House Of Tata, 1995:

The Next
Generation(A)
HBS Case- Tarun Khanna, Krishna Palepu,
Danielle Melito Wu

Presented By:
MBA/0175/58 - Madhura
MBA/0185/58 - Khushi Kedia 
MBA/0186/58 - Nitin
MBA/0191/58 - Shashank Khandelwal
MBA/0207/58 - Medha Bhasin "Ratan Tata has his own vision for the group and there
MBA/0314/58 - Prateek Gondwal
is never any doubt that he will hold it together."
AGENDA
AGENDA

• Evolution of tata group

• Difference in management styles of JRD and Ratan tata

• Restructuring

• Corporate Governance Challenges

• Future Ventures

• Key Takeaways

• Questions
A BRIEF TIMELINE
Ratan Tata attended Harvard's Ratan starts
Established in 1874 Ratan proposed "Tata Restructuring Tata
Advanced Management
by Jamsetji Tata Strategic Plan" in 1983 Group in 1993
Program in 1975

Dismantling of managing Ratan Tata was In 1996, Tata Group included 84

JRD nominated Ratan
agencies in 1970 made all Tata elected Chairman of separately traded companies with a
to Tata Sons Chair in
companies legally independent Tata Industries total of  270,000 employees and
1991
Limited in 1981 making sales of Rs 220 billion for
FY95

Problems Faced by Ratan Tata Ratan Tata's Goals

• Companies had no legal reason to show alliance to • To find a way to have everyone consider themselves part of
Tata Group. a whole group.

• Ignored retirement policy for executive and non- • Get the companies to operate in sync with one another.
executive directors. • Building a structure that is accepted, not mandated.
• No sense of unity within the companies towards the • Improve development, promotion, and protection of the
Tata Group. unified Tata brand.

• Lack of Brand image, core values, and ethics. • Improve brand image emphasizing core values and ethics.
How did the management environment and style differ for JRD and Ratan
Tata?

Tata under JRD Tata under Ratan Tata

• Became the chairman of Tata in 1938
• India was the home of license Raj,
corruption
• JRD hand picked his chairmen
• Encouraged chairmen to run company
autonomously
• Laid down policies but did not influence day
to day workings
• Became the chairman of Tata Sons in 1991
• India liberalized from the central planning
economy and becoming market based
economy
• Wanted to turn TIL from a small holding
company to a group strategy think tank
• Took steps to increase group ownership in
individual companies
• Wanted Tata to be more aggressive in its
approach
What were the main components of Ratan Tata’s strategy?

Restructuring (1993)

• Creating Group Brand

Conversion into leaner and

• Increasing co-ordination among the companies
tighter Tata Group group
• Increasing Tata Sons investments among the
group companies
• TAS
Selling loss making business
E.g. TOMCO (Oil mills)
Is creating group brand necessary?
Capital Markets
10
8
6
4
2
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• Opening up of economy post liberalization
• New players (domestic & foreign) in every field
• Need for powerful brand against competitive threats
• Uniform branding throughout the group companies
• Pooled financial resources in developing single brand
India UK US

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Strategy challenges faced by the group? (1/2)

Was the contribution rate of

0.1-0.25% justified?

CEO of 7 major No, will pay to

companies shareholder and
ACC, Telco, Tisco, Tata won’t give the
chemicals, Tata Tea, money for
Indian hotels, Tata something which
Electric Cos. was free earlier Equity interlocks
Reduced tension of companies
paying for building group brand
CEO of other new Yes, Group brand is were not benefited
companies helpful.
Strategy challenges faced by the group? (2/2)

Investments and receivables from group companies

1991 1995

Telco ACC Tisco Tata Power Tata Chemicals Tata Tea Indian Hotels Telco ACC Tisco Tata Power Tata Chemicals Tata Tea Indian Hotels

Receivables f/ grp. cos. Investment in grp. cos. Receivables f/ grp. cos. Investment in grp. cos.
How did Ratan Tata's Vision Evolve? - Increasing Investment Capabilities

To raise (and maintain) it's stake in key companies and fuel growth Tata Sons
needed to raise 7 billion.

They planned :
• Raise 3 billion through rights issue
• 4 billion through internal generation and debt

Criticism of rights Issue

Media Analyst Foreign

The media felt that The analyst argued the deal
the selling price lacked any benefit for the
overvalued the Tata investor ( 450 mil interest
Son's shares cost vs max 30 mil in
dividends)
They argued that industrial
companies needed capital
to compete in the future
and this diversion would
be fatal
How did Ratan Tata's Vision Evolve? - TAS

• Premium career option for MBAs

• Creation of common resource pool of next-gen leaders
Goals
• Exposure to three different industries in 10 years through planned rotation
• Special leadership programs and matching to relevant senior leadership roles
• Newsletters for new openings and available officers Structure

• Non-competitive compensation packages (below 35th percentile) – highest

package was 50k/month vs ~11k
Challenges • Awareness both internal and external

• Media exposure and audio-visual presentations for prospective employees

• Staggered increase in compensation packages – 20k/month in 1996 and Next Steps

25k/month in 1997
What are the future ventures for greater diversification?
TELECOM AVIATION

• Tata Telecom • Bangalore Airport Project

• Tata Teleservices Ltd • Tata – Singapore Airlines
• Tata Communications Ltd (Singapore Airlines)
(Bell Canada)

TATA
GROUP
TECHNOLOGY MISCELLANIOUS
• Tata-Honeywell  • AIG (insurance)
• Tata Information Systems • Tata Keltron (phones)
(IBM) • Tata Strategic Management
• IT Park (Singapore Group
Consortium) • Tata Petrodyne (energy)
What are the key takeaways?

Ratan Tata established a common brand that could foster benefit for all
companies using the Tata Name in any way

He restructured the functioning of the organizations by enhancing

interlocking of companies to achieve greater control

Through this restructuring and sense of unity, he executed his strategy to

diversify the Tata Brand into multiple industries
Questions to ponder!

• Did Ratan transition into his new position successfully?

• Was asking for Contribution (royalty) right/wrong?
• Could Ratan adjust to consumer's changing demand patterns?
• Was Ratan moving too fast?