One year at the helm of Tatas: Unveiling the mistry man

As the successor to the iconic Ratan Tata, Cyrus Mistry’s appointment a year ago should have brought all the suspense leading up to the event to a spectacular close. Instead, given the surprise choice, the event unleashed a frenzy of sorts, sending the media in a tizzy to profile what many regarded as a ‘mystery’ man. Investors and analysts spent reams of paper and hours of talk-time trying to figure out this appointment at the helm of the formidable US$100-billion Tata Group, and its impact on the overall strategy and direction of the Group going forward. Stakeholders (shareholders, management, employees, consumers, suppliers and the society as a whole) put through some key questions that demanded an answer.

How good will the Tatas be without a “Tata” at the helm of affairs? Incidentally he is the second non-Tata to occupy that position, the first being Sir Nowroji Saklatwala from 1932 to 1938. With Ratan successfully taking the Group global over the past two decades, what will Cyrus bring to the table? Will he be able to strengthen and consolidate the existing businesses and build robust new ones? Will he be able to build on the Group’s global presence over time in this globalised, dynamic and volatile world? Will Cyrus’ style of functioning be detrimental or complementary to the Group’s overall strategy?

Market and media efforts to come to grips with all these questions were clearly understandable. After all, the Tata Group, with more than 90 companies across 28 sectors, has operations ranging from tea, watches, cars, hotels, jewellery and retail to power and chemicals and to information technology, telecommunications and finance. Moreover, this may come as a surprise to many, but the Group is the largest industrial employer in the UK, with a headcount of around 50,000 employees, beating British Aerospace and British Telecom.

Over the past decade, the Tata Group has emerged as an Indian multinational and as one of the most respected business houses in the world, both of which are key ingredients to usher in a true-blue global presence going forward. Given its high ethical standards and a highly adaptable, knowledge-sharing organisational culture, the Tata Group is best-placed today to develop relationships and build partnerships globally. In fact, the media and market frenzy to Cyrus’ appointment should be viewed from this background.

Stakeholders’ initial response to the new appointment was whether Cyrus had the ability to carry on Ratan’s legacy and growth momentum. Over the past decade, Ratan spearheaded the Tata Group’s drive to establish a global presence with a string of high-profile acquisitions overseas. While acquisitions of Jaguar Land Rover (JLR) and Corus made international headlines, the Group also acquired significant assets across engineering, chemicals and hotels sectors. The result — revenue grew ten-fold to hit the US$100-billion mark, as the Group reclaimed its position as the No. 1 business house in the country, both in terms of revenues and market capitalisation.

However, a close study shows that many of the acquisitions were made before the global financial crisis, and while the topline has grown by leaps and bounds over the past decade, it has come at the cost of high debt on the Group’s balance sheet. For instance, experts today feel the US$13-billion acquisition of steelmaker Corus is ill-timed; on the other hand, the US$2.3-billion JLR acquisition is perceived to be quite successful. In other words, while the Group has succeeded in building revenues and scale over a prolonged period of expansion, profitability continues to be a major area of concern for many of the Tata group of companies. The key exceptions are the four ‘gems’ in the Group’s portfolio — Tata Consultancy Services (TCS; information technology), Titan (jewellery and consumer durables), Trent (retail) and Tata Global Beverages (coffee), where the average net profit came in at 23% in the last two financial years.

Given the prolonged global economic slowdown in a dynamic and volatile world, there is an urgent need today to trim and consolidate the Tata Group’s acquisitions and existing businesses, lower costs and reduce its debt levels. In that regard, sources have indicated that Cyrus should be well-suited for the job. In other words, if he stays true to his character, then there is little doubt that his buzzwords for the next few years would be ‘bottomline’ and ‘profitability’ rather than ‘topline,’ ‘revenue’ or ‘expansion.’

Described by insiders as a “numbers man” and “very hard-nosed in the way he approaches things”, Cyrus has charted a two-pronged strategy for the Group — strengthening its existing companies and ushering in new businesses. More importantly, according to sources within the Group, he believes in ensuring profitability and optimising the long-term interests of the stakeholders. To achieve that end, Cyrus has been underlining the need to consolidate and generate more from existing assets (rather than to shed assets), besides maintaining the Group’s core. According to him, “Without this core DNA that is uniquely Tata, there is nothing to differentiate us from our peers.” Moreover, to establish a successful global conglomerate, Cyrus is of the view that every Tata company must strive to hold out on its own and achieve excellence in business and ethics, true to the Tata tradition.

Since he took over, he has implemented certain key steps, including: (1) a US$1.6-billion write-down by Tata Steel, in view of the ill-timed acquisition of Corus; (2) some rationalisation of the CDMA business; (3) alliance with Malaysia-based low-cost carrier Air Asia and the ongoing negotiations with Singapore Airlines in the premium segment; and (4) abolishing two committees and establishing a group executive council (GEC) comprising four younger-age lieutenants (see box).

While these may appear to be ‘baby’ steps, it gives us a sense of the potential direction that Cyrus could take over the coming years — focussing on cutting the flab and identifying and improving operations of key underperformers, including Tata Steel, Tata Power and the domestic business of Tata Motors. Although many analysts feel that his first year has been relatively quiet, it should be understood that age is very much on his side. More importantly, the Tata Group that he has inherited is very different from the one that his predecessor took over — that was a time when Ratan faced immense challenges to his personal leadership from the numerous ‘satraps’ that dotted the Group landscape.

Moreover, according to key company sources, Cyrus is likely to drive the Group’s initiative to enter newer businesses associated with infrastructure and construction, areas where he has the requisite expertise. Above all, management indicated that in an effort to become truly global, the Group will be required to work to both deepen and widen its global engagement, with an emphasis on emerging markets in Asia, Africa and Latin America, adding to its existing presence in Europe and the US.

Under Ratan Tata, the Group adopted a path of global expansion and ‘topline’ growth. If Cyrus’ words and actions over the past few months are any indication, then we expect the Tata Group to be a ‘bottomline’ story, at least for the next few years. The need of the hour is to consolidate the existing businesses and cut flab so that when the global economy eventually turns around, the Tata Group of companies will be well-poised on the path to profitability and value creation.