Ivan f rodriguez e business plan part 2 ir rev x02

Running head: E-BUSINESS PLAN PART 2 1

E-Business Plan Part 2

Ivan F Rodriguez

University of Phoenix

E-BUSINESS PLAN PART 2 2

E-Business Plan Part 2

This week the E-Business plan advances with two substantial adding, strategic

analysis, and market justification, and business model. Businesses have the power (and the

responsibility) to revert the perverse cycle of corporate greed that has deteriorated the speed

of human development. Capitalism as the dominant economic system in the world can

contribute significantly to minimize some of its negative effects (e.g., poverty, hunger,

illness, and reduced opportunities for equally opportunities to develop intellectual and

psychological skills on individuals). This is not a romantic view nor an utopia of what

capitalism can achieve, instead it is a concrete proposal to outline a viable path to enhance

humanity development.

Joseph Lieberman, once considered one of the most pro-business members of

Congress stated:

We’ve seen too many companies bending rules, pushing though loopholes, defining ethical deviation

down, and replacing honesty with hokum and hype. In the process, they do not just distort our values.

They distort the markets, they taint the system, and they threaten the free flow of capital to other

deserving industries (cited by Neirkirk, 2002)

Tata as the selected company for the E-Business Plan (EBP) development emerges as

an outlier in the capitalism map. Tata is not only India’s biggest enterprise with profitable

operations in seven diversified industrial sectors (engineering services materials, information

technology and communication, energy, consumer products, financial services, and

chemicals), but also a company, which growth from 2004 and 2012 exceeded the median of

equivalent companies by almost four times. Tata’s international sales started to depict an

exponential growth from 2004 to 2012, growing from 44% of net sales to 59% (Tata Annual

Report, 2012).


Tata strategic analysis and market justification

Tata operates in more than 80 countries and their products are commercialized in

more than 85 countries. Tata’s market capitalization is close to $100 billion, and represents

more than 8.6% of Bombay Stock Exchange’s market capitalization with more than 3.8

million shareholders. Tata’ five largest companies are TCS (with annual revenues of $60

billion), Tata Motors ($16 billion), Tata Steel ($5 billion), Titan Industries ($4 billion), and

Tata Power ($3 billion). Tata’s total assets are worth $78 billion, and international sales

achieved an historic maximum in 2012 reporting $58 billion (e.g., ~58% of total revenue).

Tata financial’ controls are tight and effective, Tata reported a net exchange rate earning of

$1.6 billion at the end of Tata’s fiscal year (e.g., March 31, 2013).

Tata has followed two growth models, a hybrid model, organic growth combined

with bolt-on acquisitions during its first 100 years (from 1868 to 1968), and purely bolt-on

acquisitions (from 1969 to date). Despite the consistent growth in sales and business

diversification, Tata remained local until 1968. Tata’s facilities were localized in India, an

emerging country that allowed Tata grow at the rhythm that the country grew with minimal

costs as the government provided large fiscal incentives to invest in critical areas. Tata has

been an industrial pioneer since its creation, in 1902. Tata opened the first luxury hotel in Taj

Mahal (Palace Hotel). Five years after, Tata inaugurated the first steel plant in Asia, in 1910,

Tata implemented the first hydro power private company in India, in 1932, Tata started its

Civil Aviation Airline.

Tata was not just a pioneer in industrial innovations but also implemented advanced

and innovative labor practices. Tata was the first Indian company to adopt the with hour

working day (1912), provide free medical aid to 100% of its labor force (1915), introduce


schooling facilities for employee’s children (1917), develop the first documented severance

package and retirement plan in India (1920), define maternity paid leave (1928), and deploy

profit sharing program in India (1934). Tata’s leadership vision paired with impeccable

execution and balanced approach with Tata’s stakeholders, laid the foundation of a

successful path to globalization (see Appendix A).

