Ratan Tata and Transformation at Tata Group - Case Study Example

Review questions Q1. Ratan Tata is solely responsible for the transformation witnessed at Tata Group. The moment he took over from R J D Tata as the chairman in 1991, he set to shake things up a little bit. He wanted to move the group in to the liberalization era where Indian companies had to be more effective and responsive to changes in the external markets in the wake of globalization and increased competition from global players. According to Amar Bose, Chairman of Bose Group and a personal friend to Ratan, “he saw a very closed society that he was part of, and he had to find a way to open that up” (422). He thus embarked on recruiting new talent, restructuring the group by creating the Group executive office and rightsizing, changing organizational culture, formulating new business efficiency models such as the Tata Business Excellence Model, and increasing control of the firm by raising the stake to 26%. Through such actions, the Tata group grew its turnover from US$3.1 billion in 1991 to US$28.8 billion in 2006-07 (417). Tata’s success growth under the Ratan Tata, clearly exhibit the man’s exceptionally leadership skills. As the group’s chairman, he focused the group into more profitable businesses. He clearly “understood what needed to be done, and how to do it.” How leaders understand leadership and their positions is paramount for effective leadership. Bass (1990) defines leadership as “an interaction between two or more members of a group that often involves a structuring or restructuring of the situation and the perceptions and expectations of the members” (cited in Gallos, 2008, p. 45). Restructuring is one of the major features of Rajan’s reign. Bass adds that “leadership occurs when one group member modifies the motivation or competences of others in the group... …any member of the group can exhibit some amount of leadership.” In this case, Ratan was able to empower the young talents recruited who oversaw the running of the individual corporations while still remaining loyal to him and the group. Furthermore, he ensured that the CEO’s of individual companies no longer operated the firms as fiefdoms but rather were more competence and answerable to him Leaders must also possess personality and character traits that motivates and inspires followers. Ratan is described by Mukeshi Ambani, Chairman and Director of Reliance Industries as a having an “unassuming and warm nature” (417). Leadership style is a form of a relationship that an individual applies his rights and methods to influence many people towards a common goal (Wang et al., 2010). One key method of influencing people is through communication and communication style. The leadership style adapted by a leader is also evident through the communication manner of the leader. Ratan’s uses his communication skills to ensure that his followers are loyal to him always and are motivated. Ratan Tata is an avid risk taker. This is what differentiates authentic leaders from others. His confidence in taking risks changed the group’s perception towards risk to become more ambitious. Gallos (2008) indicates true leaders must have enough confidence to be vulnerable, take risks, and be fearless. Nonetheless, such a leader must also be wise enough to weigh options and know when to retreat. In the case of Ratan Tata, he led the firm in exploring global markets without fear of global competition. Furthermore, he transformed Tata motor into a car maker from the traditional truck maker. Leaders must possess high level people-relations capabilities. This means that the leader can manage and relate well with the workforce in the given work systems (Wang et al 2010). Ratan took it upon himself to recruit the right kind of talent he deemed appropriate to work with and dismissed the older folks who were not willing to change. Leaders who can accomplish this understand their role as leaders and they therefore seek to constantly develop and improve their communication skills, enhance teamwork and engage followers and minimise conflict in the workplace (Gallos 2008). Q2. Ratan embarked on streamlining the operations of the Tata Group because he recognized that the group was operating in too many unrelated industries. As the Group chairman, he chose to divest in some industries and invest in others. He identified the non-core businesses to divest from. For instance, TOMCO firm which was dealing in soaps and detergents did not belong to the core-business industries of Tata and hence the group divested and sold it to Hindustan Lever. Where the group did not have adequate control in the industry, it sought to form strategic alliances and joint ventures with established firms. The streamlining process did not only seek to divest from non-core businesses but also set to strengthen the brands in core businesses. This would allow the group to focus its efforts and resources more effectively to few industries. This also allowed the firm to specialize in terms of skills, and research and development and also compete more competently. By 2000, the group was thus operating in six major industries-steel, motor vehicles, power, telecoms, information and technology and, hotels and hospitality (Jamshedpur, 2011). Nonetheless there are other minor industries in which the group has retained operations in such as real estate, publishing, financial services and consumer products. With a fewer businesses, the group was also able to increase its shareholding. Streamlining allows easier and