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Table of Contents

Source Problem

Secondary problems

Issues Regarding Human Resource Management

Succession of Cyrus Mistry

Acquisition of Corus

Analysis of the Secondary Problems

Issues Regarding Human Resource Management

Succession of Cyrus Mistry

Acquisition of Corus

Criteria of Evaluation

Alternatives

Decentralization of Management

Appointment of Sole Chairman

Mentorship by Ratan Tata

Support from the Senior Directors and Management

Horizontal growth

Backward Integration

Recommendation and Justifications

Implementation and Monitoring

References

 

Source Problem

Tata Group is a global corporation which was founded by Jamsetji Tata in1868. Headquarter of Tata Group is in India and it is operating in more than hundred countries across 6 continents. The main seven sectors of business activities undertaken by the Tata Group contains services, materials, energy, engineering, consumer products, chemicals, communication and information system. Tata group has 100companies operating worldwide and the total of Tata companies was 103.27 billion USD in 2013-14. Various companies of Tata Group have already achieved global leadership through excellent operations. According to a UK based consultancy firm, Brand Finance Tata ranks 34 among the top 500 most valuable brands across the world.

Tata group has adopted several expansion strategies under the leadership of Ratan Tata. In steel, automotive, hotel industry and mining sector, Tata has implemented its expansion strategy through acquisition. In this paper, the issues encountered by Tata Group in regard to the global expansion strategy will be discussed. Both hardship and success has been experienced by Tata group in several phases of the expansion. Some projects are undertaken in the rural areas and the situation is not viable for the company. Hence, the major challenge of the Tata Group is to empower the group companies for surviving in the difficult global economic scenario without compromising with the vision, mission and values of the Tata Group.

Secondary problems

Tata Group has more than hundred companies and each business is an independent working entity. The group has been encountering several short terms as well as long terms issues in pursuit of the global expansion. In this section, major short term as well as long term problems have been indentified and discussed in brief.

 

Issues Regarding Human Resource Management

Presently, Tata group has an employee base of 571,470 people across the world. Human resource is the key driver for the success of a company. The global expansion strategy of Tata Group involves merger and acquisition. When two entities merge, the cultural difference of the employees leads to various issues. As the company is aiming to achieve organic as well as inorganic growth trough future expansions, human resource management and retention of the talents will be a major challenge for the company.

Succession of Cyrus Mistry

After retirement of Ratan Tata, Cyrus Mistry has taken the charge of the company. The successor will confront challenge for revving up some of the flagship companies of the Tata group. the stakeholders are anxious to evaluate the performance of the new Chairman of Tata Group. The major question is whether Cyrus Mistry will be able to continue the success story of the group. Another question is whether he would be able to take Tata to higher position or maintain the current status.

Acquisition of Corus

In 2007, Tata Steel ad acquired one of the Steel giant Corus group as a part of the global expansion strategy. But, Corus Group has significant burden of debt have been major problem for Tata Steel. The performance of Tata Steel Europe is not up to the mark. Hence, acquisition of Corus Group has leaded to a major problem for the Tata Group.

Analysis of the Secondary Problems

The major problems of encountered by Tata Steel have been identified in the above section. This section will focus on analyzing the major problems so that the issues of global expansion strategy can be addressed properly for finding solutions.

Issues Regarding Human Resource Management

In the dynamic global business environment Tata Group has been facing challenges regarding effective management of the human resource. As the operations of the group have been expanded in the foreign territories through merger and acquisition management of diverse workforce has become a significant challenge for the Tata group. The strong philosophy of the Tata Group has been embedded within the operations and activities of the company. The company tends to adopt a model which was practiced by the predecessor of rattan Tata. This model suggests that the flagship companies of the Tata Group will have their own chairman.

Presently, Cyrus Misrty has been given the sole authority to choose the governance model. The major challenge of the group is to ensure that the employees of the merged entities and the newly appointed workforce follow the culture and values of the Tata group.

 

Succession of Cyrus Mistry

In 2011 Cyrus Mistry was appointed as the Depuy Chairman of The Tata Group prior taking over the charge of the group as Chairman in 2012. He had been putting great effort to understand the business for continuing the elevation process. Cyrus Mystry is responsible for formulating strategies in order to achieve the organizational goals regarding profitability. Presently, the company needs to focus on the global market position of the group as well as its profitability. He is also responsible for ensuring that the traditional values as well as ethical standards of the company are maintained.

