Running Head: CREATING A CORPORATE ADVANTAGE

Creating a Corporate Advantage: The Case of the Tata Group

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Creating a Corporate Advantage: The Case of the Tata Group

Creating a Corporate Advantage: The Case of the Tata Group

Introduction
The Tata group is one of the largest diversified business groups in India. The primary
promoter or holding company of Tata Group was the Tata Sons. Tata sons was established as a
trading firm in 1868, and had the majority promoter holding in all major Tata Companies. It is a
tradition in the group that the chairman of Tata Sons, serves as the chairman of the Tata Group,
and so in the 140 years of its existence, the group had only five chairmen. In 2012, the group
witnessed the transfer of leadership from Ratan Tata to new chairman, Cyrus Mistry.
The Tata group has a core philosophy, which states that what comes from the people
must go back to the people many times over. Working in line with this philosophy, two thirds of
the equity of Tata sons is held by philanthropic trusts, funded by the members of Tata family. The
remaining one third of the equity is distributed among a few Tata companies, corporates, and
individuals. Tata Sons is not listed on Stock Exchange, and the Tata Sons owns the Tata name
and trademark, the terms of use of which are governed by the Business Equity Business
Promotion Agreement (BEBP), are signed between Tata Sons and individual group companies.
The Tata Sons, together with Tata Industries and Tata Services, operates several fully
owned divisions, and owns several subsidiaries operating under various businesses. They provide
each other with a set of centralized services to facilitate their business activities, and to derive
some synergies. These facilities include Tata Quality Management Services, Group Legal, Group
HR, Tata Management Training Centre, Group Corporate Affairs, Department of Economics and
Statistics, Public Affairs Department, and Tata Strategic Management Group.

Creating a Corporate Advantage: The Case of the Tata Group

In addition to Tata Sons, the other holding company in the Tata Group is Tata Industries
Limited. It was initially set up by Tata Sons in 1945, and worked as a managing agency for
businesses of Tata Sons. However, this function was soon eliminated and the revised charge for
the company is to be a vehicle for the group to enter into new and high-tech businesses. Its
majority shares are held by Tata Sons and the rest are owned by several Tata companies. The
company has two operating divisions that function as independent profit centers, called the Tata
Strategic Management Group and Tata Interactive Systems.
In the period of fifteen years to 2012, the revenues of the group of companies have grown
annually at a compounded rate of about 20% to reach US$100 billion in 2011-2012. The 60% of
the revenue is generated by businesses outside India. The group is structured and operated in a
different manner as compared to the western conglomerates. The parent company here, the Tata
Sons is unlisted, whereas subsidiaries are listed. This provides freedom to the subsidiaries and
nurtures its relationships with the parent. The group also has a well-defined culture, which is
maintained since years, and binds the group together. The Tata Sons relationship with the group
of companies is that of a strategic investor and it periodically examines and evaluates the
relevance of each company to the group, the returns of the companies with respect to the cost of
capital, and the significance of the companies in their industries.
Problem Statement
The Tata group is the largest diversified business group in India as it generated about
US$100 billion in revenues in 2011-12, from its 90 companies in 7 broad industry categories. It

Creating a Corporate Advantage: The Case of the Tata Group

creates a corporate and parenting advantage by various mechanisms, and it is structured in a

different way as compared to a typical western conglomerate.
It offers various services to the group by having a corporate center, such as brand and
quality management services, training and consulting services, HR, legal, finance, etc. The
companies in the group find the group affiliation and services to be of value as it provides them
with lower transactional costs, better contacts within the group, superior access to power
structures, a good financial back, and less friction.
The Tata group had its chairman changed in December 2012, which raised many
questions on the sustainability of prevalent structure and practices, and also on the future
stability of the group philosophy and its culture.
Analysis
Before the chairmanship of Ratan Tata, the holding structure of the group was different
than it is now. The ownership was the companies were held by the company that created it, and
not the Tata Sons. However, when Ratan Tata acquired the chairmanship of the group in 1991-92,
he argued that the absence of a synergistic force led to a lack of a unified look at the future, and
an ultimate loss of opportunities. Hence, he restructured the group by untangling the group
companies cross-holdings in other Tata companies by acquiring, and consolidating controlling
stakes under Tata Sons.
Tata Sons began a series of corporate level initiatives to develop a cohesive group in
1990s. This began by the contribution of headquarters to help the companies define their vision

