Is the Tata group commitment-shy?

GOOD TO GLOBAL

Can the Tata group make the leap from global presence to global domination? Has it made the pledge to transform itself? In the second of a 12-part series, Manjari Raman compares the conglomerate with the Korean chaebols and speaks with Harvard Business School Professor Donald Sull on the strategic challenges ahead for one of India's oldest business groups

"This year we will also be focusing on expanding our businesses internationally... This is an important new phase in our group's growth plans and I trust you will also fully commit yourselves to achieving success in establishing a strong international presence for the group" -Tata group Chairman Ratan Tata's message to the group on January 1, 2004.

It seemed prescient. Here I was, wondering what stopped Indian companies from going global "" and the chairman of one of the country's oldest, most revered business groups was just starting to make a commitment to globalisation. Could it be that no Indian company had become truly global because not one had committed itself wholly, totally, irrevocably to globalisation?

One person has the credentials to answer that question: Harvard Business School Professor Donald Sull. His book Revival of the fittest: why good companies go bad and how great managers remake them (Harvard Business School Publishing, 2003) had caused a stir because of its basic premise, "management by commitment".

Pertinently, I knew that Sull was also researching what made companies globally competitive in Brazil, China and Mexico.

According to Sull, managerial commitments "" such as investing financial resources, signing contracts, making public promises and entering into customer promises "" bind every organisation to a course of action. They enable managers to achieve results, but can also constrain the organisation if they get out of step with the environment.

Realigning the organisation to a fundamentally new strategic challenge, says Sull, requires "transforming commitments" that help drive change through five levers.

First, those commitments change strategic frames, the mental models that shape how managers and employees view the world, and prevent them from becoming blinders.

Second, they drive resources, such as tangible and intangible assets, in pursuit of the new goal.

Third, they change the company's relationships with customers, shareholders and suppliers.

Fourth, they prevent processes from becoming mindless routines. And finally, transforming commitments redefine corporate values so that they don't become dogmas.

Didn't globalisation require transforming commitments, I wondered? Take the Tata group, for example. Here was a domestic success story, a $ 11.21 billion group that accounted for more than 5 per cent of India's total exports.

Surely this was a corporate entity that had all the capabilities to become a globally dominating force "" and yet, had only a limited global presence. Was the Tata group not yet global because it hadn't yet made the commitments to transform itself into a global company?

Sull told me: "Without a commitment to going global, it's unlikely that globalisation will occur. It doesn't happen by itself. It takes an act of management: commitment."

He cited the example of Samsung. Six years after he voiced his desire to make Samsung a global corporation, Chairman Lee Kun-Hee found that little progress had been made. The turning point came in 1993 when Lee turned globalisation from a corporate goal to a no-holds barred commitment.

Lee pledged to establish Samsung as one of the top five electronics firms in the world, and began shedding businesses that were incapable of competing globally: textiles, paper, sugar, department stores, amusement parks and a mining venture in Alaska. The strategic frames altered dramatically.

Instead of comparing itself to other South Korean companies like Daewoo and Hyundai, Samsung started benchmarking itself against the world's best like Sony. Resources were pumped into global brand-building and R&D.

While global ad-spend shot up from 88 billion won in 1993 to 464 billion won by 1999, investments in R&D rose from 526 billion won to 1.5 trillion won in the same period.

At a time when the other chaebol were currying government favour, Lee raised an outcry by publicly spurning the government's patronage. Processes in R&D were transformed from reverse engineering to developing new products for the global consumer.

Says Sull: "In 1993, Samsung Electronics had 347 US patents. By 1999, that rose to 1,545, making Samsung the fourth largest company in terms of patents granted."

The biggest change of all came in values, especially in terms of the global mindset required of Samsung managers.

In 1993, Lee personally led a team of 23 top managers on a field trip to, among others, a Los Angeles consumer electronics retail outlet. They were shocked to see Samsung products stacked in a dusty corner at the back of the store.

Says Sull: "For the first time, the light went on, and the managers saw Samsung products as global consumers saw them."

That year, another 1,800 Samsung managers travelled abroad, and it became clear that only those who displayed global mindsets would survive.

Five presidents and four vice presidents were "relieved of operational authority", and another 136 managers were promoted over more senior executives.

"To globalise, Samsung had to change processes, relationships, resources, values, the strategic framework ""everything," sums up Sull.

Has the Tata group made those same commitments to globalisation? In recent times, the first public expression of global aspirations was at the Tata group's annual group management meet in April 2003, where Chairman Ratan Tata shared the strategic agenda with the group's top 3,000 managers.

While the focus in previous years had been on becoming competitive, reducing costs and working together as a group, Tata chose the theme of globalisation last year.

Says R Gopalakrishnan, executive director, Tata Sons: "The chairman said that the group should have a mix of global assets, global brands and global capabilities. He emphasised that it was a long journey and that we had begun the journey only recently."

Still, the Tata group already had global assets: TCS, Asia's largest software exporter, has development centres on four continents.

It had global brands: Tata Tea acquired Tetley in March 2000 for £ 271 million. And it had global capabilities: the group prided itself on earning between 10 and 20 per cent of annual revenues overseas.

Was the Tata group finally sensing the need for making transforming commitments, so that it could leap from global presence to global dominance? Consider some of the challenges it faces:

Strategic frameworks: The biggest challenge lies in changing the group's mindset from being an 800-pound gorilla in India to a 90-pound weakling in the global market.

That will force the group to focus on key areas where it has a fighting chance at globalisation, and leveraging its existing strengths more aggressively.

For example, Tetley may be the leading tea brand in the UK and Canada and the second largest in the US, but, four years after the acquisition, Tetley packaging makes no mention of the Tata group.

