At a leadership conference in Mumbai in June 2016, Bhaskar Bhatt, managing director of Titan IndustriesBSE 2.16 %, a Tata Group company, reminisced about the late JRD Tata. Bhatt said the "affectionate love" of Tata, who was chairman of Tata Sons, the parent company of the Tata Group, for 50 years, was an effective tool to attract and retain talent. Cyrus Mistry, the current boss of the Tata Group, who had come by, quipped, "It is time for some ‘tough love’."
The words of Mistry, who completes four years at the helm in December, were not lost on Tata insiders present at the event that day. In an interview to an in-house website in September 2016, he had emphasised on the need to confront the challenging situations faced by the group. The Tata group could do well with some ‘tough love’, no doubt.
Tata insiders say Mistry is slowly coming into his own and steadily changing the way the group conducts its business. Mistry recently said group companies "need to earn the right to grow," hinting that performance would determine their place in the portfolio.
Sanjeev Prasad, head of research at Kotak Institutional Equities, says Mistry is taking tough decisions, something which people expected him to do as soon as he took charge.
In March, the Tatas said it will shut down its British steel plants and explore ways to revamp the remaining European steel business. The decision created a flutter among employees and the British government, despite losses of $1 million a day. Under Mistry’s watch, Tata Chemicals also sold its urea business and Indian Hotels recast its international operations by shifting to managing the hotels rather than owning them.
In August 2016, when shareholders of Tata Motors complained that the dividend of 20 paisa a share was piddly, Mistry justified the move. "We have raised capital from all of you last year. We are now employing that capital in new products. I think the journey is going to be long and not for the faint hearted." He conveyed the same message at several recent AGMs of companies such as Tata Tea, Indian Hotels Company and Tata Motors.
After the untimely death of Tata Motors managing director Karl Slym in 2014, Mistry took over the company’s reins for two years until he picked Guenter Butschek as Slym’s successor. Rajeev Gupta, managing director at investment bank Arpwood Capital, says Mistry showed the conviction to launch a series of models. "It needs guts to not shut the business," says Gupta who has worked closely with the Tatas in several transaction in the past.
Harsh Goenka, chairman of RPG Group, says Mistry has taken his time to understand the complexity of the organisation. "Tata group now needs leaders who will execute well."
Mistry no doubt has his task cut out. The Tatas are present in about 100 businesses ranging from automobiles to retail to power plants to software, but just two have been consistent performers — IT services exporter Tata Consultancy Services (TCS) and Jaguar Land Rover, the marque car company it bought from Ford Motor in 2008.
Several other ccompanies are struggling. The domestic automobile business, despite accounting for roughly half of India’s trucks business, has long been under strain. Tata Steel, once the brightest star in the Tata constellation thanks to the $12.5 billion acquisition of Anglo-Dutch competitor Corus in 2007, is bearing the brunt of a sharp plunge in prices since 2012 abetted by Chinese glut. The loss-making telecom business is locked in a bitter and potentially costly battle with erstwhile partner NTT DoCoMo of Japan, which secured a $1.2 billion arbitration award in June 2016. Dozens of consumption linked businesses such as Titan, Tata Global Beverages, Indian Hotels, Trent, and Rallis India are slightly better off, but their collective operating profit has grown only 4% CAGR in the past five years. In FY16, nine of the 27 listed companies in the group reported losses and the earnings of seven others dropped. The only bright spot was that Tata Power and Tata Chemicals reported strong earnings in FY16 after turning profitable the previous year.
The turnover of India’s largest conglomerate dropped to $103 billion in 2015-2016 from $108 billion the previous year. Net debt rose to $24.5 billion in March 2016 from $23.4 billion a year ago.
Much of Tata’s problems is owing to its elephantine structure. Cross-ownership of companies — Tata Sons owns stakes in businesses like Tata Motors or Tata Steel and these businesses own stakes in each other — has made it difficult for the group to make the most of its identity as a diversified conglomerate. The operational ethos is actually engrained in silos. "There is an inherent bureaucracy in the system that has gone unchallenged for years," says an insider.
That’s not all. Tata watchers say the group is so infatuated with a long-term vision that it has shied away from recalibrating strategy in key businesses. It has even shown a strange reluctance to focus on the growing Indian market; the international market still accounts for two-third of overall revenues at $70 billion. The performance of the group, nearly four years into Mistry’s reign as Tata boss, has largely been listless. The head of a top investment fund says Mistry has a very tough job. "There is an issue of legacy and debt."
By 2025, Mistry wants the group to be in the top 25 globally by market capitalisation and he wants the conglomerate to reach out to 25% of the global population, but he is yet to lay out a detailed strategy. He is shy, not thrilled with the spotlight. He has yet to give an interview to the press.
