METAMORPHOSIS OF TATA STEEL

-THE CHALLENGES OF CHANGE MANAGEMENT

"There is nothing more difficult to take in hand, more perilous to conduct,
or more uncertain in its success, than to take the lead in the introduction
of a new order of things."
Niccolo Machiavelli
The Prince (1532)

"In times of rapid change, experience could be your worst enemy."

J. Paul Getty

INTRODUCTION
1.
Tata Steel is the largest steel company of the country and at present
stands as the 10th largest steel firm in the world. The company with its
headquarters in Jamshedpur operates in 20 countries with a presence in
about 50 countries across the world. The past few years has seen Tata Steel
growing from strength to strength through the path of M&A, wherein, they
have acquired Anglo-Dutch Steel company Corus(renamed Tata Steel
Europe), Millennium Steel (renamed Tata Steel Thailand) and National Steel
Holdings of Singapore. Its annual capacity of production is approximately 30
million tons of crude steel and has set an ambitious target to achieve a
capacity of 100 million tonne by 2015. Managing Director B. Muthuraman
stated that of the 100 million tonne, Tata Steel is planning a 50-50 balance
between greenfield facilities and acquisitions.
2.
Tata Steel is part of the Tata Group of companies and like any other
group companies, it is known for its good corporate governance, transparent
system, employer friendly atmosphere and excellent Corporate Social
Responsibility (CSR). Therefore, the questions which trouble are why did
Tata Steel require a change? and how was the change managed and was it
difficult?. To understand how the winds of change took place at Tata Steel
and what were the hurdles, as well as the strategy to overcome them, it is
essential to understand the History and Culture of Tata Steel prior to
implementation of change in 2005-2006.
History

3.
Tata Steel was established in 1907 in a nondescript place called Sakchi
(The present day Jamshedpur) by Jamsetji Nursserwanji Tata and his son
Dorabji Tata. Establishment of Tata Steel also had a nationalistic fervour, as
Jamsetji wanted India to be self reliant in metals. The uniqueness of this
company was that for the first time in the history of India, the whole
company was financed by the Indian populace (masses, affluent and
Mahrajas) with Tata contributing 11% of the stake. The Steel Company
obtained its first colliery in 1910, adding six more in course of time. Several
mines were spread over the states of Bihar, Orissa and Karnataka. The Tatas
had a holistic plan, wherein, they established a township for its workers with
all the amenities, which was named after the founder as Jamshedpur. Today
Jamshedpur can boast of being one of the most planned cities in India with
best of the amenities.
Organisational Culture
4.
The house of Tatas including Tata Steel has always stood for and is
known for their honest dealings, corporate governance, welfare of their
workers and CSR. The following instruction by the founder to his son that Be
sure to lay wide streets planted with shady trees, every other of a quick
growing variety. Be sure that there is plenty of space for lawns and gardens.
Reserve large areas for football, hockey and parks. Earmark areas for Hindu
temples, Mohammedan mosques and Christian churches epitomises their
concern for the workers. It is a known fact that even during the great
depression; Tata Steel did not layoff a single worker.
5.
In addition, the Tatas were the first employers to introduce an 8-hour
working day (1912), free medical aid (1915), workers provident fund scheme
(1920) and many other welfare schemes even before they were introduced in
the West. The employee association with management programme
initiated in 1956 gave the workers a stronger voice in the affairs of the
Company. Forty-one joint departmental councils were formed to encourage
their involvement in matters as diverse as production, quality improvement
and safety measures. This clearly indicates their belief that welfare of the
employee takes priority over the company profits. It is essential to keep
this as the backdrop to discuss the change management at Tata
Steel, to assimilate the entire process and appreciate why it is rated as one
of the most difficult change brought in the history of any industry in the
country.

