Transformational Leadership in Tata Group - Case Study Example

Case Analysis: The Tata Group BY YOU YOUR SCHOOL INFO HERE HERE Case Analysis: The Tata Group Question One Nearly all of the transformation that occurred in the Tata Group can be directly attributed to the leadership and vision of Ratan Tata. One of the difficulties that existed with the previous risk-averse business model that was attempting to diversify successfully was the fiefdom mentality of the CEOs that were operating and governing different business divisions. A fiefdom is best characterized as a model by which a dominant figure maintains absolute dominance and control over their property (Herbold, 2004). By establishing mandatory retirement ages, Ratan Tata was able to inject more contemporary leadership into the business that would better serve the organizational mission and vision for modernization, expansion and creating a singular business group that could more effectively govern its many conglomerated divisions. At the same time, the Indian government was becoming more progressive in establishing a variety of incentives to assist businesses with contributing to the economic health of the country. Ratan Tata, in order to take advantage of these progressive changes, was absolutely competent in recognizing that older leadership that did not view themselves as part of a complete business system needed to be ejected from the company in order to build fresh leadership thinking in a very competitive environment. On Geert Hofstede’s Cultural Dimensions framework, India scores very high in power distance (Hofstede Center, n.d.). Best defined, this is the level to which disparate individuals in a society or business are willing to accept authority distance between high-ranking officials and lower-level employees. Indian culture has been very supportive of a top-down culture in which there is little opportunity for lower-level employees and managers to offer their unique problem-solving ideas and new business innovations. Tata was revolutionary in establishing a new points-related framework that ensured better integration of the different business divisions, with emphasis on leadership, human resources, and process management. Tata understood that the Tata Group could no longer function by sustaining very incongruent business units and needed to better consolidate in order to achieve performance and profit results, especially in an environment where changes to Indian legislation was allowing multi-national competitors to enter this developing market. Tata turned the business into a market-centric organization that focused more on marketing and also reducing redundant business activities and ensuring better cost controls. By single-handedly removing unnecessary suppliers from the supply chain, it became easier to establish a quality management framework to ensure the business was producing quality outputs. Ratan Tata also recognized the importance of producing products that were considered relevant to the external market in an environment where buyers had much choice and considerable buying power in the market. By changing the focus of the automotive business, Tata ensured that SUVs were now being produced that were in very high demand during the 1990s. By being focused on the external market, the business was better equipped to provide flexible products that would contribute to higher profitability. Furthermore, the success of the Tata group is also attributed to Ratan Tata for understanding how to divest certain parts of the business that were underperforming. He established a framework of specific performance goals that were expected for each Tata-owned company and set up a more transformational leadership structure to empower CEOs to identify what types of business models would be considered acceptable to meet the Tata Group’s streamlined performance goals. Tata was attempting to build a single culture that would incorporate all business units that was more like the Western model of business where individuals are empowered and dedicated to meeting strategic goals through incentive programs and better emphasis on human resources policies. According to leadership theory, to develop such a culture, the leader must be considered visionary and always reinforce the business mission while also opening very effective lines of communication (Schlosberg, 2006). This was a radical break from the Indian business norm of top-down fiefdom controls that made the business, internally, better equipped to compete with the rising volume of competitors in many different industries. Tata also realized that in order to compete, the business would have to differentiate. This was done through a new focus on innovation that would provide unique products that could be distinguished from multi-national competitors. The ability to innovate is often hindered when business units operate in isolation and, therefore, there must be collaboration and interaction with other individuals in the business to identify opportunities for innovation (Stover, 2004). Ratan Tata helped business leaders in different companies owned by the Group to be more risk-centric rather than operating under traditional business philosophy, essentially changing the internal culture from that of risk aversion to one that looked for opportunities for evolution. None of these and other aforesaid changes could have been accomplished without the direct involvement and competency of Ratan Tata. Question Two The main advantage is that the Tata Group could now better monitor, control and improve its many business units by streamlining a singular leadership, quality management, and human resources philosophy. Ratan Tata wanted all businesses that were owned by the Group to stay committed to a single