As the Indian economy matured, entry barriers weakened allowing new competitors

to participate in India’s attractive internal market growth. This forced Tata to find newer

niches to maintain and eventually exceed its historical growth rate. Tata’s top competitors

are Wipro Limited, RPG Enterprises, and Essar Group (Forbes, 2013). One can easily

correlate the leadership effectiveness with the company’ performance. JRD (Tata’s

chairman from 1938 to 1991) was the brain behind Tata’s diversification. He led the group

into new business, chemicals, fertilizers, aviation, locomotives, trucks, tea, coffee, computer

software, financial services, jewelry, and watches. JRD was an ardent spokesman of liberal

economic regime and advocate of family planning.

International opportunity for Tata. Considering the broadness of Tata’s products

and services, the focus of this EBP will be on the energy industrial sector,

particularly in renewable energy. According to Aanesen, Heck, and Pinner, in the last

10 years (from 2003 to 2013), the solar-photovoltaic (PV) sector grew from a

“cottage centered in Germany to a $100 billion business with global reach” (2012, p.

1). Technology enhancements, government incentives, and incremental installed

capacity (new players) are driving the speed of growth of this industrial segment.

Total solar power installed capacity at the end of 2011 was estimated in 65 gigawatts

(GW). Based on specialized research installed manufacturing capacity will double in


the next three to five years and cost will drop an average of 10% annually until 2020.

The size of the market for the upcoming seven years is estimated in 400 to 600 GW

(Aanesen, et. al, 2012).

Considering the economic benefits (and some intangibles –the company’

reputation by contributing to environment preservation by implementing less

disruptive methods of energy generation) solar power generation represents a

significant incentive to Tata’s growth strategy. This may explains Tata’s decision to

take one step ahead on this industry and cancel its commercial relationship with

British Petroleum, who in 1989 signed a joint venture with Tata to create Tata BP

Solar. In 2012, Tata acquired British Petroleum Solar’ stake, allowing the emergence

of a new Tata’s fully owned company, Tata Power Solar. This new company

operates as an independent player in the solar power generation market (no liaisons

with BP), and it is aligned entirely with Tata’s vision to introduce highly developed

technology to improve productivity in the industry and enable scale economies. This

EBP results timely and relevant to the transition former Tata BP Solar is

experiencing.

Solar power generation economic analysis and market situation.

Since 2007, the solar power generation industry has experienced an unprecedented

growth. Global installed capacity increased from 4.5 GW in 2005 to 65 GW in 2011

(Aanesen, et. al, 2012). The biggest contributor is the government incentives and

subsidies that made solar PV economically viable. The productivity virtuous cycle

appeared, (1) demand increase, (2) new entrants grouped, and (3) pace of innovation

accelerated. Advancing one step farther, it was the incursion of low-cost, large-scale


manufacturers (Chinese and Korean mostly) that increased the number of offerings

and forced prices down (several manufacturers in non-low-cost-geographies, e.g., the

United States, Germany, and Spain, did not survive as their COGS exceeded by 20%

to 30% the price of equivalent products landed in their own territory). The

middleman and small players will not survive this cycle. A global market seems

ready to demand higher levels of solar power, and, according to specialists on the

subject, there is no any indicative this increasing demand will drop (Aanesen, et. al,

2012). The reduction of government incentives is netted with scale economy reached

by larger manufacturers. The solar power industry is reassigning the roles to the new

players and experiencing the boom expected since 1950 (see Table 1).

Table 1

Tata Power Solar strategic analysis and market justification

International

Business

Opportunity

Current

economic

landscape

Market trends Anticipated

Changes in

customer

preferences

Current and

anticipated

competition

Renewable

Energy (it

belongs to the

energy division,

which generates

6% of total

Tata’s revenue)