Even the in-house interview offers few clues on strategy. To confront the challenging situations would ultimately "entail hard decisions on pruning the portfolio", according to him. But Mistry continues to follow the expansionist strategy of his predecessor, Ratan Tata. Tata Power, which has long banked on coal fired plants, paid roughly Rs 4,000 crore to buy the wind and solar business of Welspun Renewables in June. The group is bullish on real estate, financial services and defence, the last business pursued by no less than three companies. It has invested $9 billion in each of the past three years.
Professor Lord Bhattacharyya, member of the House of Lords, who was on the selection committee that handpicked Mistry as chairman, defended the slow changes in the group. "Tata Sons is more than just a business — it is an icon, a global symbol for doing business with integrity and long-term vision. As such, it should not be judged by the ‘market hawker’ standard of quick profits and opportunism," he said by email.
For his part, Mistry has spent the first three years understanding the sprawling Tata empire. Half a dozen Tata insiders say he has been building knowledge about specific domains to ask the right questions and understanding geopolitics, technology and societal issues.
A senior Tata official says Mistry often attends classrooms that have professors and academicians sharing knowledge. He recently attended a digital marketing session addressed by Facebook executives and conducted by Harvard University. He was also present when Suresh Narayanan, MD of Nestle, talked to Tata managers on the lessons from the Maggi fiasco and attended sessions by Brics Bank boss KV Kamath and Howard Shultz, chairman of Starbucks, a Tata partner, on consumers and pace of growth.
A Tata spokesperson says decisions taken by the boards under the leadership of Mistry have not been overnight, dramatic decisions. "These have typically been deliberated upon, reviewed and worked out through several quarters of debate and discussion. He has been very candid in pointing out what is wrong with something and equally quick to give a pat on the back for something well executed. He has shone a light on critical requirements like going digital and being agile, and has clearly placed his finger on the right issues, stressing sustainable, profitable growth."
Tata insiders say Mistry is a workaholic who is in office even on weekends. Many of them receive his emails late into the night. On a Parsi holiday a month back, ET caught Mistry walking out of Bombay House, the Tata headquarters, talking animatedly with Butschek.
Mistry is also making critical changes in the way the business is run, according to insiders. To break the silo apparatus, he is pushing managers to be more networked and look outward for learnings. He is also urging them to keep pace with disruptive technology.
Mistry is also pressing companies to focus on improving the efficiency of boards. "The chairman has been very clear from day one that businesses have to focus on the right strategy, backed by innovation and a pioneering attitude, and executed through talented resources within our organisation or recruited from outside," says the Tata spokesperson.
Earlier, the Tata Business Excellence group headed by executive chairman S Padmanabhan offered insights that would be presented only to the CEO. Mistry now ensures the entire board too is involved.
Mistry is clearly pushing for a performance-oriented culture. He has created parallel teams and structures with the freedom to challenge and break hierarchical structures, according to Tata insiders.
Tata teams now scout for younger talent with an eye on the future and emphasis on innovation. Tata Quality Management Service has been rechristened Tata Business Excellence Group (TBEG) to better reflect its objectives — not just "quality management" in the traditional style, but pursue "business excellence" attuned to strategic clarity. Each TBEG assessment on the performance of companies is now conducted by a cross-functional team, drawn from trained assessors from various offshoots.
"If we have to be agile in today’s environment, we need to think of other organisational structures, network structures which work alongside the traditional hierarchical structures, which can collaborate and break through hierarchical processes where needed," he said in the in-house interview.
Any new plan made by Tata bosses must now be backed by a clear strategy. Prior to the launch of Tata Cliq, the group’s e-commerce platform, KRS Jamwal who is in charge of new projects, had submitted a plan. Mistry’s feedback was: "No me-too business." The company has an online-to-offline modemodel, which is its USP compared with marketplaces like Amazon, Flipkart, Snapdeal and Paytm.
Mistry has also been wary of external experts trying to influence Tata’s M&A plans. He prefers the group developing its "own prognosis".
What Mistry has not done in earnest yet, according to investments fund managers, is reinvigorate the leadership in various businesses. A top investment fund CEO criticised the delay in appointing a CEO for Tata Motors after Slym’s death. " "Why could not the group have deployed a smart leader like Chandra (TCS boss N Chandrasekaran)? The group has to create a strong leadership pipeline."
Nonetheless, Mistry has shown that he is ready to step out of the shadow of his predecessor. Not only is he pushing his companies to focus more on the Indian market, he has shown a willingness to recast some of the businesses crying for an overhaul. Goenka agrees. "Mistry will transform the group to a modern agile future-ready organisation in five years".