The Tata Succession Planning

Business Strategy Assignment

Submitted To:Prof.Bidwai

Submitted By:Vaibhavi J Dave

Enrollment Noo:09BS0000636

Now me who’s next?

Introduction to the Tata Group:

Industries of the Tata Group:

1902 Taj Mahal Palace Hotels 1907 Tata Steel1910 Tata Power1932 Tata Airlines1968 Tata Consultancy Services1998 Tata Motors

The group takes the name of its founder, Jamsedji Tata a member of whose family has almost invariably been the chairman of the group. The current chairman of the Tata group is Ratan Tata who took over from J.R.D Tata 1991 and is currently one of the major international business figures in the age of globality The company is currently in its fifth generation of family stewardship.

The 2009 annual survey by the Reputation Institute ranked Tata Group as the 11th most reputable company in the world. Tata gets more than 2/3rd of its revenue from outside India

Mr.Ratan Tata-

Ratan Naval Tata (born December 28, 1937, in Bombay is the present Chairman of Tata Sonsas Tata Steel, Tata Motors, Tata Power, Tata Consultancy Services, Tata Tea, Tata Chemicals, The Indian Hotels Company and Tata Teleservices.

Mr Tata also serves on the board of directors of Fiat SpA and Alcoa. He is also on the international advisory boards of Mitsubishi Corporation, the American International Group, JP Morgan Chase and Rolls Royce.

Mr Tata joined the Tata group in 1962. After serving in various companies, he was appointed director-in-charge of The National Radio and Electronics Company in 1971. In 1981 he was named Chairman of Tata Industries, the group’s other promoter company, where he was responsible for transforming it into a group strategy think-tank, and a promoter of new ventures in high technology businesses.

The Government of India honoured Mr Tata with its second-highest civilian award, the Padma Vibhushan, in 2008. He has also received honorary doctorates from Ohio State University, the Asian Institute of Technology, the University of Warwick and the Indian Institutes of Technology of Kharagpur and Madras, and an honorary fellowship from the London School of Economics.

Tatas line up succession planning in group firms-

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The Tata Group which has an employee strength of 280000 is putting in place succession planning at different levels within various companies and a new performance management module to access the growth across the group. “We want to raise the bar on performance management across the group to improve the standards. We want to first set the basics right and build on the successful foundation” said Tata Sons Ltd executive vice president (group human resources) Satish Pradhan.

With a clear mandate to HR of attracting good people, retaining the better people and advancing the best people in a departure from the earlier system of performance management the group will now follow a four-box rating approach.

Since a strong thrust is being laid on earnings culture and not entitlement culture, poor performance will clearly be a career stopper at the group. The Tata name is a unique asset representing leadership with trust. Leveraging this asset to enhance group synergy and become globally competitive is the route to sustained growth and long term success; justified Mr Pradhan.

Succession planning across different levels in the group will also be given a renewed thrust this year.

The Tata group, which is said to be the country’s largest employer in the private sector, is highly diverse and spread across wide sectors such as materials, chemicals, energy, engineering, communications and information systems, services and consumer goods.

Thus, a greater need was felt to speed up the growth process, as these industries are spread out in over 90 group companies.

Since a multi-layered organisation will have less headroom for people to unleash their capabilities, Tata work levels have been defined as six work levels in larger companies and four in the smaller ones.

There will be a business and company-specific implementation and application with freedom within the framework.

Without intruding into the independence of these companies, the group has undertaken a people planning framework to match work challenges with capabilities and to build on these capabilities.

Tata’s succession planning is refreshingly professionalen years after his wild-card takeover from J.R.D. Tata, Ratan Tata’s stint as chairman of Tata Sons — the holding company of the highly

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diversified Tata Group — has been acknowledged as wildly successful. Taking a $4 billion group into the $70 billion bracket, he spun yarn into gold — converted an essentially Indian brand into a name that the world has to reckon with. Whether it was overhauling internal management at Tata, or packing a punch into the world’s cheapest car or buying up luxe brands like Jaguar, Ratan Tata has steered the Tata Group with admirable confidence and panache. The person who takes over from him must possess at least a part of that drive.

The succession strategy at Tata Sons looks heartening — begun a good two years before Ratan Tata retires, it appears impeccably professional with a five-member search committee (with board representation, but not Ratan Tata himself) that includes members from two key Tata family trusts and an outsider.

In India, it is taken for granted that the top seat in many businesses will be filled by the next member of the promoter’s family. But succession planning is a delicate affair — look at Reliance, or even the tension over continuity at Apple when Steve Jobs lets go (despite it not being a family-controlled corporation). Tata Sons could become India’s own case study of how to do the handover right. Most of its substantial shareholders are not even part of the family (Ratan Tata himself owns about 1 per cent in stake).