Economic

variables are

defined, (1)

productive

installed

capacity, mostly

concentrated in

Asia (40%+),

(2) informed

market,

demanding 400

to 600 GW

Total market

potential is

estimated in

400 to 600 GW

(compared with

installed base of

65 GW in

2011). The solar

power

generation

industry is

entering into a

Despite energy

is a commodity,

customers’

preferences will

evolve to

become more

sophisticated

introducing

concepts of

energy quality

(measured by

the variation on

There is enough

evidence (e.g.,

confirmed

bankruptcies,

mergers, and

acquisitions) to

project that

competition

will be led by

large players

(Tata – India,

GE – United


International

Business

Opportunity

Current

economic

landscape


Changes in

customer

preferences

Current and

anticipated

competition

from 2013 to

2020, (3)

accelerated

innovation

pace, which

contributes to

maintain this

virtuous cycle,

benefiting the

customers and

developing the

industry to

achieve lower

cost, higher

quality, higher

value.

According to

McKinsey

analysis, annual

capacity will

increase from

26 GW per year

(2011) to 75 to

100 GW in

2020 (Aanesen,

et. al, 2012).

phase of

“maturation that

is likely to set

the conditions

for more stable

and expansive

growth after

2015”

(Aanesen, et. al,

2012, p. 3).

supplied energy

– harmonics

curves), the cost

savings

achieved in a

period. It is

expected an

expansion of

products

diversification,

moving from

solar modules,

to solar

lighting, solar

thermal, and

others.

Customers’

preferences will

influence

significantly the

speed of

innovation and

price trend

(demanding

specialized

products for

specific needs –

lighting

fixtures, heater

residential

States,

Samsung, and

Hanwha –

Korea, and

TSMC –

Taiwan) will

domain the

manufacturing

and distribution

processes

following an

oligopoly

structure,

controlling raw

material flow

and influencing

its pricing.

Government

environmental

regulations will

continue

playing a

leading role,

accelerating the

pace of solar

power

generation,

using the

maximization

the tons of CO2


International

Business

Opportunity

Current

economic

landscape


Changes in

customer

preferences

Current and

anticipated

competition

systems, mobile

high efficiently

solar power

plants).

displaced as one

of the key

critical metrics.

Self-generation

of solar power

energy may

incentive the

speed of

growth.

According to

Shahan (2013),

many

businesses in

Italy, Hawaii,

Spain are

generating their

own power

applications.

This may be a

threat of small

dimensions as

the scale-

economy

volume is

required to

reach breakeven

points.


Tata Power Solar proposed business model

Tata has developed a unique business model, vertical integration paired with business

diversification. This model made it possible expand more quickly than any of its

competitors, survive economic crises (1929, 1998, 2008), and expand without significant

overinvestment. Tata’s growth roadmap was always supported by a deep investment

analysis, specialized resources were allocated to perform this assessment tasks (Aanesen, et.

al, 2012). Analyzing Tata’s business model, one can deduct the growth logic, (1) leverage

Tata’s developed platforms in emerging countries (with large opportunity to capitalize

countries’ growth at a minimum cost and controlled risk),and (2) strategically selecting

market niches in mature economies where Tata’s cost of goods sold (COGS) is at least 30%

lower than existing solutions on identified target markets.

EBP will use a business model that minimizes cost and increase market share via

product differentiation. With a projected investment on research and development (R&D) of

4.5% to 5.0% of sales, it is understood as a critical success factor (CSF) the ability of Tata

Solar Power to innovate at the pace required by the market. The selected business model will

boost Tata’s ability to reduce dramatically costs adopting orthodox cost reduction methods

(e.g., lean procurement, lean supply chain, lean manufacturing, modularization, and

automation), and non-traditional methods (e.g., increased customer retention, reduced

customer base, reduce cost of poor quality, improve Factory total efficiency, increased

inventory turns, reduced design cycle time, reduced cycle time in business processes).