WINDS OF CHANGE-THE INESCAPABLE ROUTE

The Necessity
6.
The Indian trade, industry and economy had been stagnating in the
years preceding 1991 due to Govt regulating the industry, and state
protection policies of licensing, high tariffs and administered prices. These
protectionist policies made our industries complacent and curtailed the
competitive spirit of the firms, making them inefficient in the intensely
competitive global market. The state of Indian economy was in such
doldrums that there was a necessity for the Indian Govt to implement drastic
fiscal policies and a controlled deregulation.
7.
The Economic Turnaround of 1991. The state of the Indian
economy made the govt realise that they could no more remain isolated
from the world economy, and therefore, brought in economic liberalisation
and free economy. Deregulation, free flow of goods within and outside the
country and encouragement of foreign technology became the order of the
day. The new policies brought in a fierce competition, which epitomised the
age old dictum of survival of the fittest. Many firms were forced to close
shop because of obsolescence of their product or technology and lack of
skills to match up with the international standards.
8.
Implications for Tata Steel. The govt policies post independence
from 1947-1991 impinged on Tata Steel from becoming a global steel firm in
the face of cutting edge technology. When liberalization finally came in the
early nineties, the company was ill-prepared to face the emerging business
situation that was increasingly characterized by market determined prices,
lower import tariffs, intense competition, and move from a sellers market to
a buyers market. Since, Tate Steel as akin to the other companies were used
to the protected environment there was certain complacency in the ran:k
and file of the company. This amply showed in their performance till early
90s, when their performance was worse than SAIL which was a Public Sector
Undertaking (PSU), and the industry experts started questioning the viability
of Tatas continuing in the Steel industry. This period also coincided with a
change in leadership at Tata Steel, when Mr. Ratan Tata took over as the
Chairman of the company and Dr. Irani took over as the Managing Director.
Both of them were progressive in nature and felt that if Tata Steel had to
survive in the highly competitive global steel industry, the company would
need to take some far-reaching steps to cause a turn around. The path of
turnaround was filled with many difficulties like the intense global

competition, poor product quality, poor compliance of meeting the deadlines,

old and inefficient plants and over-sized workforce.
The Revitalisation
9.
In the ensuing years Tata Steel went in for major changes in their
process and organisation structure. This was implemented in two phases.
The major features of the two phases are appended in the succeeding
paragraphs.
10. Phase I. The focus of Phase I was reducing the cost and increasing
the profitability. Following initiatives were undertaken during this phase:(a)
Harnessed better source of raw material from its captive
resources, wherein their Joda mines in Orissa was made the main
source of iron ore.
(b)

Usage of blue dust, which resulted in uniform mining operations.

(c)
Benchmarked their plants with the best in the world like Nippon
Steel, CST Brazil, Posco South Korea, which increase their production
by 60%.
(d)
Launched a programme for new coke making technology, which
obviated the use of much costlier imported coke which acts as a life
line for a steel processing unit. The success of this technology made
considerable reduction in production cost and the resultant increase in
the profits.
(e)
Took aggressive steps to increase the utilisation of blast furnaces
for increasing the daily tonnage of production by means of process
optimisation.
(f)
Implemented energy saving processes by stopping the liquid fuel
taken from other refineries and using gas produced by their own
processes (blast furnace, coke ovens and LD converters) for
downstream processes.
(g)
Along with the other cost saving and productivity related steps
Tata Steel also went in for major modernisation of its plants.
(h)
However, the most significant one was addressing the
overstaffing at Tata Steel. When Tata Steel went to international
investors in early 90s, they were told that though the company was
good for investment, however, it was grossly overstaffed and much
beyond the international norms. This went on to become the most

challenging task Tata Steel ever faced due to the Tata reputation, which
was known for employee friendly organisation.
11. Phase II. During the Phase II the company concentrated on business
excellence, wherein they tried to bring in practices which were prevalent in
Japanese steel mills. A core group was formed, which visited Japan and
essentially became the trainers within the company for effecting the
transformation. The important features of this phase were the guidelines set
for the top management, which were as follows:- (Source: Case Study on
Tata Steel in Vikalpa)
(a)
Top management taking personal ownership, where responsibility
could not be delegated.
(b)
Be the Role model and the first to change; personal involvement
and investment of time is key to success.
(c)
Create endless opportunities for two-way communication within
the company.
(d)

Embrace change even when it does not appear necessary.

(e)

Train small groups and empower them to bring about the change.