vision while also recognizing the absolute importance of cost controls to remain profitable in a very difficult competitive environment and where Indian government was often resistant to change. By selling off unprofitable business units, such as Tata Pharma, Goodlass Nerolac and another cosmetic company, Tata was ensuring that available resources held by the Group could be better allocated to owned companies that required innovation, better operational controls and systems, and quality improvement systems. The volume of different industries in which the previous model of the Tata Group was involved prevented the Group from being effective when there was such a profitability gap for high performance businesses and low performing businesses. Ratan Tata believed that if the business could not be considered one of the top three in an industry, it was time to consider exiting the industry altogether. This had much better impact on the company’s cash flow and long-term earning opportunities. Disadvantages in streamlining the company include limiting the Group for long-term expansion and diversification, as well as limitations that are created by having a single umbrella logo represent all of the diverse business units operated by the Group. Limitations, such as the divesting of a pharmaceutical and cosmetics company, include hindering future expansion in the event that certain industries experience sudden or unexpected drops in demand and profitability. For instance, Tata had problems in 2008 with attempting to build a new manufacturing plant at Singur when protests from farmers and their advocates began to turn violent and complications with the political environment only enhanced development and expansion. Tata could have held on to some of the business units it divested in the event of these types of disruptions that slowed down the Nano program. Secondly, not many companies have success when using a single umbrella logo to represent its entire diverse portfolio of branded products. Even a multi-national conglomerate such as Procter & Gamble recognizes that it must develop unique branding strategies for its many consumer products if it is to gain profit and market interest. Tata is not a name that is well-known across the world and it has not achieved (necessarily) brand recognition worldwide. It would, according to marketing theory, been more appropriate for the business to allow each unit to develop its own brand philosophy and logo representation to attract desirable markets. It seems that the Tata Group was seriously limiting the brand power of individual products through this streamlining process. Tata absolutely appears to be present in too many businesses. Many of the companies that are owned by Tata Group are valued at billions of dollars and maintain many different employees and executives in order to operate them successfully. With Tata wanting a singular corporate image and cultural philosophy, it is very difficult to establish a single culture of efficiency and ethics in environments (industries) that are extremely disparate. Tata was unable to ensure longevity for certain business units throughout the case study and create products that would be adopted by the business and consumer customer segments. The company should have ensured that each division was efficient and operating at peak performance before seeking yet more acquisitions to further complicate the global management process. Question Three The growth-through-acquisition strategy has benefits for the firm, but only if these units are efficient, operating with substantial profit and cash flow, and are meeting the legitimate needs of consumers and business customers. Each acquisition required cash expenditures, required financing, or other capital procurement strategies that limit the asset worth of the Tata Group over the short-term. Nearly all of the acquired companies operated by the Tata Group are publicly traded, with common stock assisting in capital growth. Companies that have a stock market presence are subject to sharp fluctuations in market conditions and investor sentiment, which requires more interaction and marketing for the business to ensure their stock values are sufficient for financing needs. This is costly and labor intensive that takes away from more critical management and executive duties that could better enhance the Tata Group performance. Also, Tata Motors currently has a very dismal profit margin even though its sales far exceed its profit. This means there are cost inefficiencies in this business model. When existing businesses (non-acquired) are not meeting performance, quality or market relevancy expectations, it is not a good decision to acquire another company that further limits available capital or cash positions. Instead, the business should be focusing on enhancing existing business to ensure they require less maintenance and constant adjustment before spending any more of its financial resources on acquisition strategy (4-Traders, 2013). References 4-Traders. (2013). Tata Motors Limited : Tata Motors Group global wholesales at 81,241 in April 2013. Retrieved May 15, 2013 from http://www.4-traders.com/TATA-MOTORS- LIMITED-9058835/news/Tata-Motors-Limited-Tata-Motors-Group-global-wholesales- at-81-241-in-April-2013-15-May-2013-16863278/ Herbold, R.J. (2004). The Fiefdom Syndrome: The Turf Battles that Undermine Careers and Companies – and how to Overcome them. US: Doubleday. Hofstede Center. (n.d.). What about India? Retrieved May 12, 2013 from http://geert- hofstede.com/india.html Schlosberg, P.B. (2006). Transformational Leadership: A Holistic View of Organizational Change. MagPro Publishing. Stover, M. (2004). Making Tacit Knowledge Explicit, Reference Services Review, 32(2), pp.164-173. Read More