While many of challenges he inherited persist, Cyrus Mistry's third year in office may well prove to be an inflection point in his tenure as Tata group head.
To become the man responsible for the livelihoods of more than 6 lakh people and a global business group with over $100 billion in revenues at a time when the global economy is mired in volatility isn’t easy. It requires the ability to absorb enormous pressure and the agility to fix immediate blips without losing sight of the bigger, long-term picture.
Cyrus Pallonji Mistry, the 46-year-old chairman of the salt-to-software Tata group, was exactly in this position when he took over the reins of the conglomerate from his predecessor Ratan Tata in 2012. Mistry will complete two years at the top job in Bombay House — the group’s Mumbai headquarters — on December 28.
While many of the business challenges he inherited persist, his third year in office may well prove to be an inflection point in his tenure. Slowly, but surely, the tide in the Indian economy — and the accompanying fortunes of some of the conglomerate’s individual businesses — is turning.
Mistry’s first two years as Tata group chairman are akin to a jockey who has been put in the saddle of a new horse for the first time. (Mistry would know a thing or two about horses, considering the family’s fondness for the animal.) Before the jockey can even think of pushing his horse towards the finish line, he needs to familiarise himself with his new companion — what spurs it on and what slows it.
The younger son of Tata Sons’ single largest shareholder, Pallonji Shapoorji Mistry, has spent the first two years familiarising himself with the dynamics, challenges and opportunities of individual businesses of the 146-year-old conglomerate. Though he has been a director on the Tata Sons board by virtue of his family’s stake in the group’s holding firm, he was being exposed to the intricacies of different group ventures for the first time.
While going about his task, Mistry has conscientiously stayed away from public glare (his close aides confirm he is not fond of publicity at all), but built extensive lines of communication with employees across companies and continents. For instance, sometime after he took over, the group’s public relations machinery was deliberating on how to position its new chairman as an iconic leader in the public eye. Some of the famous personalities referred to for this exercise included Jack Welch, former chairman of General Electric and Mistry’s own predecessor Ratan Tata. Mistry politely asked the PR team if they knew who the chairman of the well-known American company 3M was. While everybody had heard of the $30-billion conglomerate that sells a diverse range of products, including the popular ‘Post-it’ notes, none could immediately recall who led the company. (Inge Thulin is 3M’s current chairman.) Mistry had made his point.
“He doesn’t want to be in the limelight or public eye,” says a senior Tata group executive who works closely with the chairman. “He is content with doing his job and seeing the companies do well and speak for themselves.”
But, around the same time, at a group leadership conference in July, Mistry presented pictorial slides depicting the ongoing construction of Tata Steel’s Kalinganagar plant (in Odisha), with temperatures soaring to 50 degrees Celsius, and operations in Canada in sub-zero temperatures. Both are among the numerous places where the Tata group has a presence, and which Mistry has visited.
“In the two years that he has been in office, Cyrus has perhaps travelled more than Mr Tata (Ratan Tata) did,” this person says. “He was very clear about his first priority, which was to understand the people working for the group, their issues and strategies, and get them to work in harmony with the leadership.”
Indeed, many initiatives implemented by Mistry have been related to organisational behaviour.
It began with the constitution of the general executive council (GEC), a kind of brain trust formed to help the chairman make key decisions. Mistry, who has three decades to go before retirement, chose young executives for the GEC, who would be able to serve the group for as long as he would.
These executives included Madhu Kannan, head of business development; Mukund Rajan, brand custodian and chief ethics officer; NS Rajan, chief human resources officer; and Nirmalya Kumar, considered one of the world’s leading thinkers on management and strategy. The other key GEC member is Harish Bhat, former managing director and chief executive of Tata Global Beverages, who has been put in charge of the process through which the group intends to become a more consumer-focused-and-friendly entity.
This was followed by the formation of business clusters to club companies operating in similar areas to leverage collective synergies. The four clusters identified by the group are retail and consumer-focused businesses (Bhat is in charge), aerospace and defence, financial services and infrastructure. The other clusters are yet to get a leader nominated by Tata Sons, though that will happen shortly.
The other key focus area for Mistry has been empowerment of leaders. Bhat, for instance, will be Tata Sons’ nominee on the boards of the companies in his cluster and may even be appointed non-executive chairman of some of these firms.
In another example, Rakesh Sarna, the newly appointed managing director and chief executive of Indian Hotels, is bestowing greater decision-making powers on managers of individual hotels under the Taj group, moving away from the model of a central team calling the shots.
In the July conference, while unveiling Vision 2025 — propelling the Tata group to among the top 25 globally by market capitalisation and brand value — Mistry couldn’t stress enough the importance of technology and innovation in this journey. Soon after, Tata Sons appointed a chief technology officer, Gopichand Katragadda, for the first time in history.
Equal opportunity employer?
Empowering women is another vital element of Mistry’s human resources policy.
“Half our customers are women, but half our employees are not,” the Tata group official said. As a result, the conglomerate is looking to significantly increase the number of women employees, to 2.3 lakh, by 2020. It has around 1.5 lakh female employees at present. Furthermore, the group is grooming around 1,000 of these women to take up senior leadership roles, defined as being up to one rank lower than the chief executive on a top-down basis.
On the operational front, Mistry’s first two years as chairman have had a lot to do with housekeeping.
Nothing exemplifies this better than the decision to take a $1.6-billion goodwill impairment charge on the books of Tata Steel, largely related to its beleaguered European operations in May 2013.
