Sunday, September 19, 2010

Tata Group: My Essay

I just finished reading a rather ordinary book “Tata: The Evolution of a Corporate Brand”. Ordinary because the book looks very promising with a foreword by Ram Charan and appears to provide insights into what makes Tata the business house what it is. It is neither fully academic in its approach nor adopts a popular model. The central approach of the book has been to work with a series of anecdotes to broadly argue whether this reinforced the brand Tata or not. However what is important in the book is that it does evoke some emotions and as one is reading the book one is able to largely relate to the brand TATA in more ways than one.

Like the author of the book who confesses that he is positively biased towards the brand, it would be appropriate to state upfront that I myself have been a Tata beneficiary and have a great deal of admiration for the group. Witzel almost indicates that Tata is almost the most ethical business house in the country, by showing evidence as to how a junior officer put some customs officials in the anti-corruption net and an instance of Tatas continuing to offer funding to Trinamool Congress as a part of their “apolitical funding” to all parties inspite of the problems at Singur. Instances of allegations that Tatas paid off ULFA in Assam is brushed aside in a paragraph without much discussion, the bias clearly showing in favour. So, the downside of Tatas that is discussed is the scandal that happened in Tata Finance and how they came out of it, including at some stage not opposing the bail for Dilip Pendse the then chief of Tata Finance because they thought that 15 months in prison during trial was enough and the rest of the legal battle could be fought without opposing the bail. In a way he is projecting the Tatas as somewhat sophisticated robinhoods. While there is a great deal of admiration for the group and what they generally represent and the principled stand that they usually take, it may be difficult to accept that sort of a clean sweep generalization. To the author’s credit he does indicate that they as a group are not infalliable, but the view, as he himself confesses does not even try to be balanced.

There are two aspects to the TATA business that is important to be distinguished and discussed separately. The first aspect is something that is very unique to the TATAs on how their ownership is structured and the activities that the group is able to carry out as a result of this structuring. The second aspect is about how the individual commercial companies themselves behave and how the group dictates and shapes their behavior. The author does not very clearly distinguish between these two activities. Yes, it is true that both add to the brand value of the TATAs but it would have been interesting to see what rubs on what.

The first aspect is indeed important. TATA Sons, that has significant stakes in most of the TATA companies is significantly owned by the TATA Trusts followed by Shapoorji Pallonji Mistry and the individual holding of the members of the TATA family is somewhat small compared to the two big blocks of shareholders. That is the reason why it is said that JRD Tata, apparently would say that he is personally not rich in spite of leading one of the leading business houses. Naturally we do not see the Tatas individually featuring the millionaires/billionaires list that is brought out be inquisitive business magazines. The way the TATA group ownership is structured particularly at the holding company level is something of a legacy that they have inherited and future generations would find it hard to reverse what was done by the first two generations of the family. In a way the senior Tatas bound the coming generations to a certain type of behavior – without giving them much of a choice. That the following generations have maintained what was left as a structure was without much of a choice. However the fact that they in their own way positively contributed to the legacy is something that comes out as commendable. In a way, it is indeed important to lay down the DNA of an initiative in a fairly irreversible manner so that it is difficult for the newer generations to screw up the basic fabric of what was intended.

Weitzel does talk about the last decade of JRD and the initial days under the Chairmanship of Ratan Tata where it appears that the group was losing direction, was seen as a company living in the glory of the goodness of the past and was not seen really as a contemporary group keeping in touch with the times. When the holding is owned largely by a set of charitable institutions, the dynamism to keep the glue of the organization in tact therefore comes from the drive and zeal of the person at the helm. The market forces cannot help the unlisted holding if it decides to relax and is not necessarily seen as agile. Therefore as rightly pointed out in the book, we have a situation where the individual entities of the group could have been doing well [as they were listed and answerable to the market forces in general] but the group itself – represented by the holding company not seen as agile and active. This possibly explains why each of the Tata companies was seen as the fiefdom of the star chiefs – be it Darbari Seth, Russy Mody, Moolgankar and the others.