The business model assumes (1) 100% of the revenue will come from

commercializing solar energy, and (2) installation costs similar to those in gas, wind, and

hydro energy generators. Customers are segmented in five groups based on the type of


consumption, (1) Off-grids – regions without solar grids (Southeast Asia, South America,

India, Africa), (2) Isolated grids – small local grids (Brazil, Africa), (3) Peak capacity in

growth markets – large power requirements in growth markets (China, Middle East), (4a)

Commercial and residential with good sunlight - matured markets in sunbelts (Spain, Italy,

California, Australia), (4b) Commercial and residential with restrained sunshine – matured

markets with moderate solar yields (Germany, Netherlands, Canada), (5) New large-scale

power plants – significant investment on new facilities (China, India, Middle East). Based on

the size of the segments, segments three (S3), and four (S4a & S4b) have the highest

potential demand. According to Shahan (2013), these segments will represent 75% of the

total projected demand in 2020, 300 to 450 GW (see Figure 1).

Figure 1

Market stratification and projected growth


Note: Projected demand by customer segment in 2020. Figures in GW

(Aanesen, et. al, 2012).

The lower levelized cost of energy (LCOE) is an acronym used commonly to

determine the target price at which electricity must be generated from a specific source

(wind, water, sun, nuclear) to achieve the breakeven point (DOE Solar Energy Technologies,

2010). Using the projected demand (400 to 600 GW by 2020), annual revenues will be $75

to $100 billion with estimated gross profit margins (GPM) of 35%. GPM assumes a (1)

LCOE of $0.12 to $0.14 per kWh, and (b) a cost per watt-peak (Wp) of $1.7 by the end of

2015 (from $2.9 in 2012), and $1.2 by the end of 2020 (30% less). These calculations are

supported on McKinsey Global Solar Initiative (Aanesen, et. al, 2012), and DOE Solar

Energy Technologies Annual Report published by the U.S. Department of Energy (DOE

Solar Energy Technologies, 2010).

Advancing one step farther, the competition analysis provided relevant information

about the high level of concentration on the supply. In 2012, 10 vendors supplied 40% of the

total solar PV energy demanded in the world (Shahan, 2013). Top vendors are Yingli, Trina

Solar, Canadian Solar, Suntech, Jinko, and Hanwha Solar One from China, First Solar, and

Sun Power from the United States, Sharp Solar from Japan, and REC Group from Norway

(see Figure 2). To remain competitive, reaching scale economies while maintaining healthy

cash flows (total control of financing cost), become the second and third Customer Success

Factor CSF to the business model. Tata Power Solar will need to monitor closely its balance

sheet, and consider additional acquisitions. Attractive acquisitions are some of its smaller

competitors REC Solar (Norway), and Sun Power (United States). The CSF (innovation,


scale economy, and cash flow – minimized cost of financing) will ensure the expected

Return on Investment (ROI) is achieved, i.e. recover the investment in less than 18 months.

Figure 2

Dominant solar power suppliers by country

Note: Solar power megawatts supplied by country during 2012. Figures rounded to

nearest 50 MW (Shahan, 2013).

Tata Power Solar’s Internet technologies

Tata’s knowledge management research is consistent with its performance and vision.

Knowledge transfer is becoming increasingly important to explain dynamic flows of

knowledge that enable workflow processes (and hence organizational performance).

According to Nonaka (2004), the knowledge-based organizational performance model takes

into consideration the practical aspects of knowledge transfer among temporal members, and

it has implications on future methods of transferring knowledge. A good example of the


effectiveness of this approach is represented by the extension of transactive memory theory

Tata has developed to maximize the value of virtual teams. Tata’s knowledge generation and

sharing is the fourth CSF for its continued success.

Internet technologies rely extensively in the base of knowledge generated by Tata.

Innovation intensity correlates positively to effective information and communication

technology (Sullivan, 2007). Via low-cost scalable platforms, Tata Power Solar can enhance

its business model (timely accessibility to new economic opportunities), human capital

(leveraging collaborative advanced capabilities), and institutional capacity (security). The

nature of the identified opportunity (solar power generation) represent a significant

opportunity for Tata to create a competitive advantage using the Internet and manage large

projects, allowing its existing customers to access timely and critical information about the

specifics of their projects and allowing potential customers, assessing Tata’s capabilities, and

benefits. This opportunity may represent a paradigm shift, but the use of security protocols

and confidentiality agreements must be reinforced to prevent negative secondary effects.

