The Main Problems Arising in Tata Motors - Assignment Example

 The Main Problems Arising in Tata Motors Executive Summary This project begins with describing the main problems arising in Tata Motors because of its acquisition of Daewoo Commercial Vehicles. Firstly, it makes a study of the organizational structure and operating process of Tata Motors. Tata Motors operates through a number of associative companies and subsidiaries. It has also been expanding its operations in the overseas market as is apparent from its business alliance with the company Fiat. The company offers a number of automobile services which are taken care of by different departments in the organization. Then the project makes an analysis of the various issues creeping into the company due to the acquisition. There are cultural issues, strategic issues and interdepartmental issues which have been explained. Certain problems also arise in the choice of the style of leadership which has to be followed. The problems arising in the management and the human resource department of the company have been explained in the project. These problems have been analyzed and presented in the form of a summary in the project. Finally, suitable recommendations have been presented to address the above problems. These have been primarily aimed towards the management and leaders in the organization. The recommendations suggested mainly include structural and cultural changes that need to be incorporated. A number of technological tools and techniques have also been presented to address the issues. Background Section The Daewoo Commercial Vehicles was acquired by Tata Motors which created organizational behavioral problems in the organization. The various problems have been described in the project. Before analyzing the problems the organizational structure of Tata Motors must be discussed. Tata Motors has a number of subsidiaries and associate companies through which the company operates. It faces major problems during the integration process of the two companies. The leading position that the company holds is because it focuses on indigenization. The company has set up a number of manufacturing units in the country which uses the latest technologies. Every stage of development of the product, the product design, manufacturing, assembling and quality control is done meticulously. Jamshedpur, Pune and Lucknow are the places where its manufacturing plants have been established (Tata Motors, n.d.). The project aims to bring forth the factors which are critical in the process of acquisition of a company. Certain factors are to be borne in mind while doing this, Firstly the strategic interests of the acquirer are to be analyzed. Then these interests are to be aligned with the outcomes of the acquisition. The challenges faced by the acquirer have been analyzed. These challenges appeared in the form of organizational restructuring and organizational behavioural issues. A number of cultural barriers also evolved in the organization. The effective merging of the two completely different cultures became the most challenging role confronting the company. The organization faced difficulty in inducing a foreign culture in the organization, whereas the foreign employees faced difficulty in adjusting with the domestic culture. The organization structure of the company comprises of the management team along with the subsidiaries. The various departments in the company are assigned specific responsibilities. Different automobile service offered by the company is taken care of by different departments. The functions of each subsidiary unit is monitored and controlled by the organization’s senior management (Tata Motors-a, n.d.). The company’s operations primarily comprises of the automotive operations. The automotive segments are divided into a number of segments which includes manufacture, design, sales, assembly, services of the passenger and commercial vehicles, components, accessories and spare parts. It also includes financing of the vehicles. Among the other operations in the company includes information technology, “construction equipment manufacturing, machine tools and factory automation solutions, high-precision tooling and plastic and electronic components for certain applications and investment business” (Company Database, 2009). Tata Motors is the leading producer of commercial vehicles. It is also a famous in producing passenger vehicles. The company is known for producing large buses and trucks. In the engineering sector, Tata Motors in considered to be the only company to be enlisted in the New York Stock Exchange. It has emerged into a very powerful international organization. In fact the company has been trying to expand its operations in the international market. This is the reason why it is seen to be entering into joint ventures and strategic alliances with international companies. The most prominent of them is its alliance with Fiat in 2005. Tata Motors also distributes and markets Fiat cars (Tata Motors-b, n.d.). The company is also the fourth largest manufacturers of trucks and the second largest manufacturers of buses in the international market. The company offers automotive and engineering solutions through its subsidiaries. The other operations of the company includes manufacturing of vehicle components, supply chain activities, factory automations, machine tools, manufacturing of plastic components, manufacturing of electronic components, automotive retailing, computer applications and service operations (Tata Motors-b, n.d.). The company’s activities not only aim at attaining greater revenues and profits. It also looks towards improving the life of the community through its corporate social responsibilities. The vehicle manufacturing company acquired the well established Daewoo Commercial Vehicle as a step towards international expansion. This acquisition reflects the global competitiveness of Tata Motors. The acquisition of Daewoo Commercial Vehicles is considered as the most important strategic moves in the history of the company. It’s main area of operation in Korea