Creating a Corporate Advantage: The Case of the Tata Group

and future strategies. The two main decision-making bodies, the Group Executive Office (GEO),
and the Group Corporate Centre (GCC), defined and directed these initiatives.
The GEO comprises of four members from Tata Sons, Tata Industries, and Tata Services.
It assesses the business activities of the group, the values that each company brings to the group,
and strengthens the relationship between the group companies in order to achieve synergy.
The GCC oversees the protection and promotion of the brand across the world and
provides advisory services to the group companies in several areas. It also takes the decision to
enter or exit a business and offers a number of corporate level services to group companies.
The company first started developing a common identity for the group by creating a
unified Tata brand, in 1997 under the chairmanship of Ratan Tata. The brand was then managed
at the group level. In 1998, a corporate identity program, BEBP was formed to sustain the power
of the brand and the use of the name by group companies. The BEBP is not mandatory, and it is
run as per the guidelines of the Tata Business Excellence Model (TBEM) and the Tata Code of
Conduct (TCoC).
The companies are charged for their subscription to BEBP on the basis of the agreement
version that they sign with the BEBP. The first version is for the companies that use the Tata
name and logo, second is for those who are part of the enterprise but dont use the name and
logo, and the third is for joint ventures. The executives think of BEBP as the most significant
mechanism of binding the group together.

Creating a Corporate Advantage: The Case of the Tata Group

A critical part of the BEBP agreement is the TBEM, as it describes the performance
improvement standards that each BEBP subscriber company has to meet within three years of
subscription. TBEM has been adopted from the Malcolm Baldrige National Quality Award
program of the U.S. government, and is used to enforce a proactive attitude rather than a reactive
one. It covers seven aspects of business operations, which are leadership, strategic planning,
management, focus on customers, knowledge and analysis management, focus on workforce,
outcomes of financial and non-financial parameters and process management, and business
results. The Total Quality Management Services of the group is an in-house group division,
whose function is to help different Tata companies achieve excellence and improve goals,
supervises the TBEM process.
The Tata Group faced three phases to implement the TBEM. The phase I was from 1994
to 2000, during which only a few companies engaged with TBEM and signed BEBP. These
companies adopted the framework for quality management, however, the excellence model was
considered unnecessary because of its depth and intensity. The phase II (2000 to 2005) was a
phase of understanding the importance, and use of TBEM to improve performance by
companies. This was because the chairman became strict with the BEBP agreement. By phase III
(2005 to 2010), the group was rapidly expanding globally.
The aim of TQMS is to make all 3 year or more old companies to become a part of the
BEBP by 2014, and facilitate Tata companies to institutionalize the TBEM, and assume the role
of internal consultants for the group. It incurs the costs of approximately INR 25 Crores per
annum, 50% of which is paid by the group and the rest is earned by the TQMS by providing fee

Creating a Corporate Advantage: The Case of the Tata Group

based consultations and other offerings. It has also created forums and platforms in order to
connect companies and share knowledge.
The group initiated the Group Strategic Sourcing function in 2001-02, while considering
group level media buying. The media buying didnt work, however, it was realized that
extending the procurement of common materials across the group can result in substantial
savings. This was done by negotiating the prices for entire group, after negotiating the best price
for the larger group companies, and achieving a win-win for the client and the group. The areas
of savings included fuel, air tickets, IT, and other materials, and the amount ranges between INR
50-160 Crores per year.
The group introduced a set of centralized services for all group companies, named as Tata
Services Limited in 1957. It operates on a no-profit-no-loss basis, and is funded either fully or
partially funded by the BEBP, based on their services to the group or to specific companies on
need basis. The company based services are charged to individual companies, and the group
based services are charged to BEBP. The services include Tata Quality Management Services,
Group Legal, Group HR, Tata Management Training Centre, Group Corporate Affairs,
Department of Economics and Statistics, Public Affairs Department, and Tata Strategic
Management Group.
They provide significant synergistic advantages to the group, and are not mandatory to be
used by the companies. It is at companies discretion to use the services, and they are treated as
customers. This provides a significant benefit as it keeps everybody accountable in order to
prove the functional utility of the services to financially sustain the units.

Creating a Corporate Advantage: The Case of the Tata Group

The Group Legal services are used by companies to seek advices on the matters related to
corporate law, mergers and acquisitions, and taxation. To prevent extra costs for the same law
service by different group companies, the group legal connects the groups 450-odd in-house
lawyers, and study sub-committee where lawyers from different group companies meet every
two months to discuss legal issues of common interest.
It has also launched an intranet service for the group to share interpretations and
implications of new legislations with the group. They oversee the formulation of group policies
and manage compliance with these policies. The Group legal charges nearly half the market rates
for its advisory services, and provide consistent high-quality, speedy and efficient services.
Ratan Tata made intra-group communication a major focus area, as he joined the group in
1992. The group HR provides a platform for that at the group level, and manages recruitment and
talent development initiatives at the group level. It takes these activities under four broad themes,
which includes building a culture of achievement, learning, innovation, and organizational
structure for people development. It charges the companies for some services and absorbs the
costs for others.
In 1959, Tata Management Training Centre (TMTC) was built with a mission of creating
and grooming future leaders for the Tata group. It is visualized as a platform for providing
collaborative and dynamic learning. The TMTC conducts various senior-level management
training programs with the help of faculties from worlds premier institutions and universities,
and its own internal faculty members called practice consultants. It also offers three-tier