more focused management including integration of key functions within an organization. This is because leadership and management’s attention will be more focused to a smaller area thereby improving efficiency. To ensure a more focused management, the groups established the Tata Management Training Centre to trains its senior managers on effective management styles. A team of auditors was also established to audit across the group and conduct annual surveys on selected companies and report on the progress in management. Focusing on specific businesses and industries powered innovation for Tata. The firm was able to invest in research and development in specific industries and develop innovative products with a greater impact in the market. For instance, the Nano car was a world record beater in terms of pricing. This required extensive innovation in making the car to keep the price at less than US$2500. Streamlining also has its negative impacts on the firm especially in terms of lost revenue. By divesting in businesses that were not considered core businesses for the group, it led to loss of revenue from the specific businesses. Divesting from any market for the firm leads to loss of market share and brad equity that the firm can earn from being active in a given market. For instance, by Tata divesting from the soaps and detergents markets, it undermines its position in the market as a retailer of consumer products such as tea. Therefore, such a divesture amounts to loss of market share and loss of revenue in the consumer products market. In my view, the firm still operates in too many unrelated industries. For the group to really become a global brand, it is important for the firm to operate in one or two industries which the market can associate the brand with. Global firms such as Coca Cola, Samsung, Apple, Dell and other global brands specialize in one or two industries. Such brands are associated with industries that they control. For Tata Group, it is important for the brand to learn from others and seek specialization in one or two industries. This will help the global market to identify and associate the brand with specific industries which is less confusing and encourages brand recall. Specialization and differentiation of brands in specific industries will also allow the firm to compete more effectively in specific markets. Q3. Mergers and acquisitions are some of the growth strategy options that firms use. The Tata group of companies has used mergers and acquisitions to grow in specific markets. Igor Ansoff (cited in Akgobek 2012) noted four key major benefits of mergers and acquisitions as operating synergy, financial synergy, managerial synergy, and sale synergy. For Tata group, operating synergy emanate from economies of scale. This is based on the assumption that economies of scale exist in a given industry prior to mergers and that the individual firms operate at levels that fall short of attaining economies of scale. Therefore, for Tata to enjoy such economies of scale in the global market, it ends up merging or acquiring other firms for an increased presence in the global market. Tata can benefit from financial synergy especially when venturing into new markets. Mergers and acquisitions with firms in new markets will increase the firm’s credit worthiness in the new market and reduce the cost of capital by attracting new investors who have more faith in larger firms. For this reason, mergers and acquisition strategically place the firm at a better position to access investors and financial capital globally. Tata benefits from managerial synergy in the sense that it pools together managerial resources and human capital from acquired firms. This increases the firm’s competency in terms of management. Sales synergy is achieved because Tata enjoys already established distribution channels by merger candidates which is very important in new markets. This implies that Tata can always use the merger and acquisition strategy for making entry into new markets. The challenges of mergers and acquisition are that the firm’s organizational culture is diluted through mergers with firms with unique pre-existing cultures. Some of these cultures might be conflicting and thus leads to conflict in the organization. Another possible problem for Tata is duplication of roles within an organization. In most cases, when firms merge, they rarely lay off workers and hence there end being duplication of roles which undermines managerial competence. Loss of focus in an organization vision. This occurs because acquired or merged firms have different visions and missions which can Cloud Tata’s vision. In essence, an unclear vision might lead to organizational failure. References Akgobek, I. (2012). Mergers and Acquisitions as a Growth Strategy. International Conference on Business, Economics, and Behavioural Sciences (ICBEBS'2012) April 13-15, 2012 Pattaya. Gallos, J. (2008). Business Leadership: A Jossey-Bass Reader. New York: John Wiley & Sons Jamshedpur, (3rd March 2011). Out of India Under Ratan Tata, the business group that bears his name has transformed itself from an Indian giant into a global powerhouse. The Economist. Retrieved from, http://www.economist.com/node/18285497 Ratan Tata: Leading the Tata group into the 21st century. Global human resource management. Wang F., Chich-Jen, S. & Mei-Ling, T. (2010). Effect of leadership style on organizational performance as viewed from human resource management strategy, African Journal of Business Management 4, (18), 3924-3936. Read More