However, Cyrus Mystry is encountering various challenges regarding the market position of some flagship companies. It has been observed that performance of Tata Motors is not up to the mark and it is losing its market share. In terms of passenger vehicles, Mahindra & Mahindra has captured the market by introducing new SUV models and technologies. Sales of Tata Safari and Sumo have been affected. Additionally, sales of Tata Nano have been far from the forecast. Volkswagen and Ford have been found to be the biggest rival of Indigo which was utilized for boosting up the automobile sales of the Tata Group.

Among all the flagship companies of Tata Group, Tata Teleservices (TTSL) has been contributing highest in the loss of the group. In 2012-13 the net loss of the Tata Teleservices was reported to be 48580 million (in rupees). In 2013-14, Tata Teleservices has reported the highest loss of 61660 million INR. Tata Power is also encountering issues due to the high coal price and depreciation of INR. It is encountering loss for the past few years. However I the first quarter of the financial year 2014-15, the net loss is narrowed down


 Business Standard

 

According to various stakeholders, Cyrus Mistry will encounter challenges due to lack of experience. Cyrus Mistry has limited exposure of the present business structure, strategy and operations of the Tata Group as he has only five years experience as a non executive director. In order to avoid the conflict of interest, Cyrus had already disassociated himself from the family business. Hence, Cyrus Mistry will encounter various issues regarding decision making, rejuvenating the sick flagship companies, mentoring and formulating strategies.

Acquisition of Corus

Management of Tata Steel indicates acquisition of Corus as a big milestone for the company. The major aim of this acquisition was to penetrate the mature market of Europe. The technological benefits can be achieved from this acquisition. Even after 7 years after acquisition of Corus by Tata Steel, the financials of Tata Steel Europe does not indicate a good position. Though Europe has been improving its economic condition after the long recession, the financial performance of Tata Steel Europe has not been found to be satisfactory. Turnover of Tata Steel Europe for the financial year 2013-14 is reported to be 3% lower compared to the previous year. The reason is decrease in the average revenue per tonne leaded by the deterioration in the market condition in the first of the FY 2013-14.

 

It has been observed that the Earnings before Income Tax Depreciation and Amortization (EBTIDA) has increased year in year basis, however fallen sequentially. The net loss of the year has decreased from the quarter of previous year but increased in comparison to the previous quarter. According to the report of Kotak Securities, though production and delivery of Tata Steel Europe has increased, there is a sharp decline in the profit margins and tagged as grossly underperforming. The average realization of Tata Steel Eurpoe was decreased by 7.7% sequentially and the cost of raw materials increased by 0.1% simultaneously. This situation leaded to a sharp fall of 25.5% in EBTIDA per tonne.

RAMACHANDRAN, K. 2011. 'Cyrus Mistry Needs To Address A Number Of Explicit, Implicit Challenges'. 

Tata.com,. 2008. 'New Challenges, New Opportunities Via @Tatacompanies'.

 Tata Steel

 

Criteria of Evaluation

Tata is a value driven organization and the growth has been directed by the core values of business which include integrity, understanding, excellence, unity and responsibility. The goals and objectives of the group are the major factors for determining the strategic orientation and plans. In order to evaluate the performance of the company, the financial performance of Tata Group has indicated that the total revenue of the company has increased by 18.5%. Increase in total asset is 20.6%. The global operation has been improved and international revenues have increased by 27%.

 Tata Group

 

Hence, for the next few years, Tata Group needs to set a minimum target of 18.5% for evaluating the revenue growth of the entire group. Additionally, the company must set a target for Tata Steel to become top three companies of the world. As the Tata group emphasizes on the values and social responsibilities, it must continue the with the social responsibility projects across the globe for enhancing its goodwill.

Alternatives

In the above sections, the major problems of Tata Group have been indentified and analyzed along with empirical evidences. This section has recognized some alternatives for addressing the existing issues.

Decentralization of Management

Decentralization of management structure will be suitable for Tata Group and support the global expansion strategy. Human resource management is a major challenge for the group of companies. Engagement of the local employees will be beneficial for the Tata Group. Individual Chairman can be appointed for the flagship companies of Tata Group.