In hindsight, writing off a large part of the value attached to the company’s stressed assets perhaps helped it somewhat successfully complete an international debt refinance programme to raise $5.4 billion, which has brought down Tata Steel’s cost of borrowing and extended its debt maturity profile.
At Indian Hotels, which has been making losses and seeing mounting debt, the strategy is to be asset-light. Certain expensive acquisitions made by the company, which runs the ‘Taj’ chain of hotels, like The Pierre hotel in New York, haven’t paid dividends. As part of this strategy, Indian Hotels sold a 100-room Sydney property in July. The Tata group executive FE spoke to agrees that these steps have projected an image that the group is in a belt-tightening phase, but disagrees with this inference. “Ours is not a group that is reducing in size. We are tremendously ambitious and committing significant investments,” he said.
As part of Vision 2025, Mistry announced that the Tata group would be investing around $35 billion (R2,20,500 crore) over the next three years, a scale of investment unprecedented for the conglomerate. Of this, R65,000 crore would be invested in FY15 alone. This would be directed towards growing existing businesses like Tata Steel and making headway in fledgling businesses like defence and aviation. However, their success hinges on whether the government is able to deliver on the reforms promised. But this housekeeping is crucial to ensure that the investments have their desired benefits, and the Tata group executive contends that housekeeping has been an ongoing process since Ratan Tata’s tenure and nothing peculiar to Mistry’s time in office.
“The Tata group has sold at least 20 companies in the past, including the likes of Lakme, Tata Oil Mills and Goodlas Nerolac,” he said. “We have always looked at businesses professionally and wherever we thought we couldn’t add value we exited in favour of a new owner, who would take care of the business and the interests of employees.”
Labour pains, low scores on foreign soil
While the business house is perceived as being concerned about stakeholders, like employees and communities around its industrial sites, it has recently witnessed patchy relations with workers in the UK, where Tata Steel and Tata Motors have significant operations.
Tata Steel Europe’s decision to divest its long products business to Geneva-based Klesch group, to focus on value-added products, has been met with scepticism by the division’s 6,500 employees. The union contended that it wasn’t kept in the loop over the decision to sell the business — and it wasn’t sure the divestment was necessary.
While discussions between the workers and the incumbent and proposed new managements are on, Tata Motors recently settled a pay dispute with workers of Jaguar Land Rover, the iconic British carmaker that it acquired in 2008.
“Tata’s international acquisitions remain one of the biggest challenges for the group, especially in the current turbulent and volatile environment,” says Morgen Witzel, a UK-based management writer and author of Tata: The Evolution of a Corporate Brand. “The market for steel is in bad shape and scaling back of some operations at Tata Steel Europe — necessary though it may be — has the potential to cause a reputational headache.”
There is a need to manage through these difficult times in a way that is consistent with Tata’s long term vision and values, Witzel added.
The Tata group executive said the conglomerate was candid in admitting that it would take longer for Tata Steel Europe to get back on the growth path — it hinged upon European demand going back to the 2007 levels, before the regional economy went into a tailspin.
“Till then, we are trying to do whatever is necessary to stop the bleeding and remain in the positive Ebidta (earnings before interest, tax, depreciation and amortisation) territory at Tata Steel Europe.”
Back home in India, though the business environment has been more positive over the last six months, multiple challenges still abound and it would take some time before they can be completely overcome. A case in point is Tata Teleservices (TTSL), the group’s telecom business, which has been making losses. It will soon see the departure of its Japanese partner NTT Docomo, which has decided to exit India.
The Indian telecom space is fraught with challenges ranging from availability of spectrum, litigation over allegations of wrongdoing in allocation of airwaves, high cost of operations and a price war among rivals. But in the backdrop of certain impending shifts in the market, Tata is not giving up on this business just yet, defying suggestions by many an analyst that it should.
“We are in a moment of the business cycle where established players who had the first- mover advantage have to worry about re-bidding for licences with a question mark over whether enough spectrum will be available at competitive costs,” the Tata group executive said. “companies like TTSL have a few more years to go before their licences expire and may be at an advantage depending on the outcome of the auction. So I don’t think the final word on telecom has been written yet and we will certainly wait to see how the industry dynamics play out.”
One of the pieces of Tata’s telecom business that has turned around and working well is Tata Communications. The group has turned around the company (earlier called VSNL) from being only a provider of international wholesale voice services to an integrated provider of voice and data solutions to enterprises around the world, relying increasingly on cloud-based technologies. It reported its first-ever consolidated annual profit in FY14.
Zest in time?
Another area of concern has been Tata Motors. While its commercial vehicle business was impacted by the slowdown, the company’s passenger vehicles lost favour with buyers as they found the quality, design and value proposition of rivals like Hyundai and Maruti Suzuki better. But remedial measures are beginning to show results. The ‘Horizonext’ strategy employed under the guidance of Tata Motors’ late MD Karl Slym, which aims to offer improved cars with a new design language, better performance and reliability, is bearing fruit. Zest, one of the first cars launched as part of the revamp, is already climbing up the ladder in the entry-level sedan space and has been outselling its rival, the Honda Amaze, over the last two months.
With old businesses to fix and new ones to grow, Mistry’s hands will be full over the next few years. Of course, he will take comfort from the fact that the conglomerate has a well-performing legacy asset like TCS, which can capitalise Tata Sons whenever the parent needs funds for its other ventures.
But the race has just begun for Tata group’s new workhorse. And the finish line is quite some distance away.