(f)
Set Key Result Areas (KRAs) and include the top management
into it.
12. Tata Business Excellence Model The Tatas as a Group also adopted
Tata Business Excellence Model (TBEM) in 1994. Through implementation of
this model, the group aimed at bringing about organisational transformation.
The objective of TBEM was to improve the performance and efficiency of the
Tata Group in various business areas and to enable them to successfully
overcome the global competitive challenges. The management felt that the
attitudes and perceptions of people had to be changed first before bringing
about a major change in the functioning of the organisation. The Tata Quality
Management Service (TQMS) in collaboration with Tata Management Training
Centre, the Department for Economic Studies and the Tata Council for
Community Initiatives (TCCI), was assigned the responsibility of
implementing TBEM in the various group companies. It adopted a 4A
approach wherein it was to provide assurance, assessment and
assistance to the group company. Once the company was considered to
have achieved the required level of business excellence, it was given the JRD
QV Award, which was the fourth A.

(Source: Tata Group website)

13. It was also necessary for these companies to achieve the minimum
standards of excellence which was determined by scores based on the
Malcolm Baldrige model. TBEM measured an organisations performance
both on the basis of no-financial and financial parameters
14. Implementation of TBEM in Tata Steel.
Tata Steel gave major
thrust on improving the quality of product and processes. It also adopted
several innovative programs to improve its business performance and
focused on reducing costs significantly. Since the early 1990s, Tata Steel laid
more emphasis on quality consciousness across all divisions. Tata Steel
focused more on training and customer-focused aspects through a series of
internal campaigns. External customer focus concentrated on the customers
requirement and their perception towards the company. The company
benchmarked all its key processes and operations including product
development, market intelligence, complaint handling and determination of
customer satisfaction with the best industry standards and practices.
Focus of the Study
15. Though all the aspects included in the Phase I & II of reinventing Tata
Steel relates to change management, however, the group has limited itself to
the aspect of Overstaffing or De-layering , as this was most difficult
task to implement and was more relevant to organisations culture. In
addition, the group felt that addressing the entire gamut of changes brought

about by Tata Steel would increase the scope of the study and it would not
be able to do justice, especially since the study is limited to literature
available on web and journals.
THE METAMORPHOSIS: A CHALLENGE
Challenges
16. The aim of drastic reduction of the staff was to make the company
more cost effective and profitable so it could compete with the global steel
firms. The defining moment for this decision was when the company
interacted with the foreign investors, and the investors asked the Chairman
and MD what business they had to keep 78000 people on their role.
17. However, it was not an easy task to implement, as the company was
deeply rooted to its founders philosophy that workers and their welfare were
of utmost priority. Providing its employee more than just a mere job was the
ethos of the entire Tata Group since its inception. Tatas were the pioneer
company in employee welfare and had taken following initiatives much
before the govt or any company in the country:(a)

Eight-hour working day.

(b)

Free medical facilities.

(c)

Maternity benefits.

(d)
First provident Fund Scheme in 1920, much before the Govt who
implemented it in 1956.
18. Brand Image. Tatas was one of the most admired corporate brands
with operation in India. It was ranked the second in the list of most admired
companies, in a survey conducted among students of leading management
schools of India. Moreover, Tata Steel was widely recognised as a corporate
entity committed to taking care of the interest of all its stake holders and
unshakable values of trust. The sheer fact that Tata Steel never lost a single
day of work since 1928 stands testimony to the companys commitment to
labour welfare and industrial relations. In the light of the image Tatas had,
downsizing the 78000 strong employee base to the required level was a
huge challenge for MD, Dr Irani.
IMPLEMENTATION-THE RIGHT SIZING

The Protagonist
19. To implement such a revolutionary step Tata Steel required a strong
leadership. Fortunately, they had Dr Irani at the helm of affairs who was very
clear in his intentions with a conviction that he had to make the Company
survive in midst of the intense global competition. He communicated very
clearly in his many interactions with the workforce that though the focus of
the company of creating job and not wealth needs to be now balanced
against the productivity. His resolve was also backed by the fact that after
him Mr Muthuraman would take over the reins of the company, who was a
man with a democratic leaning in his leadership style, and would be the right
person to soothe the frayed nerves post down-sizing with empathy.
Blue Collar Downsizing
20. The First Step towards Right-Sizing. In 1994, a Task Force was
commissioned to evaluate and predict the size of workforce by the year
2002. A Zero based manning exercise was carried out by the HR team,
wherein, manning requirements of each departments were examined afresh.
Following are the salient features of the suggestions by Task Force:(a)

Continued modernisation of plant and machinery.