The challenge therefore for the group was and will remain in how the holding company is structured. Before Ratan Tata stepped in and started the consolidation of the Tata brand and cajoled the individual firms using the Tata names to sign up an agreement for payment of royalty to Tata Sons and also come to a common understanding of what a Tata identity means, each one of them were run as outfits that almost did not belong to a group. Even the holding of Tatas in each of these firms was low and the ownership had got very diversified. It was only in the first phase of Ratan Tata’s tenure that through a series of decisions on retirement age, rejigging of boards and consolidation of holdings [and even renaming companies] that the Tata imprint started getting planted on individual units. This phase also represented the sale of some of the Tata businesses and taking stock of the business they wanted to be in, in the longer run. During the second phase of Tata was the phase of high profile acquisitions, launching of a car, planning for the people’s car Nano, and consolidating on the Tata brand name as an aggressive brand that means business.

So when we deconstruct the Tatas in India, the bottomline comes to the businesses and the Trusts. I am not sure that the Tata businesses stand out as extraordinary businesses with a unique Tata imprint. Except for the Nano innovation, most of the businesses run the way any business would. Indica was a disaster when it was launched, and they improved it over a period of time. The service levels at any Tata outlets does not outshine any other competing brands. Yes there is an aura that they are largely ethical businesses, and took a principled stand in Singur [inspite of burning cash] – but I guess it was more a hard nosed business decision than a principled one. Imagine the trouble they would have had on an ongoing basis if they had actually set up a plant in Singur. The fact that they opened shop in Gujarat [in spite of Ratan Tata himself having made some comments about Chief Minister Modi in the wake of the post Godhra riots] shows that when it comes to business, it is not necessarily a moral high ground that dictates the behavior, instead the best interests of the business itself. Therefore there is nothing that stands out as a Tata way of doing business at the consumer end. Your walk in experience at Croma is no better or different from EZone, the landmark store looks huge and disorganized when compared to crossword, and there is nothing that Tata Sky provides as a tata experience [other than Aamir Khan encouraging you to drop out of school!] on the Tata Sky dish business. I own an Indica and have had nightmares everytime that I have got the car serviced. Hardly different of distinct from a typical Indian consumer experience.

However, what does rub off positively on the brand is the work [particularly in me sector] that the Trusts do. They have been involved in some of the most constructive activities across the country, the activities spanning across hospitals, educational institutions, funding voluntary agencies and working in the areas of art and culture in the most constructive way. The trusts are very careful in the way they use their money and do not splurge. I personally have benefitted from a liberal and ongoing grant to study the microfinance sector when I was at IIMA. I have done work for the Trusts and the amount of attention they pay [including the top management of TATAs] to the work of the trusts is noteworthy. Given that many corporate houses do not do organized philanthropy [and possibly splurge on building fancy temples], the way they have put what could have been the personal wealth of the family to public service is something that we need to commend. Somehow the book does not seem to make this distinction between being an ordinary business with flashes of brilliance and an extraordinary group structuring that makes them a very social organization.

The Tata brand therefore is a brand that represents a whole lot of goodness, and not all of that goodness actually comes from their businesses. One thing is certain: They are certainly a mature business group. Apparently people who were in the forefront of protests in Singur were directly or indirectly all beneficiaries of Tata – some were direct donees from the trusts, some [including Medha Patkar] were graduates of TISS – TATA Institute of Social Sciences and as per Wietzel, even Trinamool congress was a Tata donee, and it continued to be one, till suddenly the party realized that it had a conflict of interest and returned the money. That incident is a good enough illustration as to how divorced the commercial and philanthropic interests of Tatas. Unfortunately Witzel tries to attribute the goodness of the structure and individuals on to the group and disappoints on this count.


Nitin Pai said...

Dear Sir,
Like most Indians and an aspiring manager , I too am inspired by the TATA group.
Having interned with one of the Trusts in the Vidharbha region earlier this year, I too came to realise that the Trustees (who are mostly the top management of TATA) pay great attention to what the Trusts do.

Anonymous said...

I am very happy and proud to say that my half of PhD study in science was funded by TATA trust. Now i am a tata product:)

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