Why is Tata Group Successful?
If I were to ask you that, what is that one word that would define the business strategy of TATA’s, what would that would be? So I would want you to respond in the comments section with that word, i will give the answer to this question towards the end of the blog. So today I’m going to talk about my favorite company in the world, which is the Tata Group. I’ll present this case study in the context of what challenges, opportunities, threats that the TATA group is facing. And we will try to discover together that what is the business strategy that has made Tata Group so successful and whether or not with changing times will it thrive or not.
There is a very interesting anecdote which encapsulates the power of the TATA Brand. The anecdote goes something like this the ex-president of India, K.R Narayan, was giving an award to Mr. Ratan Tata, and he tapped him on the shoulder and told him and hey Mr. Tata that I actually went to the university on TATA scholarship. So that is the power of TATA Brand. This is what I try to encapsulate through this entire case study.
Strengths of TATA
Now the TATA has three specific key strengths, and I’ll take you through these three strengths, one by one.
1. TATA Brand
the first key strength that the TATA brand has, it is the brand itself. This brand is well known no matter what type of product you want to buy, the TATA brand is there. Right from buying the Tata salt, which is called Tata namak, to buying Jaguar, which is usually purchased by extremely rich class. So right from absolute affluent class people to people who are at the base of the pyramid, Tata has served everyone and all of us would be using the Tata products one way or the other. If you have used a Tata product, tell me what type of products you use, by typing, your answers in the comment box. But I hope you get the message that Tata brand is so ubiquitous that we would have used the Tata products one way or the other. Right from the time we born, for example, some of us might be born in the Tata Memorial Hospital, then we go on to school. So tata has schools. We take the school bus now Tata manufactures school bus. Then we end up growing up. We start using Tata consumer products. For example, we would buy coffee, tea again, these are Tata products. We use Voltas which is again a Tata product and we become marriageable age. We go to Tanishq or Titan, to buy wedding jewelry. Now, again, that is Tata operated. So no matter your demography in India or your status in terms of richness, you would have used a Tata product and you would know who Tatas are.This is the primary strength of the Tata brand.
Now Tata can launch a mutual fund. We will buy that. Tata can launch a new company and we would invest in it. If Shri Ratan Tata himself launches a crypto coin in his name, I’m sure that many of us will flock to buy that coin. That is the trust that we place in the Tatas, and this is the absolute second strength for Tatas, which is not commanded by any similar business. Now, if you ask yourself why Tata has been able to generate such massive trust and such massive brand value, there are essentially a few reasons here. First and foremost, tata is a very old brand. It has survived for more than 150 years, which is massive. They have not simply added to the economy of the nation. They have actually led the transformation of the nation. Let me explain this point by touching up on the two famous personalities from the Tata group, shri JRD TATA, and shri Ratan Tata Sri JRD Tata was a revolutionary in his own space. He became the first licensed pilot in India. So forget about being a massive and impressive businessman. Even in his personal life, he was looking for new avenues and challenges. This spirit of going out and exploring new frontiers and doing something revolutionary was always in the blood of people who run the Tata Group. And that prompted them to explore new industries, new avenues and new areas of growth. The very spirit of entrepreneurship was embodied in them, which revolutionized the entire infrastructure for India. Mr JRD Tata ended up founding several industries under the Tata Group, including Tata Consultancy Services, Tata Motors, Titan Industries that will transform the Air India. Moving on to Sri Ratan Tata. So we read a lot about him. He’s a major philanthropist. It is very obvious about him, but he’s also a revolutionary in his own way. He ended up acquiring the Tetley. Tata Motors, ended up acquiring Jaguar cars, under his leadership. Tata acquired Corus, which was again a big international brand. So Mr JRD Tata actually expanded Tata Group within India. And Mr Ratan Tata ended up acquiring major international global brands and put India on a global market. Due to the fact that Tata Group expanded across product both nationally under Mr JRD Tata and then globally under Ratan Tata, it became an iconic brand that we trust now. Now, this is the second key advantage that the Tata Group has, which is extremely, extremely difficult for any company to replicate.
Now, let me explain how they have created a legacy for themselves and how they have created the legacy for their employees and customers as well. In terms of creating a legacy for themselves, of course, they have been functional for the last 150 years. They have done a massive amount of work, which are all wonderful things. They have expanded across different industries. Their businesses cross subsidize each other in terms of cost, which has become a massive machine in terms of the number of people that it employs. So that is creating a legacy for themselves. if you take a look at the customers, how they have ended up creating legacy for their customers, they have made their customers aspirational. For example, you might have heard of Tata Nano. Though the project failed, but the point of that project was very simple. The dream was that every middle class Indian should have a car. Now, that is an aspiration with which many of our parents grew up, that they wanted to have a car and Sri Ratan Tata was the one who fostered that dream for many. So this step allowed several Indians to live their dream of owning a car. creating such steps and executing such steps and dreaming such audacious dream was one of the core tenets with which the Tata Group expanded, and it ended up adding massive value to the customers. If you take the same principles from their employee side, you might have heard of something called as Tata Administrative Services, which is a wonderful platform that the Tata Group has executed. Under TAS, which is Tata administrative services, they recruit high potential caliber managers, train them and place them across different domains that the Tata operates. Now, this is a centralized way of recruitment and centralized way of training people, and they send across people across different companies that are Tata owned, which is a massive way of making investments in their employees. you might have heard that during Coronavirus Sri Ratan Tata did a lot of philanthropy. He ended up supporting his employees to a massive scale. All these are steps that shows that Tata does not simply want to build their own legacy. They want to help even the customers and their employees to create their own legacies. this is such a fascinating example, and this is probably the reason why Tatas are my favorite brand.