(b) Cost reduction and increasing labour productivity through closure

of loss making and uneconomic plants.
(c)

Rationalisation of manpower in the functioning plants.

(d)

Outsourcing non-core activities.

(e) Downsizing or right sizing manpower from existing 78000 to

35000.
21. The Human Face - Smooth Transition. The image of Tata Steel was
the main stumbling block in the execution of downsizing. Tata Steel was
widely recognised as a corporate entity committed to take care of all its
stakeholders including the labour force. However, with the realisation that a
78000 strong pampered labour force would do more harm than benefit, the
company went into a systematic process of downsizing. Keeping in with the
companys ethos and the need to right-size, Tata Steel made sure that there
was a smooth transition for its workforce from being a Tata employee to
starting a second innings. Following measures were undertaken by the

Company to make sure that the outplaced employees have a respectable

beginning:(a) Attractive Voluntary Retirement and Early Separation Schemes
were put in place, wherein the employees do not feel cheated as far as
compensation was concerned.
(b)
Outplacements were used extensively in the process, thereby
ensuring that no retrenchment takes place. Professional agencies were
employed for the purpose.
(c) Labour unions were taken into confidence by the management
which ensured the success of Early Separation Schemes. Attractive
compensation, effective communication and excellent design of the
schemes allowed the workers an exit with dignity.
De-layering of the Decision Makers The Executive Class
22. The downsizing of the blue collared workforce achieved to a large
extent what Dr Irani had planned, but he was not yet finished. He knew that
decision making process, which was too hierarchical in nature and
detrimental to Tata Steels march to being a global steel maker, was not yet
addressed. Moreover, and rightly so, there were questions raised from the
union office and employee ranks as to why the company only targeted blue
collared workers in the process of downsizing leaving a 5000 plus strong
executive cadre untouched. Therefore, the management felt that a
fundamental review was necessary in the executive cadre also, to produce a
structure commensurate to the various needs identified in the organisation.
23.
The management realised that existing decision making
structure is heavily layered and bureaucratic, which has resulted into lack of
responsiveness to the opportunities presented by the environment. Decision
making was terribly slow with each person looking over his shoulder for
approvals. Another concern was the high executive turnover of the company.
The company had not only failed to attract talent but also failed in retaining
the existing talent.
24. Role of McKinsey as Consultants in the process of De-layering.
Since the Company was undertaking such a drastic step for the first time in
history of Tatas, it wanted to ensure a professional and an unbiased
approach, and therefore decided to hire a professional agency to undertake

the study. Thus, McKinsey & Company was hired as consultants. The task
given to McKinsey was to:(a)
Redesign the organisational structure and redefine the job
contents with the aim of rejuvenating the organisation with richer jobs
and fewer hierarchical levels of reporting.
(b)
To incorporate clear accountability and autonomy in the structure
thereby bringing in cultural changes along with structural changes.
(c)
Suggesting new system of Performance Management which can
be linked to a career development plan for each employee.
(d)
To reduce the existing 13 layers among 5100 executives by
increasing span of control which were small at present.
(e)
Comprehensive project report on Organisation Redesign and
detailed plan on Selection and Staffing of the new organisation
structure.
25. On the basis of report submitted by McKinsey, on 01 Apr 2000, a
Performance Ethic Programme (PEP) was launched which delineated a code
of conduct relating to performance.
Performance Ethic Programme (PEP)
26.

Objectives. The objectives of PEP were:

(a) To increase the focus on attracting, nurturing and retaining
talented HR by:
(i)
Creating development opportunities for rapid growth of
Tata Steel employees.
(ii)
Improving performance management by ensuring that
targets are set properly and people are evaluated on the right
criteria.
(iii)

Rewarding high performers adequately.