Creating a Corporate Advantage: The Case of the Tata Group

leadership program, Tata group strategic leadership seminar (TGSLS), Tata Group Executive
Leadership Seminar (TGELS), and Tata Group Emerging Leaders Seminar (TGELS).
It also circulates the best practices and learning experiences of a particular Tata company
across the group through its Applied Research at TMTC (AR@T) service, which reached more
than 750 senior managers within the group. It charges the companies for these services.
The Group Corporate Affairs department protects the brand by keeping the brand image
consistent, by promoting the brand name, and by maintaining a uniform corporate identity across
the group. The companies run their own publicity campaigns and work with corporate affairs
around group events, however, the group corporate affairs only intervenes when the Tata brand is
at stake or if the companies ask for help. It also handles all communications of the group, and its
costs are absorbed through the BEBP. They provide free services to the companies of the group.
The Public Affairs Department (PAD) advises group companies on government-related
matters, regulatory compliance, processes, clearances and approvals. They help companies make
appropriate investments, and foster international goodwill by engaging with multinational
companies, foreign ambassadors and commercial attaches. It charges the companies on the basis
of five categories of memberships depending on their turnovers, ability to pay, geography, and
number of subsidiaries.
The Department of Economics and Statistics (DES) is the oldest of all services,
monitoring different sectors of the Indian economy, and advises the companies on strategies for
new markets. It charges the companies minimum, just to cover its costs and any surplus goes to

Creating a Corporate Advantage: The Case of the Tata Group

10

the Tata Sons. It also warns the companies about the market troubles that are likely to occur in
future.
The Tata Strategic Management Group (TSMG) scans business opportunities for Tata
industries and other group companies, by offering services in strategy formulation, organization
effectiveness, competitiveness enhancement, and business analytics. Its Business Review
Committee (BRC) reviews the future plans of group companies.
It measures the companies performance on ROCE and EVA, instead of their profits and
losses, and arranges Annual Group Managers Meetings, where its Group Corporate Committee
(GCC) announces its expectations for affiliate companies. It also aligns the individual companys
strategies and activities with groups vision. Its two consulting service streams are Industry
Practices and Functional Practices.
Although each company manages its day-to-day financial operations, however, the
decision making related to increasing capital, structuring, mergers & acquisitions, etc can only be
made by the Provision of Financial Services to Group Companies. The reason behind this is to
ensure that the reputation of the group is not diluted.
The users of the group services, i.e. the group companies choose these services over
external agencies because of convenience, proximity, prior experiences, quality, and
confidentiality. Tata Steel, the flagship brand of Tata group feels that group services at Tata play
a key role in binding companies together, and adds value to the brand.

Creating a Corporate Advantage: The Case of the Tata Group

11

It is evident that the group culture and organization structure is unique and very different
from command and control environment in most businesses. The loose control culture of Tata
group works reasonably well to build long-term value; however, the Tata Chemicals feel that it
results in short-term losses of opportunity. The management at Tata Chemicals at times feels the
necessity to make certain things mandatory for the group, and the loose structure of the group
makes it feel restless. However, overall they are happy with the support that the group provides
them, and the speed and opportunities it provides them.
The Tata group emphasizes on the long-term sustainability of the company and business
that ultimately drives profits. It also believes in the contribution to society in addition to making
profits. A companys association with Tata group makes it financially stable, and also helps it
gain intangible benefits of trust and confidentiality. However, there are certain areas where it
creates problems, such as competing with the group companies and overlapping between two
companies.
Associating with the Tata brand name gives companies competitive advantages, but also
brings it with a responsibility of groups image and reputation. The group also emphasizes on the
ethics of quiet community services, making it a reputable brand in society. However, it needs
improvements in synergy management, and to strike a balance between rigidity and flexibility.
Conclusion
The Tata-ness is not defined in specific terms; however, it exists as a way of life at the
Tata group. The culture has evolved on the basis that too much control hinders the creativity of
the people amongst the organization. It attempts to strike a balance between the need to

Creating a Corporate Advantage: The Case of the Tata Group

12

command and control, and the need of flexibility and creativeness. The reason behind being
flexible is that only value adding activities are retained in the business. The equality service
providing in the group is seen as a valuable activity amongst the group.
The non-rigid structure of the company gives it a unique recognition and thus, provides it
the value creation at all levels. Hence, it should be retained, and continuously improved to cover
its weaknesses. The rigid structure by contrast might result in the loss of current profitability, and
satisfaction levels of the various smaller companies at the Tata group. Hence, the company
should not change its structure and the new chairman should continue with the same structure,
and try to maintain its balance between the loose and rigid structure, focusing on the synergistic
benefits it creates for its affiliated companies.