Monday 23 May 2011

Ratan Tata is losing patience

Ping! The clarification from Vaishnavi Communications, the Tata group’s communications agency, hit my inbox at 9:25 p.m. on a Saturday evening. Obviously, someone had swung into damage control mode inside Bombay House at that late hour. And I guess they had reason to get a bit rattled by their chairman’s sudden, sharp attack on the declining British work ethic in evidence at Corus and JLR in a candid interview to The Times of London.

The timing of the interview obviously couldn’t be worse. According to The Telegraph in the UK, Tata Steel proposes to close or mothball part of its Scunthorpe plant, putting at risk 1,200 jobs. The plans would also see 300 jobs lost at its Teesside site.


Yet it isn’t often that Indian business leaders publicly attack their own employees—and that too in a foreign country. In 2005, I had done an interview with L&T supremo AM Naik for The Times of India, where he had railed against the engineers inside his own company. “Around 95% of the students passing out of engineering colleges head either to the US or Europe or any other part of the world. The leftovers of the leftovers of the leftover come to join us, only to leave after gaining the platinum touch. So who will build India’s ports, bridges and airports?” he had questioned.

The next day, there was a huge uproar inside L&T as Naik had to placate his engineers and assure them that they weren’t exactly third class citizens as he had described them! Tata may have to do something similar in UK, as is evident from the hurried clarification. (See the clarification.)

To my mind, there’s a clear upshot from this no-holds barred interview: Ratan Tata is finally losing his patience, when it comes to securing the full benefits from his global M&A binge in the last decade. To that extent, this outburst, though somewhat belated, may not have come a day too soon. Let me explain why.

Ever since the Tatas made their big move to buy Corus in 2007 and followed it up with the JLR acquisition in 2008, their post merger integration model had a clear defining theme: it was referred to as light touch. Management consultants McKinsey & Co called it a quintessential Asian approach to M&A. Here’s how they describe it in a 2010 article in the McKinsey Quarterly: When it comes to acquisitions, some Asian companies are forging a novel path through the thicket of postmerger integration: they aren’t doing it. Among Western companies, the process can vary considerably from deal to deal, yet it’s an article of faith that acquirers must integrate quickly. Otherwise, the logic goes, they may lose the momentum of a deal before they can capture the synergies that justified it.

The Tatas epitomized this so-called Asian approach. From the time they made their big move, Ratan Tata chose to leave his crown jewels—Corus and JLR—strictly alone. There were no 100 day integration plans. There were no large armies of senior managers sent from India to indoctrinate their European employees.

A very senior manager from Tata Steel who was sent to push things along in UK returned home completely frustrated by the bureaucracy. None of the British managers would listen to any kind of advice; he confided to a senior executive I knew on a flight way back from UK. And Bombay House was in no hurry to enforce its writ.

The word was out that Corus was perhaps the most bureaucratic organization in Europe, a spaghetti of different cultures slapped together from the erstwhile British Steel and Dutch maker Koninklijke Hoogovens merger in 1999. No one had attempted to fuse the two organisations, and the plants across Euorpe continued to operate as decentralised entities, with enormous operating freedom for its managers. And this created large, bloated bureaucracies that no one had any control over. There was a joke about Corus’ antiquated IT systems—that may have well been true—no one in the central office knew exactly how many workers were employed in each plant. A senior executive at the Tatas once told me that the managers at Corus would do everything possible to thwart any kind of change effort. And the Tatas did nothing to attack this bureaucracy in the initial years, despite the fact that they may have overpaid for the two acquisitions, buying, as they did, at the top of the cycle.

When they bought Corus in 2007, the Tatas allowed the local management to set the agenda. The massive downturn following the September 2008 collapse of Lehman Brothers and the resultant downturn did force the Tatas though to make massive job cuts in the UK and elsewhere. But it wasn’t until September 2010, that Corus became Tata Steel Europe.

Obviously, there may have been valid grounds for the Tatas not to meddle too much at Corus. The Anglo-Dutch steel maker was four times bigger than Tata Steel. Besides, the Tatas themselves did not have a cadre of international managers who were trained to handle such complex post merger integration. So they consciously left it to the existing European managers to lead the charge. It wasn’t until the combative American steel expert Kirby Adams arrived as the new CEO did the process of restructuring and culture change at Corus begin in right earnest. His plan to mothball the Teeside plant made him hugely unpopular with local politicians in the area. In the 14 months that he was there, Adams cut 6,000 jobs across Europe and thereby helped stop some of the bleeding at Corus. Not surprisingly, Adams stepped down in October 2010 and was replaced by his COO Karl-Ulrich Köhler, who had come in from German steelmaker ThyssenKrupp.

While he was at the helm, Adams made no efforts to integrate the European operations with the Indian ops. The two entities continued to perform without too much integration. Perhaps Adams was apprehensive that it could destabilise his own power base in Europe. Köhler, on the other hand, has no such compunctions. In the past few months, apparently he has himself realised the inherent fallacy of having two independent entities in India and Europe. He is said to have taken up the challenge of merging the two organisations and deriving greater synergies. And he is also said to have taken on the tough task of dismantling the infamous bureaucracy that Mr Tata ranted about in the interview to The Times.

So, after nearly four years after the Tatas acquired Corus, the gloves may finally be coming off. And it’s about time someone had the courage to call a spade a spade.

by Indrajit Gupta