where, it has launched a number of new products. This company also operates through a number of subsidiaries. Some of its subsidiaries are Sangsin Brake Co. which manufactures and provides brakes to the company (Company Database-a, 2009). Another important subsidiary of the company is Accuride Corporation. It is a large wheel manufacturer and other components of trucks (Company Database-b, 2009). This company manufactures and distributes the components of trailer, trucks and other large vehicles. Majority of the vehicles exported from Korea is through Tata Daewoo. This company has attained enormous success and power. But increasing the company’s revenue is not the only objective. It focuses on the corporate responsibilities as well. The huge goodwill of the company comes from its works towards the environment, health, education and employment (Tata Motors-b, n.d.). In-depth analysis of specific problems and issues Integration of the two companies required organization restructuring. The restructuring was aimed at contending with the foreign culture. The internal structure of Tata Motors had to be realigned with that of Daewoo. Merging with Daewoo caused the company to face a lot of foreign competition. This required a more competitive approach on the part of the acquirer. Areas which required greater attention were costs, reorganizing of divisions and streamlining of operations. Organizational restructuring was also sure to have its impact on the psychological well being of the members in Tata Motors. This is because such changes are commonly associated with uncertainties. Organizational restructuring required a thorough study and understanding of the consequences that would follow. It also required understanding of the potential side effects associated with it. Employees would be apprehensive about the future of the organization and their individual roles. They would be unaware of the direction the organization was moving to. Thus such restructuring was also followed by psychological changes in the minds of people. The organization greatly required to focus on people’s trust and ensure that there was enough work satisfaction in the workplace. Satisfaction and trust both decline substantially because of such apprehensions. Trust and satisfaction both play an important role in employee performance. Tata Motors required enhancing the relationship among colleagues which would go in favor of the organization (IDEAS, 2010). Organizational restructuring is also likely to change the information processing structure in Tata Motors. It must be ensured that the basic information processing system prevailing in the company did not change dramatically. Each structure in the organization is said to respond to the restructuring. Restructuring would also be associated with employee downsizing. This would affect the stability of the system and the worker’s efficiencies. This would require a centralized coordination structure which would facilitate the coordination between various departments of the organization (Dowan, Wonseok & Sangyong, 2007). The organizational issues that have arisen are due to Tata Motors acquisition of Daewoo Commercial vehicles. Integration of the two companies gives rise to organizational and cultural issues. The departments are given the additional responsibility to go through the transition, keeping the productivity of the employees fixed. The most promising challenge confronting the organization was to adjust with the transition as well as maintaining the performance. This transition was followed by another crisis. The transferring of the company’s assets and liabilities from Daewoo to Tata caused an identity crisis for the people of Daewoo. They suddenly seemed to have lost their power, supremacy and independence. This called for more vigorous process of integration to regain the people’s confidence and faith. It required combining two cultures that were distinctly different from each other. Tackling the cultural issues was amongst most important issue in the organization. Apart from the identity crisis there could be other problems also. The acquisition of Daewoo would have serious implications for the entire workforce of the company across the world. During the course of the process of acquisition the financial conditions are given the most importance. Thus some of the major human resource issues are neglected. However, failure of some of the famous mergers across the world is due to issues related to the people of the organization. Poorly handled human resource issues in the organizations have accounted for these failures. People may get frustrated and this may result in depressions and anger. This period is also characterized by high rates of turnover, low motivation and morale and low productivity. Employees may also have to get used to the changes in the human resource policies, survivor syndromes, layoffs, information systems, stress on the workers, etc. (Pande & Krishnan, n.d., p.1). Another important issue confronting the company was due to the fact the Daewoo was characterized by a more aggressive culture. The situation in Tata motors was less competitive as compared to Tata. The company faced difficulty in responding to the massive cultural shift. The company also had to greater competition from the international market. However the company had one area to gain from. Its cost of manufacturing was low which made it more popular in the European market. The culture of the organization plays an important role because it determines the managerial styles, organizational practices and structures. Every organization’s values and beliefs differ from another. This may lead to a clash during acquisitions and mergers. In this case both Tata Motors and Daewoo are exposed two foreign cultures. This is likely to lead the employees to a state which is known as culture shock. The employees of Daewoo are required to abandon their old cultures, values and beliefs and accept a culture which is entirely different. Consequently the stress on employees increases. Research shows that different cultures may result in feelings of hostility