(iv) Articulating a clear policy for developing and supporting

under performers.
(b) To improve the pace and quality of decision making by increasing
degrees of freedom and accountability.

27. Focus People and Performance. Over the years Tata Steel had
made huge investments in modernisation of the plants and acquiring state of
the art Steel making facilities. Now the focus was on the people who would
be ultimately exploiting the assets in a profitable manner. The PEP was
intended to fulfil this need i.e. to redesign the current organisational
structure and its processes to create a high performing organisation of
motivated and energised managers. The PE program had two core elements
new organisational structure with five work levels based on their impact on
company performance (Impact Level 1 to 5) and a new Performance
Management System (PMS) with a new HR Policy. PEP would involve
determining competencies required for each job in each impact level
followed by assessment of executives for their competencies. The whole
process was envisaged to be objective, scientific and systematic. The PMS
would set Key Result Areas for every level, define clear measures of
performance and targets and regularise performance reviews. The new HR
Policy would foster meritocracy- as system which identifies, nurtures and
rewards strong performers and provides development opportunities for
everyone.
The PEP Process
28. Impact Level 1 and 2. The initial assessment started with 100 jobs
which were envisaged to have maximum impact on the affairs of the
company viz Impact level 1 & 2 (IL1, IL2). The process involved matching of
the executives against the jobs on the basis of their past performance and
future potential. In the first phase out of 5100 executives, 834 were
shortlisted. Senior management along with CEO debated on each of the 834
cases and arrived at a consensus on 235 candidates. In the next round, these
235 candidates went through multiple rounds of analysis and discussions at
the assessment centres and 100 were selected with a resolution to consider
the remaining in the next cycle. Thus IL-1 (Impact Level-1) and IL-2 were
finalised. The process can be diagrammatically represented as follows:Criteria
5100
Officers
Sr. Mgmt
input
Pool of 834
Managers

Developme
nt

100 Managers
staffed

235
Managers
135 Managers
in cycle-2

29. Cycle - 2. In cycle -2 many jobs were merged which rendered many
executives, who didnt fit into the competencies required of the jobs,
redundant. It was decided that senior persons would not be pushed down
into lower impact levels, as that would be detrimental to the morale of the
company and would lead to disgruntlement. The natural outcome was that
some of the executives needed to separate from the company. The whole
process resulted into a total of 3207 managers matched to five layers- 10 to
IL1, 98 to IL2, 367 to IL3, 460 to IL4 and 2272 to IL5. The final transition
structure is as tabulated below:
Before PEP (13 Levels)
E1
27
E2 E3
105
E4 E5
385
E6 E7
689
O1 O6
3769
TOTAL

5100

After PEP (5 Levels)

IL 1
10
IL 2
98
IL 3
367
IL 4
1082
IL 5
2272
TOTAL

4300

30. The first phase of PE resulted in a reorganised structure of the

company, the fundamentals of which are creation of two strategic business
units i.e. Steel and New and Allied Business; Creation of the corporate
service function; Decentralisation of the Marketing & Sales; Finance and HR
functions for each business unit; De-layering and appropriate staffing for new
structure.
Managing the Change
31. De-layering at the Executive level was the most challenging part of the
transition at Tata Steel. The people at the Executive level would though
understand the requirement for change better, but were the most difficult to
convince when it to came to their individual future in the company.

