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Special Feature
 
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TATA GROUP: LEADERSHIP CHANGE
Great expectations from Tata’s new flag bearer
Will the newly designated successor to Ratan Tata be able to navigate an increasingly turbulent domestic and global environment for business and take the Tata Group to the next level?
Issue Date - 22/12/2011
 
Cyrus K. Mistry’s Anointment as Ratan Tata’s successor has been widely hailed, but his prospects and likely success as helmsman of the $83-billion salt-to-software Tata Group is hardly foreordained. Taking the Tata business to the next global level will prove to be an onerous challenge after Ratan Tata hands over the reins of his empire to Mistry next December. As Tata’s sixth chairman in its 140-year history, does Mistry have the ability to take the group forward, especially in an environment where macroeconomic headwinds from home and abroad can force even the biggest of companies to lose steam?

Mistry will be judged initially against the record of Ratan Tata who turned the group companies into a cohesive unit and an international brand. When Ratan Tata began his two-decade-long reign as Tata Chairman in 1991, the group’s revenues were a paltry $5 billion and its companies were largely uncoordinated, overmanned and undermanaged. The group’s crown jewels like Tata Steel and Indian Hotels were run by powerful satraps as their own personal fiefdoms.

Even in the face of entrenched opposition to his reformist agenda, Ratan Tata went about streamlining the operations of his unwieldy business sprawl, which included 250-plus companies in 1991. He plunged into the task with a messianic zeal, focusing the group on six industries that have provided most of its revenues since 2000 – steel, motor vehicles, power, telecoms, information technology (IT) and hotels. Today, as he prepares to demit office, Tata has shrunk the group to 98 companies, most of which operate at the cutting edge of innovation and engineering. Under his watch, the group’s sales registered a 22%-plus compounded annual growth rate (CAGR) between FY 1992 and FY 2011. Similarly, profit after tax registered a 21.84% CAGR in the same period. For 2010-11, the Tata Group reported a net profit of Rs.32.46 billion, double of what it reported in 2009-10.

Ratan Tata also transmogrified the group into a truly diversified global MNC with business interests in cars and consulting, software and steel, tea and coffee, chemicals and hotels. Tata Consultancy Services (TCS) is Asia’s largest software company. Tata Steel is India’s largest steelmaker. Taj Hotels Resorts and Palaces is India’s biggest luxury hotel group by far. Tata Power is the country’s largest private electricity company. Tata Global Beverages is the world’s second-largest maker of branded tea. Before Tata opened the gates to Indian business acquisitions abroad, few homegrown companies had the guts and the gall to venture overseas. Tata showed the way by boldly expanding the group’s business into foreign markets through acquisitions like Tata Tea’s takeover of the iconic UK brand Tetley, a company three times its size, for $450 million in 2000, which was the biggest international takeover by an Indian company till then. In 2007, Tata Steel bought Corus, Europe’s second largest steelmaker, for $12.1 billion. A year later, Tata Motors paid $2.3 billion for Jaguar Land Rover (JLR). In between, there were purchases in several emerging markets: Thailand’s Millennium Steel, or Singapore’s Natsteel, for example. Can Mistry manage the $83-billion diversified multinational operating in 80 countries and with 58% of the revenues coming from overseas as deftly as Ratan Tata has done?

 
Venugopal Dhoot, Chairman, Videocon Group, told B&E that Cyrus is a perfect person to be heading Tata Group. He says, “I have known Cyrus since the past four to five years and we have even worked together on a project.” “Cyrus”, says Dhoot, “possesses intellectual power, a profound vision and an extraordinary personality to succeed Ratan Tata and follow in the footsteps of JRD.” Mistry’s credentials are no doubt flattering. A graduate in civil engineering from London’s Imperial College and a Master of Science in Management from the London Business School, Mistry is the younger son of construction baron Pallonji Shapoorji Mistry, one of the richest Indians with a net worth of $7.6 billion and the largest shareholder in Tata Sons with a roughly 18% stake. Mistry joined the SP Group, his family’s construction business, in 1991 as a director and became its MD in 1994.

Mistry’s formidable business chops were evident when he helped scale up the revenues of Sterling and Wilson, a provider of electrical systems in which the SP Group has a majority stake, to Rs.20 billion today from Rs.500 million in 2003. Another instance of Mistry’s exemplary business acumen is the way he revved up revenues at the loss-making Afcons Infrastructure, which the SP Group acquired in 2000. In March 2011, Afcons earned a total income of Rs.28.93 billion with a CAGR of 21% over the past five years.

But running the Tata Group is surely a different ball game from running the $2- billion SP Group. Not only do the Tata Group companies operate in an extremely complex environment, many big companies in the group, although they have grown at a scorching pace, are not exactly in the pink of health. About 80 of the Tata companies are relatively small and contribute barely 10% of the group’s turnover. Ratan Tata had started a process of restructuring to carve out a core group of companies. It may well be a task for Cyrus to take them into new growth territories. According to R. Ramakrishnan, Executive Director, Bajaj Electricals, “Cyrus Mistry must convey a strong commitment to transform the group into a top 50 global company and show his mettle for acquisitions and globalising the Tata brand.”

Tata Consultancy Services Ltd. (TCS), the Tata Group’s biggest unit by market value, is India’s largest information technology company worth $2.2 billion. But countries such as the United States and Britain, where the software and outsourcing business of TCS is largely concentrated, pose major challenges with their increasingly protectionist economic policies. Besides, there’s competition emanating from countries such as Brazil, China, Philippines and Vietnam. For the 43-year-old Mistry, strategising for new markets to take the group forward will be a key challenge.

          

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