and discomfort and this may reduce cooperation and commitment of employees (Pande & Krishnan, n.d., p.1). During clash between the two cultures it is likely that Tata Motors would get preference to Daewoo as it is the dominant company. This would generate a feeling of loss for the employees of Daewoo and cause frustration among them. The employees of Daewoo are bound to suffer from identity crisis. Since Tata Motors is much more established and successful than Daewoo, this could lead to superiority complex among the employees of Tata Motors. “In case of hostility in the environment the employees of two organizations may develop “us” versus “them” attitude which may be detrimental to the organizational growth” (Pande & Krishnan, n.d., p.2). Acquisition may lead to the change on focus of the employees from the more important issues like organization productivity to issues like changes in job designations, job security, career path and anxiety of working with new team members and in new departments. There could also be duplication of jobs. This would call for employee downsizing in the company. This causes the generation of insecure feelings in the minds of employees. Their career path might change because of the acquisition. Their expectations about the future opportunities in the company change. Employees might get relocated and new job roles may be assigned to them. The employees land in a completely new environment with new team mates and new job profiles. This affects the employees’ performance adversely. Research shows that there is a loss of productivity worth two hours for each employee accounting for such acquisitions (Pande & Krishnan, n.d., p.2). Some examples may be cited in this regard. The following example proves how a well managed and implemented organizational policies can reduce the human resource related issues to a considerable extent. When Hindustan Lever acquired TOMCO, employees of the latter company were allowed a more favorable conditions and terms to work in. There were resistance from the employees in HLL on the fact that this would lead to employee discrimination and discrepancies. However the appeal from HLL was not accepted by the court (Pande & Krishnan, n.d., p.2). The merger between Wellcome -Burroughs and Glaxo was postponed for several years because of great pay differentials existing in the two companies . Employees of Wellcome-Burroughs had even been offered huge compensations, but it was refused by them. Since 1997, the two have been working on their compensation strategies to maintain their employees’ morale and retain them. Another problem which could creep into the organization is the differences in the grading system. Both organizations have different organizational structures and different designation systems. Thus during the process of integration, the acquiring company, i.e. Tata Motors would have to bring the grading system at the same level. This is because the compensation of an employee depends on the grading of that employee (Pande & Krishnan, n.d., p.3). Acquisitions have different impacts on the employees in the form of increased workload, psychological trauma, stress and survivor guilt. Acquisition can inculcate feelings of dejections and depressions. This would result into impaired performance. Cultural differences would lead to counterculture feelings which would cause the employees to disobey the prevailing culture in the organization (Pande & Krishnan, n.d., p.3). Various environmental complexities were faced by the company which influenced its operations. These are referred to as the simple complex dimensions. The complexity directly relates to the number of number of external factors which the company faces. In this case importing the complex technologies from the foreign market could be referred as one problem. The acquisition was follow by working with new set of suppliers, customers and competitors. The human resource issues are also different between foreign and domestic organizations. A number of stable and unstable dimensions prevail in the external environment of firms. Acquisition led to changes in Tata Motors external environment. The challenge before the company was to adjust to the changes in the external environment. This required the formulation of new strategies as a response to the changes. The importance of change management was felt in the company at this point of time. Organizational changes also requires to the change in leadership style followed in the company. Acquisition leads to the changes in the role of the management significantly. There were certain unethical practices which the company to handle. Tata Motors are known for having high corporate ethics and the user of sound ethical practices. Many employees in the organization would indulge in unethical practices during the phase of transition. This is because during this time the company would be more concentrated towards other issues. Such situation calls for a responsible leader whom everyone would follow. The style and personality of the leader influences the way the employees work. It is expected that managers in various departments would play subtle and tactical roles which would go unnoticed. They could even negotiate decisions and use their power to indulge in wrong practices (Daft, 2009, p.138). During times of uncertainties the various departments have a very critical role to play. The power of each department is said to rise considerably during the phase of transition. Very small problems in the department could lead to big problems for the organization. The department managers also have the additional responsibility of making the new estimates, like the new demand for products, the market conditions and handle other uncertainties that could arise because of the acquisition. The managers could formulate tactics to increase dependencies of other departments. Te more the organization relies on a particular department, the more power it acquires. They could also alter the availability of scarce resources. Tricks like information distortion, resource mal-handling could be some of the other