In 2010, Tata opened its Communication Exchange Internet Data Center, a very

advanced concept to create critical mass around Internet technologies capitalization. This

center is in Singapore and concentrates Tata’s communications’ Internet data centers,

storage, backup, hosting services, and several other transactional processes (accounts

receivables and payable control, strategic purchase orders placement, and advanced facilities

layout simulations) are hosted on this center. This is a concrete demonstration of how Tata

can continue leveraging the power of Internet in a reliable and cost-effective manner.


Conclusion

IT entrepreneurship can be a cornerstone of a firm’s competitive success in a global,

highly connected marketplace where agility, adaptation, and alignment are necessary.

Maintaining continuous change in any organization requires maintaining an ongoing cultural

acceptance for change. Change creates fear and introduces risk that can only be overcome by

a concerted effort supported by senior management. The imperative to manage sustainable

change across a wide range of capabilities is unavoidable for the IT function of a firm. Tata

embraced processes that enable the information technology (IT) function to become a

strategic partner in their business functions creating a solid foundation of support their

strategy and ambitious growth plan.


References

Aanesen, K., Heck, S. & Pinner, D. (2012). Solar power: Darkest before dawn. McKinsey on

Sustainability & Resource Productivity, 1, 1-14.

DOE Solar Energy Technologies (2010). Annual Report 2010, Retrieved from

www.nrel.gov/docs/fy06osti/38743.pdf

Forbes Finance (2013). Retrieved July 30, 2013, from http://finapps.forbes.com/finapps

Neirkirk, W. (2002). Lieberman issues call for a new corporate social contract. Chicago

Tribune (April 2, 2002).

Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization

Science, 5 (1): 14-37.

Shahan, Z. (2013). Top ten solar module manufacturers: IHS report. Retrieved

from http://cleantechnica.com/2013/04/13/top-10-solar-module-manufacturers-ihs-

report/

Sullivan, N. (2007). You can hear me now: Microloans and call phone are connecting the

world’s poor to the global economy. San Francisco: Jossey-Bass.

Tata Annual Report (2012). Tata Annual Report 2012, Retrieved July 27, 2013,

from http://www.tata.com


Appendix A Tata’s Strategic and Tactical Goals for the next five years

Objective TargetFY13

TargetFY14

TargetFY15

TargetFY16

TargetFY17

Strategic

(1) Dynamic Innovation (patents per

year)

250 275 305 335 375

(2) Fiscal volatility (positive exchange

rate)a

2.50% 2.75% 3.15% 3.75% 4.15%

(3) Disruptive Workforces (multi-

skilled Scientifics)

280 320 350 380 410

(4) Ethical Leadership performance

(number of lawsuits)b

<750 <650 <500 <400 <300

(5) Rapid growth (revenue increase)c 5.0% 7.5% 10.0% 12.5% 15.0%

Tactical

(1) On time delivery to customer

request (OTD)

97.5% 98.0% 98.5% 98.7% 99.0%

(2) Defective parts per million (DPPM) <500 <400 <300 <200 <150

(3) Gross Profit Margin (GPM)d 5.0% 7.5% 10.0% 12.5% 15.0%

(4) OSHA Index (OSH)e 96 97 98 98.5 99

(5) Operational Profit Before Interest

and Taxes (OPBIT)

4.0% 6% 8% 10% 12%

(6) Inventory Turns (IT)f 14 16 18 19 20

Notes: Years based on Tata’s Fiscal Years (end of March). a Percentage increase

year-over-year. b Total number of lawsuits (all areas included). c Percentage

increase in net sales year-over-year. d Percentage increase in gross profit margin

year-over-year. e Based on Tata’s internal Safety Index (multivariable linear

model). f Total net inventory turns across all Tata’s business.