More than 66 per cent of the equity is held by philanthropic trusts endowed by different members of the Tata family. This dilution of ownership by the promoter family ensures that they are less invested in transition decisions, allowing it to be managed professionally. Given Tata’s symbolic and real importance to Indian business, the search should be interesting.

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A QUIET INDIAN

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In spite of its long history of idol worship, India is a country of unrecognized icons. This statement is particularly true of India’s secular icons. They are almost always, especially in contemporary times, cricketers and film stars.

There is thus a distinct possibility that when Ratan Tata steps down in 2012 as the chairman of the Tata group, his achievements may not get their due recognition. Yet any objective assessment, away from the glare of limelight, will show that he is arguably the greatest Indian of his time and generation. Mr Tata succeeded J.R.D. Tata, who was hailed as a legend in his own lifetime. Mr Ratan Tata thus had a difficult act to follow.

Undaunted by this, Mr Tata decided to fashion his inheritance on his own terms and to put the companies he led on a new path of growth and development. There are two success stories, in this context, that deserve special notice. Mr Tata is often not seen as a pioneer but as someone who expanded what he inherited. This overlooks the fact that he is perhaps the only Indian industrialist who put on the market two products that are completely Indian — the cars, Indica and Nano. Indian firms have excelled in the task of assembling and in providing skilled labour, but Mr Tata set the pace in manufacturing things that are Indian.

The other achievement is the phenomenal expansion of Tata Steel that occurred under Mr Tata’s leadership. Tata Steel today is one of the largest producers of steel in the world. This was possible through the acquisition of Corus in the centenary year of Tata Steel. This acquisition was the product of a vision that Mr Tata nurtured. He wanted to make the Tata group a global player and he chose to do this by making his steel company — in many ways the Tata group’s flagship — grow from India’s premier company to become one of the best in the world. Mr Tata may lack the flamboyance of his predecessor but his footprints are national and global. He has allowed his achievements to speak for themselves without being burdened by the mantle he wore. His approach to his empire is reflected in the process he has established to find his successor. He could have just named his heir. Instead, he decided to give to the process his characteristic professional touch: he has appointed a selection committee. This could not have been an easy thing to do in a company whose name is eponymous with that of a family. Floreat, Mr Tata.

Five-member panel to pick Ratan Tata’s successor formed

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The Tata group’s holding company, Tata Sons, on Wednesday announced the setting up of a five-member panel, including one external member, to choose a suitable successor to Ratan Naval Tata who is retiring in December 2012.

The move comes within days of Noel Tata’s elevation as head of Tata International. Noel Tata, half brother of Ratan Tata, is a possible, though not the obvious, candidate.

Tata Sons said in a statement that its board had formed a selection committee which was in the process of formulating criteria for identifying the most suitable candidate, taking into account the global nature and complexity of the group’s business.

The statement said the group would require someone with experience and exposure to direct its growth amid the challenges of the global economy. “The selection process for a prospective candidate would consider suitable persons from within the Tata companies and other professionals in India as well as persons overseas with global experience,” it said.

India’s most celebrated chronicler of family run businesses, who has written on Tata group and Ratan Tata and who did not wish to be identified by name in this report, said, “To my mind this (the Tata move) is going to be close to the GE model. I see a lot of similarities between GE and the Tata group, both are in the B2B and B2C space, and have diverse multi-lingual, mutli-locational and multi-pronged businesses. They too had a committee to choose the successor. The GE model is a very good template.”

The former director of IIM-Ahmedabad, Bakul Dholakia, said, “I think the Tata decision to set up a committee is a welcome move in the Indian context, for it brings in transparency. Nobody forced it on the company. This, indeed, as and when the plan gets through, would be a benchmark given the kind of diverse businesses, diverse locations, and diverse in-house talent available in the group. Indian family-run businesses, most of which have relatively younger bosses (Reliance Industries, ADAG, the Aditya Birla group and Bharti), would learn a lot from the Tata plan. This is a nice beginning.”

Rahul Bajaj, chairman of Bajaj group, who has been Ratan Tata’s “good friend” for 40 years, said, “I would not like to comment on his retirement.”

There has been intense speculation on the composition of the selection committee, though the Tata group has not formally announced any names. Among Tata’s close associates who are almost certain to be on the committee are Shapoorji Pallonji Mistry and NA Soonawala, both of whom are also related to the Tata family through marriage. Names of two outside associates, Bombay Dyeing chairman Nusli Wadia and former CII chief mentor Tarun Das, were also doing the rounds. None of these names could be independently confirmed.

Mistry is the largest single shareholder in Tata Sons with a 18.5 per cent stake. He acquired his

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stake mainly by buying the shares from the late Dorab Tata, JRD’s brother, and from Rodabeh Sawhney, JRD’s sister.

One important reason why these shares went to Mistry was that under the articles of association of Tata Sons, any shareholder who wished to sell his or her shares had to first offer them to existing shareholders.