causes of concern for the company (Daft, 2009, p.492). There could be fowl plays during the times of strategic contingencies which are critical for the development of the company. This problem could be overcome b\largely by thoroughly studying and analyzing the company and its external environment. The important challenge in front of Tata Motors was to integrate the foreign and domestic cultures and retain its position as a leader in the global market. Conclusion Acquisitions have gained immense popularity over the years. This is due the business environment changing rapidly over the last few years. Firms have to cope with competition not only from domestic firms but from firms all over the world. Maximizing wealth has become the primary concern for organizations. Generally acquisitions are aimed at maximizing the wealth of shareholders through gaining economies of scale, improving the marketing and financial advantages, improving the domestic market share of the company and expanding across the international market. But research shows that although the number of acquisitions has increased rapidly, the post performance of these companies is disappointing (Mallikarjunappa & Nayak, 2007, p.13). Making the process of acquisition work successfully is not an easy process. It is a complicated process and involves integrating the cultures and mindsets and attitudes of people coming from two different cultures. This requires pre-acquisition planning. Meticulous planning including proper diligence, effective communication, competent and committed leadership and the speed of the integration process accounts for the success of the acquisition. The acquisition of Daewoo by Tata Motors also gave rise to a number of such problems. A number of organizational behavioral problems arose because of Tata Motor’s acquisition of Daewoo Commercial Vehicles. The main problems for Tata Motors would be to integrate with Daewoo while the problem in Daewoo would arise while adjusting to the functions of a foreign company. During the time of integration certain human resource issues could evolve. The employees would come from different cultures and backgrounds. This would lead to conflicts and lack of cooperation among the employees. A number of managers could take advantage of the situation and play fowl tactics. They could intervene in the departmental activities in wrong ways, manipulate with the accessibility of scarce resources. They could also misuse their powers and increase dependencies of other departments. Wrong leadership styles would ruin the organizational situations even further. This is the time when the leader’s role would be critical for the company’s success. Employees would follow the footsteps of the leaders. Leaders would have to be extremely judicious and cautious about the steps they would undertake. He has the critical role of enhancing coordination, cooperation and interrelationship among the employees. The organizational restructuring would also lead to greater issues like adjusting to the foreign technologies, pattern of operations and functions. The strategies should be focused on inducing the foreign culture within the organization and imparting the domestic culture to the foreign employees. Recommendations It is recommended that the company starts looking into the human resource issues before the beginning of the acquisition. The pre-acquisition is very critical for both companies. During this period the organization should make a thorough study and analysis of the organizational and cultural differences. The analysis also includes such aspects as the leader’s role, management style and the organization’s life cycle. The acquisition may result in a range of reactions from the employees. There could be reactions of anger and depressions. So the serious issue confronting the management is to control the sentiments of employees (Pande & Krishnan, n.d., p.1). One important way of confronting the crisis would be to implement proper human resource planning, formulate suitable compensation strategies, formulate fair and proper performance appraisal systems and focus on employee relations and employee development (Pande & Krishnan, n.d., p.1). Acquisition also requires rectification of the compensation structures of the two companies. It is possible that two companies may have differences in their pay structures. Their system of performance appraisal may also be different. Rectification of these two strategies would reduce barriers between the two substantially. This would help to bring about equality and fair pay in the organization where all employees would be treated on a common platform (Pande & Krishnan, n.d., p.3). The communication system in the organization needed special emphasis due to the acquisition. It is obvious that the system of communication prevailing in the organization would get seriously hampered in the process. That is why the horizontal information linkage system is recommended to improve the horizontal communication. By introducing and implementing the system the communication gaps could be greatly reduced. Moreover the system would also lead to greater collaboration among the employees. One common way of introducing the system is by using the “cross functional” (Daft, 2009, p.96) information systems. This system proves to be especially effective in large organizations having numerous employees. The horizontal linkage system enhanced communication between the employees and the management. The problems are addresses through direct contact between the management and the organization’s employees. One way of implementing the system is by the appointment of a liaison person in every department. His responsibility would be to communicate and coordinate activities with the other departments. Since an automobile company is characterized by a continuous flow of procedures and activities, each department is dependent on the other. This is the reason why the horizontal linkage system is so important in this company. It would help to keep the flow of activities hurdle-free and without any barriers in the system (Daft, 2009, p.96). Another