Gopalakrishnan says that Tetley packaging will soon carry the strap line "A Tata Enterprise", but refuses to commit himself to a time frame. With the acquisition of Korea's Daewoo Commercial Vehicle Company, there are plans to market the trucks in south-east Asia, but no decision yet on whether the Tata brand will appear on those trucks.

The Indica is to be sold abroad but will be marketed as the City Rover. Points out Sull: "While strategic frames enable managers to see, they can also blind them to new opportunities."

Resources: While the biggest impediment to globalisation is often resources, the Tata Group is no laggard. It acquired Tetley for £ 271 million, and Tata Steel has set aside Rs 250 crore to set up a ferrochrome project with a 120,000 tonnes per annum capacity in South Africa, for instance.

Eventually, though, the Tata group will need to bring focus to resource allocation. It has 80 companies in seven broad areas, and there is no move to rationalise the group for globalisation.

Companies that have shown global potential "" like Tata Steel, Tata Motors, India Hotels, Tata Tea and Tata Technologies "" are treated only as first among equals.

Says Gopalakrishnan: "The chairman likes to set a goal and then have individual companies tailor that goal as appropriate to their business."

But Sull warns: "Globalisation requires commitment from top management, manifested in hard decisions. A company can't drift into becoming a global competitor."

Relationships: There is circumstantial evidence of change, but no proof of transformational commitment. Gopalakrishnan cites Tata Motors as a case.

While the group is proud to have developed Indica as an Indian car, it did not hesitate to source expertise globally. The design was sourced from Italy. Some vehicle testing was done in the US and Europe. Some design validations were done in the UK.

According to Gopalakrishnan, the mindset on relationships is slowly becoming more global. "The old import-substitution mindset of doing everything ourselves is changing. We are starting to say, get someone who is good at something, pay top dollar and get a top-class job done."

Still, when it comes to marketing the Indica abroad, the focus is more on exports of the City Rover than on global sales of the Tata Indica.

Processes: Many transformation processes are underway at the Tata group, but they embody a commitment to building a world-class organisation rather than a global one.

The Tata Brand Equity Scheme, for example, promotes a unified Tata brand across companies in the India market, but has yet to be rolled out globally.

The Tata Business Excellence Model has been deployed to transform quality processes. A Harvard Business School methodology for product development innovation has been introduced to manage innovation systematically.

In financial management, EVA is enforcing discipline. While the processes may make the Tata group more globally competitive, they don't necessarily display a commitment to globalisation.

Argues Gopalakrishnan: "Why not? You need excellent management practices to be a globally competitive player." The problem: such practices are a necessary condition for globalisation, but they are not sufficient.

Values: The Tata group's five values "" integrity, understanding, excellence, unity and responsibility "" have so far not been altered for globalisation. The danger there, according to Sull, is that "as companies mature, their values often harden into outdated dogmas that oppress rather than inspire."

Values will be critical for nurturing a global mindset in Tata employees. Of its 220,000 employees, 8,000 work overseas and of them, only about 1,000 are foreigners.

Some key changes are beginning to appear at the senior management level "" India Hotels' managing director is American and its marketing director is German "" but the group needs to make operational level managers more global in outlook.

Says Gopalakrishnan: "People are now not talking about 'selling in India and exporting a bit'. They are saying 'how can I participate in a market "" any market "" in the most appropriate way.' There has been a change in mind-set to some degree, but we have a lot more to do."

Clearly, the Tata group has declared its intentions of becoming global, but hasn't made transforming commitments yet.

THE THREE Cs OF EFFECTIVE TRANSFORMING COMMITMENTS

CREDIBLE

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• Have you made hard-to-reverse investments?
• Have you burned your bridges behind you?
• Have you staked your personal reputation?
• Have you staked your company's reputation?
• Have you put your money where your mouth is?
• Have you put your best people on the job?

CLEAR

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• Is your commitment simple?
• Is your commitment concrete?
• Can you measure progress?
• Can you quantify the measure?
• Have you repeated your commitment often enough?
• Could employees pass a pop quiz?

COURAGEOUS

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• Are you breaking from the pack?
• Are you ignoring the "experts"?
• Is this a quantum leap or an incremental change?
• Are you hedging your bets or covering your backside?
• Are you undoing your predecessor's actions?
• Could you do it faster or sooner?

Source: Donald Sull, Revival of the Fittest

According to Sull, that's quite all right. "Going global is not the right thing for every company, in every industry, in every country," he says. Yes, but if the Tata group doesn't take a jab at globalisation, who will?

Moreover, the group is no stranger to taking tough decisions for transforming commitments: in the 1990s it spared no effort to turn leaner and meaner. Perhaps all that is needed is a similar, single-minded approach to take the group global.

"I certainly believe that in the HR area and the capital allocation area, transformation commitments are very visible," says Gopalakrishnan.

"But if you ask me if our single biggest priority is globalisation, we are not yet at that stage. We have many other things which we are working on. But the Chairman has indicated that in the coming 10 years, this is going to be the largest part of our agenda."

According to Sull, though, that may not be enough. As he says: "A lot of companies come close to the brink of the globalisation chasm. Once they see what a really great leap it is, they just hover for a long time on one side. Globalisation is a big leap; hovering doesn't get companies to the other side."

To push Gopalakrishnan over the chasm, I asked him by when he saw Tata becoming a household name across the globe just as it has been in India.

He demurred: "Maybe by 2030? Who knows? I know it won't be in my lifetime, maybe in my son's lifetime."

Perhaps he sensed my disappointment. Suddenly, he said, testily: "You're obsessed with globalisation." Hopefully, so too is the Tata group.

(Manjari Raman is a Boston-based management writer. If you would like to share your company's experience, you can email her at manjariraman@yahoo.com)