Therefore, Dr Irani and his team took some progressive steps to make this
transition smooth, as well as acceptable. The steps taken by the company
are enumerated in the succeeding paragraphs.
32. Communication with all Levels. Effective
communication
with
executives was the key for the success of change of such a magnitude and
the same was well managed. Interactive sessions were organised to
communicate the procedure and methodology adopted to all executives.
Executives who were offered Early separation schemes were explained as to
why they did not fit into the framework. Those who were retained were
explained about the assessment system and career progression in the new
structure. In a top-down approach, special dialogue sessions with the CEO of
the company was held for all executives to communicate the progress of PEP
and the work that lay ahead.
33. Facilitation for Second Innings. An attractive ESS package was
developed and posted on the internet for out-placed officers. A placement
agency was hired to provide support by way of counselling, resume
preparation, coaching placement and entrepreneurship development.
34. Redressal Mechanism. There were three categories among the
surviving executives. The first was the group which moved up in the impact
levels and were happy; the second category were the people who stayed in
the same positions and felt relieved and the third category of people
included those senior officers who had been brought down the impact level.
The third group resulted into accumulation of disgruntled officers at the
impact level 5, which was at the lowest level. CEO interacted with this level
and the survivors were told in clear terms that company had to adopt a
perform or perish policy to survive the global challenges and nobody is
indispensable in such a scenario. The new CEO adopted an open door
approach where aggrieved officers could meet him. The aggrieved officers
used to feel relieved after meeting the CEO even if they could not get full
redressal of their grievance. In addition, a team of senior executives under a
Deputy CEO constituted a Redressal Cell to consider each case on its
merit and advise the PEP team accordingly. During the process, the Redressal
Cell heard out close to 500 representations ranging from change in the
reporting relationship, seeking another opportunity in the same impact level
or a reassessment under PEP.
35. Feedback System & Changing Perception. The new CEO who was
accessible and open to communication sought feedback from the field and

people who were affected. He instructed the HR and Organisation Design

team to fill the gaps in communication between the company and its
employees. After the right-sizing, the focus was turned on educating people
on the opportunities available in the company for career progression, which
would be supported by a uniform appraisal system to bring in objectivity in
career progression. The aim was to bring in more transparency and change
the people mindset and convey that performance would be rewarded and
attract better talent to the company. This was also aimed at talent retention.
ANALYSIS
36. The various factors that contributed to the successful change
management at Tata Steel and rejuvenated the company towards attaining
global competitive edge are elucidated below:(a)

Recognition of the weaknesses and initiating recovery.

The company was able to pre-empt that it was ill prepared to
face the emerging business situation post economic liberalisation that
was characterised by market determined prices, lower import tariffs,
intense global competition and a shift to buyers market. Company
immediately reviewed its strategies and embarked on a turnaround
plan with a clear timeline.
(b) Visionary Leadership.
The economic liberalisation period
also coincided by change in leadership at Tata Steel when Mr. Ratan
Tata took over as Chairman and Dr. JJ Irani took over as Managing
Director. Both were visionaries with a strong conviction and were the
much needed change-agents to bring out a turnaround in the fortunes
of Tata Steel and make it globally competitive. Today the world
acknowledges Tata Steel as a global giant of the Steel industry.
(c) Perfect Planning.
The whole process was implemented in a
well structured systematic manner with target timelines. Recognising
that the philanthropic policies adopted by the company needs to be
reshaped for survival in the competitive world, external consultants like
McKinsey and Eicher were commissioned by the company to suggest a
new organisational structure and changes required in the organisation
to bring about the competitive edge.

(d) Communication and Transparency.

The company took the
labour unions into confidence while going for the blue collar
downsizing. Salient aspects of the restructuring and new HR initiatives
were communicated clearly to the executives. The whole process was
kept transparent as far as possible.
(e) Values and Social obligation.
True to its values, the
company did not retrench a single person be it an employee or
executive. Placement agencies were hired to counsel and help the
individuals.
The
Voluntary
Separation packages were made lucrative. Company helped people for
self employment by giving loans on soft interest and providing skill
enhancement trainings. All this initiatives helped the company to
implement the plans with minimal opposition. Perhaps, this is the
aspect which separates Tata Group from other business conglomerates.

REFERENCES
1. http://www.tatasteel100.com/heritage/index.asp.
2. www.wikipedia.
3. http://www.tatasteel100.com/heritage/history/history06.asp.
4. De-layering at Tata Steel by Col Rajeev Kumar in Journal of Organisational
Behaviour Education 1 of 2006, pg 36-57 http://www.neilsonjournals
/TataSteel
5. Reinventing a Giant Corporation: The Case of Tata Steel by DVR Sheshadri
and Arabinda Tripathy in Vikalpa, Volume 31, No1, Jan-Mar 2006, pg 133-146
6. How Tata Steel Made it to the Top of the World-Managing Change by R
Jagannathan in Business Standard, Mumbai 02 Jul 04.
7. The Tata Group: HR Challenges, a case study from www.Case Place.org.