Appointment of Sole Chairman

Cyrus Mistry will be the sole Chairman of the Tata Group. He will be responsible for handling the issues of Tata group. As individual chairman will be appointed for the flagship companies, the burden will be reduced for Cyrus Mistry.

Mentorship by Ratan Tata

Ratan Tata can help Cyrus Mistry in the strategic decision making and act as mentor. It will help in the smooth succession of Cyrus Mistry and he will also get easily accepted by the stakeholders.

Support from the Senior Directors and Management

Cyrus Mistry needs support from the senior director who has been working for longer period and holding senior positions in the management of Tata Group. Their support will helps to understand the strategic direction of the company along with its values and philosophy.

Horizontal growth

It has been observed that the Tata Steel Europe has not been able to achieve the desired performance. Sustainable growth can be achieved through competitive advantages. Significant resources gained from Corus can be utilized for product innovation which will contribute in the horizontal growth of Tata Steel. Superior R&D of Corus can successfully accomplish the horizontal growth which will result in broadening the profitability.

 

Backward Integration

Backward integration suggests an organization to internally produce various parts of its supply chain. In case of Tata Steel, backward integration refers to own iron ore mines to supply in its business. Tata Steel can consider acquiring mines for obtaining the desired quality raw material at a lower price. Thus Tata Steel will have lower operating cost which will provide competitive advantage to the company and improve EBTIDA of Tata Steel. However, this strategy is capital intensive.

Recommendation and Justifications

Finally, the following recommendations are provided along with justification for confronting the challenges:

  1. Horizontal growth can be achieved through innovation. Strong R&D department of Corus can assist in this process for meeting the customer demands. Thus the Tata Group will be able to improve its performance in the dynamic global business environment.
  2. Tata Steel can consider acquisition of iron ore mines which will reduce the cost of production. Hence, backward integration can aid in the improvement of EBTIDA.

Implementation and Monitoring

The implementation of these strategies needs an effective implementation plan. The Chairman of Tata Steel is recommended to develop an implementation plan along with the senior management team. As backward integration is a capital intensive strategy, it must be evaluated and implemented effectively so that the desired outcome is achieved. Appointing individual chairman for each flagship company will face obstacle from the stakeholders. Hence, plan needs to be designed for encountering obstacles during the implementation of the recommended strategies.

All these activities need to be monitored by analyzing the financial as well as operational performance of the Tata Group as well as individual flagship companies under Tata Group. If any gap is identified in this process, it must be coordinated and change the plan accordingly.

 

References

Baggonkar, Swaraj. 2013. 'Challenging Road Ahead For Tata Motors: Cyrus Mistry'.

Businesstoday.intoday.in,. 2014. 'Tata Power's Net Loss Narrows To Rs 111.30 Crore On Fall In Forex Losses -

Chatterjee, Dev. 2014. 'Tata Teleservices Posts Record Rs 6,166-Cr Loss'. Business Standard.

Dutt, Ishita Ayan. 2014. 'Tata Steel's Problem Child Struggles To Make Good'. Business-Standard.Com.

Economictimes.indiatimes.com,. 2014. 'Tata Steel Directors Report |

Hill, Charles W. L, and Gareth R Jones. 2014. Strategic Management. 1st ed. Mason, OH: South-Western, Cengage Learning.

Philip, Lijee, and Satish John. 2013. 'Ratan Tata's Lieutenants To Be Chairmen At Tata Steel, Tata Motors, TCS And Indian Hotels -

RAMACHANDRAN, K. 2011. 'Cyrus Mistry Needs To Address A Number Of Explicit, Implicit Challenges'.

Tata.co.in,. 2014. 'Leadership With Trust Via @Tatacompanies'.

Wheelen, Thomas L, J. David Hunger, and Thomas L Wheelen. 2008. Concepts In Strategic Management And Business Policy. 1st ed. Upper Saddle River, NJ: Pearson Prentice Hall.

 Wheelen, Thomas L, J. David Hunger, and Thomas L Wheelen. 2008. Concepts In Strategic Management And Business Policy. 1st ed. Upper Saddle River, NJ: Pearson Prentice Hall.

Hill, Charles W. L, and Gareth R Jones. 2014. Strategic Management. 1st ed. Mason, OH: South-Western, Cengage Learning.

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