Since the trusts were forbidden to buy shares and other directors like JRD never had an yen for gathering personal fortunes, Mistry was well placed over the years to take up those offerings.

Soonavala is in the Tata group corporate centre, a forum where broad policy issues relating to the growth of Tata companies are reviewed and entry into new areas are discussed. The centre also plays a key role in protecting and promoting the Tata brand in India and abroad. He is also a trustee at both Sir Dorabji Tata Trust and Sir Ratan Tata Trust.

Noel Tata, aged 53, is the son-in-law of Mistry. Noel is also in charge of Tata Investor Corporation and was responsible for Trent, the retail arm of the group.

Earlier this year, Ratan Tata had said after the launch of Nano, the smallest and the cheapest car in the world, that it would be a good time to step down and there would be a timeframe to it. “I do have the responsibility to have a successor and both these things will take place soon.”

His tenure at the helm of the group, ever since JRD Tata vacated his saddle in 1991, has run almost synchronously with India’s economic reforms, now in its 20th year. It’s been an eventful two decades since then. Soon after taking over as chairman of Tata Sons, Ratan Tata had said, “My goal is to attain market leadership or at least be one of the top three players. Otherwise we must seriously consider getting out of a business.”

Tata Tea is the world’s largest tea company. Tata Motors holds 70 per cent of the Indian market for commercial vehicles and is among the country’s three biggest carmakers. Tata Salt, manufactured by Tata Chemicals, is the No 1 branded salt and Tata Steel is the world’s sixth biggest steelmaker.

The Tata group went on a major acquisition spree in the international market a few years ago, lapping up the Anglo-Dutch steel maker Corus in 2006 for $12 billion, followed by another big-ticket acquisition of Jaguar & Land Rover in 2008 for around $2 billion. Both the acquisitions were spearheaded by Ratan Tata.

When Ratan Tata took over the mantle from JRD he inherited a huge territory with powerful satraps ruling over powerful fiefdoms. While Ratan Tata himself had till then managed Tata Motors, then known as Telco, Russi H Mody managed Tata Steel, Darbari Seth looked after Tata Chemicals and Tata Tea, Homi Sethna ran Tata Electric, A H Tobaccowala managed Voltas, Freddie Mehta managed the textiles business, Nani Palkhiwala was looking after Tata Exports, Ajit Kerkar headed Indian Hotels, Simone Tata managed Lakme, Xerxes Desai managed Titan and JJ Bhabha ran the publishing business.

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Ratan Tata retired most of these stalwarts after pitched turf battles, the most celebrated of which was with Tata Steel strongman Russi Mody.

By May 1997 Ratan Tata had embarked on a move to create a common system within the group which would enable the transfer of star managers from one company to another as part of its efforts to emerge as a unified corporate group rather than a loose band of companies. Ratan Tata had said then the group was trying to “identify bright stars and shining stars in individual companies and try and create a mechanism whereby those individuals can, in fact, see opportunities in other group companies, be identified, be moved around and see career growth in the group as a whole.” But till date, he has never let out his mind on a likely successor.

One of the key features that he brought to the refocused group was that while companies enjoyed autonomy, they operated under a common code of conduct and business ethics. By September 1997, Tata Management Training Centre (TMTC) was working to herald a change in the group, forge a new identity of a single corporation and a uniform system of values. Tata wanted to develop TMTC on the lines of GE’s Management Development Institute at Crotonville.

In the present context of Tata adopting GE’s succession planning model, we asked the business historian quoted earlier in this report whether the dissimilarities in the cultural and social context might limit the model transplant from GE. The historian said, “Not really, there is a high level of hygiene about processes whatever be the context. If the process is good it will work. The objective is ultimately to have a world class company and if there is no confusion there, then the context becomes secondary and the process takes over.”

However, Dholakia said, “First of all, succession planning in large conglomerates is a matter of contextual reality of the environment they operate in. Therefore, there might not be a case for transplanting a global template. Succession planning is not to be viewed in the same way as that of another management practice. This takes place in the specific cultural, political and social context, and one does not need any benchmark to make a success of it. Succession plan takes another perspective when it comes to family run businesses in the Asian context.”

On the proportion or the lack of it between internal and external members on the Tata committee, he said, “It is good that they have more people from inside. This would help assess a successor better since these people know the company inside out and have the best possible view of the diversity as also the complexity of it all and thus the challenges thereof.”

Tata Sons, the holding company of the Tata Group, announced the members of the five member Commitee announced to find a successor to the Group Chairman Ratan Tata who is due for retirement by December 2012.The members include N A Soonawala Vice Chairman of Tata Sons, Shirin Bharucha, a lawyer who has worked with Tata Group for several years, R K Krishnakumar, Director, Tata Sons, Cyrus Mistry, Board Member, Tata Sons and  an outsider, Lord Bhattacharya, Director WMG-Innovative Solutions.  

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