Phase VV the company concentrated on business
excellence, wherein they tried to bring in practices which were prevalent in Japanese
steel mills. A core group was formed, which visited Japan and essentially became the
trainers within the company for effecting the transformation. The important features of
this phase were the guidelines set for the top management, which were as follows:-
(Source: Case Study on Tata Steel in Vikalpa)
(a)m Top management taking personal ownership, where responsibility could
not be delegated.
(b)m Be the Role model and the first to change; personal involvement and
investment of time is key to success.
(c)m Create endless opportunities for two-way communication within the
company.
(d)m Embrace change even when it does not appear necessary.
(e)m Train small groups and empower them to bring about the change.
(f)m Set Key Result Areas (KRAs) and include the top management into it.
14.m & ,"" c# The Tatas as a Group also adopted Tata
Business Excellence Model (TBEM) in 1994. Through implementation of this model, the
group aimed at bringing about organisational transformation. The objective of TBEM
was to improve the performance and efficiency of the Tata Group in various business
areas and to enable them to successfully overcome the global competitive challenges.
The management felt that the attitudes and perceptions of people had to be changed
first before bringing about a major change in the functioning of the organisation. The
Tata Quality Management Service (TQMS) in collaboration with Tata Management
Training Centre, the Department for Economic Studies and the Tata Council for
Community Vnitiatives (TCCV), was assigned the responsibility of implementing TBEM in
the various group companies. Vt adopted a 4A approach wherein it was to provide
"- $ # " to the group company. Once the company
was considered to have achieved the required level of business excellence, it was given
the JRD QV +#, which was the fourth A.
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16.m The aim of drastic reduction of the staff was to make the company more cost
effective and profitable so it could compete with the global steel firms. The defining
moment for this decision was when the company interacted with the foreign investors,
and the investors asked the Chairman and MD what business they had to keep 78000
people on their role.
17.m However, it was not an easy task to implement, as the company was deeply
rooted to its founders philosophy that workers and their welfare were of utmost priority.
Providing its employee more than just a mere job was the ethos of the entire Tata
Group since its inception. Tatas were the pioneer company in employee welfare and
had taken following initiatives much before the govt or any company in the country:-
(d)m First provident Fund Scheme in 1940, much before the Govt who
implemented it in 1956.
18.m &# $. Tatas was one of the most admired corporate brands with
operation in Vndia. Vt was ranked the second in the list of most admired companies, in a
survey conducted among students of leading management schools of Vndia. Moreover,
Tata Steel was widely recognised as a corporate entity committed to taking care of the
interest of all its stake holders and unshakable values of trust. The sheer fact that Tata
Steel never lost a single day of work since 1948 stands testimony to the companyƞs
commitment to labour welfare and industrial relations. Vn the light of the image Tatas
had, downsizing the 78000 strong employee base to the required level was a huge
challenge for MD, Dr Vrani.
19.m To implement such a revolutionary step Tata Steel required a strong leadership.
Fortunately, they had Dr Vrani at the helm of affairs who was very clear in his intentions
with a conviction that he had to make the Company survive in midst of the intense
global competition. He communicated very clearly in his many interactions with the
workforce that though the focus of the company of creating job and not wealth needs
to be now balanced against the productivity. His resolve was also backed by the fact
that after him Mr Muthuraman would take over the reins of the company, who was a
man with a democratic leaning in his leadership style, and would be the right person to
soothe the frayed nerves post down-sizing with empathy.
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40.m
+# 1. Vn 1994, a Task Force was
commissioned to evaluate and predict the size of workforce by the year 4004. A ƝZero
basedƞ manning exercise was carried out by the HR team, wherein, manning
requirements of each departments were examined afresh. Following are the salient
features of the suggestions by Task Force:-
(a)m Continued modernisation of plant and machinery.
(b)m Cost reduction and increasing labour productivity through closure of loss
making and uneconomic plants.
41.m $
" $ . The image of Tata Steel was the
main stumbling block in the execution of downsizing. Tata Steel was widely recognised
as a corporate entity committed to take care of all its stakeholders including the labour
force. However, with the realisation that a 78000 strong pampered labour force would
do more harm than benefit, the company went into a systematic process of downsizing.
Keeping in with the companyƞs ethos and the need to right-size, Tata Steel made sure
that there was a smooth transition for its workforce from being a Tata employee to
starting a second innings. Following measures were undertaken by the Company to
make sure that the outplaced employees have a respectable beginning:-
(a)m Attractive Voluntary Retirement and Early Separation Schemes were put in
place, wherein the employees do not feel cheated as far as compensation was
concerned.
(b)m Outplacements were used extensively in the process, thereby ensuring
that no retrenchment takes place. Professional agencies were employed for the
purpose.
(c)m Labour unions were taken into confidence by the management which
ensured the success of Early Separation Schemes. Attractive compensation,
effective communication and excellent design of the schemes allowed the
workers an exit with dignity.
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44.m The downsizing of the blue collared workforce achieved to a large extent what Dr
Vrani had planned, but he was not yet finished. He knew that decision making process,
which was too hierarchical in nature and detrimental to Tata Steelƞs march to being a
global steel maker, was not yet addressed. Moreover, and rightly so, there were
questions raised from the union office and employee ranks as to why the company only
targeted blue collared workers in the process of downsizing leaving a 5000 plus strong
executive cadre untouched. Therefore, the management felt that a fundamental review
was necessary in the executive cadre also, to produce a structure commensurate to the
various needs identified in the organisation.
(a)m Redesign the organisational structure and redefine the job contents with
the aim of rejuvenating the organisation with richer jobs and fewer hierarchical
levels of reporting.
1.m http://www.tatasteel100.com/heritage/index.asp.
4.m www.wikipedia.
Ä.m http://www.tatasteel100.com/heritage/history/history06.asp.
5.m ƝReinventing a Giant Corporation: The Case of Tata Steelƞ by DVR Sheshadri and
Arabinda Tripathy in Vikalpa, Volume Ä1, No1, Jan-Mar 4006, pg 1ÄÄ-146
6.m ƝHow Tata Steel Made it to the Top of the World-Managing Changeƞ by R
Jagannathan in Business Standard, Mumbai 04 Jul 04.
7.m ƝThe Tata Group: HR Challengesƞ, a case study from www.Case Place.org.