form of horizontal linkage is by implementing task forces in the organization. This is a more complicated process than the above system. It involves appointing a task force in the company. This taskforce would include representative from every department. This is specifically applicable in a company like Tata Motors because automobile companies are characterized with having numerous departments. Each representative would represent the interests of the concerned department. He would also have the additional responsibility of conveying the results of the meeting to the respective departments. This would not only help to resolve problems in the departments but also enhance cooperation between them (Daft, 2009, p.96). Implementing the concepts of the horizontal coordination model is recommended in the organization. It enhances the sharing of ideas, concepts, knowledge and information among all departments and employees. It forms a common platform where an idea generated in a department can be shared among all other departments. This practice is recommended as there would be communication gaps between the foreign policies and the domestic policies. One common practice could be shared among all through this common platform. Innovative products and strategies could also evolve by the application of this strategy. One common way of implementing the horizontal coordination model is to construct cross functional teams in the organization. This would help to enhance the amount and variation in the information in the organization. Through the application of this model, suitability of the new company to the external environment can be understood. This suitability can also be maintained by using the same. The basic idea behind using this model is to colaborate ideas and knowledge from various companies and uses them to the advantage of the company. This would enhance innovation in the organization by import of ideas from foreign organizations (Daft, 2009, p.388). The organization is also recommended to undertake structural and strategic changes. Agglomeration of two companies requires the formulation of new strategies and changing the conventional structure of the company. The administration procedures also required formulation of new strategies. The procedures would have to be accordance to the new environment in which the company would operate. The company might have to cut down on the management team and decentralize the decision making procedure of the firm. Changing the traditional strategies and focusing more on the virtual network strategies and structures. The dual core approach has been specially recommended in this context as it refers to the comparison of the technological and administrative changes that the organization goes through. Administrative changes include organizational restructuring, changing the control and information system and other departmental changes (Daft, 2009, p.391). The cultural changes would have to be given special emphasis to improve the relationships and bonding between people. As the people of Daewoo would be new to the environment they would greater cooperation from the domestic counterparts. They could suffer from low morality and self confidence. This is where the management has to intervene. Emphasis should be given to training of employees. The new employees are recommended to be provided training on the concepts of cooperation, teamwork and empowerment. Change interventions are to be followed which would focus on the problems solving techniques, team building, and interdepartmental activities. Much of the success of the changes would depend on the leaders who would initiate the changes. That is why the leaders are suggested to follow an aggressive policy towards restructuring the organization (Daft, 2009, p.397). Certain change interventions can be implemented in the form of large group interventions. Under this system people from all parts of the organization discusses about the prevailing problems and formulate strategies to solve them. Team building should be assigned extra emphasis during such acquisitions. Lastly, the organization may also emphasize on the interdepartmental activities. This system helps to overcome interdepartmental conflicts and barriers in the organization. The differences between the union and the management are also reduced greatly through this process (Daft, 2009, p.395). Changes in the leadership policies are also recommended. Tata Motors is expected to take up a more aggressive and competitive policy to keep up with the aggressive culture in Daewoo. Leaders are recommended to initiate the aggressive culture in the organization by initiating aggressive policies. This would be followed by the employees. The transformational style of leadership is also recommended as it would be more appropriate to handle the changes arising in the organization due to the acquisition (Daft, 2009, p.397). References Daft, R. L. (2009). Organization Theory and Design. Cengage Learning. Company Database. (2009). Tata Motors Limited Parent. Companydatabase.org. Retrieved November 29, 2010 from http://companydatabase.org/c/electronic-components-accessories/automotive-parts/automobile-accessories/limited-engaged/tata-motors/tata-motors-limited-parent.html. Company Database-b. (2009). Sangsin Brake Co Ltd Parent. Companydatabase.org. Retrieved November 29, 2010 from http://companydatabase.org/c/brake-linings/brake-pads/manufacturer-brake/motor-vehicle/commercial-vehicles/hyundai-motor/sangsin-brake-co-ltd-parent.html. Company Database-b. (2009). Accuride Corporation. Companydatabase.org. Retrieved November 29, 2010 from http://companydatabase.org/c/motor-vehicle-parts-accessories/truck-equipment-parts-manufacturers/repair-facility/parts-components/motor-vehicle/equipment-design/commercial-trucks/truck-accessories/equipment-corporation/truck-trailer/automotive-manufacturer/manufacturing-steel/system-manufacturing/farm-equipment/north-america/truck-segments/brand-names/drive-axles/accuride-corporation.html. Dowan, K., Wonseok, O. & Sangyong, J. 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