Tata group challenges
So essentially, Tata group is facing three specific challenges.
1. Complex and Complicated
If I ask you what Tata group is known for, you might struggle to give me an answes that they specialize in this particular product. So essentially, Tatas are a great generalist. But if we try to look for the specialization or core competency, we will struggle to find an answer. For example, Google is a great tech player. They are able to build a tech platform and they are able to leverage it. We can give full marks to Google. Similarly, Reliance has come up with Jio platforms. Again, it’s trying to invest in tech based companies, its trying to build up its tech offerings. Tata is essentially doing back in tech, via TCS, which is one of the most cash-rich ventures for Tata group. But unfortunately, the other business lines are not tech focused. They are more industry oriented and infrastructure heavy businesses. Therefore, their growth rate is slower compared to their tech counterparts. So fostering massive growth in the group, that becomes the primary challenge.
2. High Debt
the Tata Group resultantly faces is called as high debt challenge. What it essentially means is that a majority of the Tata group companies be it Tata Powerm, Tata Chemical, Tata Steel, Tata Motors, these are companies which are high debt. Up until very recently, the chairman of Tata Sons was constantly pushed to explain why the debt is going high and what are his plans to overcome this debt issue. You might have also read very recently that the Reliance Group actually plans on bringing down its debt. Now, why is debt such a big issue for these big companies? Because the world is changing now in terms of business. Previously, companies like Tata, Adanis, Reliance, they used to take huge amount of debt. They used to get into these massive infrastructure development projects, which used to be super profitable. They used to make a lot of money and they used to turn around the companies. But now what is happening is that there is something called tech play. Now companies can be very light. For example, if you take a look at Apple. Now Apple is a massive cash rich company. They don’t have that debt. Similarly, these big players Tata, Reliance Adanis, they are also trying to get into the tech play, therefore, reducing their debt is literally the first step to making that transformation.
3. External Competition
Here what is happening is that the entire Indian ecosystem is getting into this mad race of acquisition in a way. So you might have heard that Reliance is acquiring companies left, right and center They acquired Hamleys. They acquired a bunch of different companies. In fact, the Jio Platforms, which is owned by Reliance, plans to invest two hundred million dollars in Kalaari Capital, which is a prominent venture capital fund which backs massive unicorns in India. And Reliance is going to make a two hundred million dollar investment in Kalaari capital for the sole purpose of going and acquiring new companies. So now Tata has to figure out a way to stay relevant and acquire good companies. And this becomes a massive challenge for Tata because right now they are an infrastructure company and they have been very internally focused. So going and acquiring new companies, especially tech oriented companies, is going to be a challenge for Tatas.
Strategies deployed by TATA
due to the ever changing nature of the business, the Tata group is going through three specific challenges. in order to overcome these challenges Tata group is employing a three step strategy.
1. Simplifying their product lines
You might have heard that Tata group has something called as Tata consumer product. the Tata consumer product was culled out of Tata Chemicals. A big part of Tata Chemicals was culled out of that company and was brought in to TATA consumer product. Similarly, Tata Motors has streamlined its business, the steel company of Tata which is a massive, massive growth engine for the Tata Group. They have reduced their operations in Europe and are focusing on growth areas like India, and they are focusing all their energies there. So simplifying their business lines has been one of the key goals, as stated by the chairman of tata sons.
2. Forward looking Approach
Tata is taking a forward looking approach the way they have always taken, but they are doing it with the intent of aligning with the market. For example, Tata group is entering into precision manufacturing. you might have heard that the manufacturing economy or the manufacturing sector in India currently is low end. And so they end up employing people, but that Indians do not end up doing high end manufacturing. Now, with this precision manufacturing coming in and players like Tata jumping into this, there is a high probability that India might become a very good manufacturing hub in the high end domain. if we can become something like Singapore or China where high end manufacturing takes place, precision manufacturing being one of the core tenets there, then it can really boost up our economy and bring a tectonic shift. Another tectonic shift that Tatas are trying to build is that they are trying to shift the Jaguar, which is a part of the Tata Motors group, into an electric vehicle company. They will start competing with companies, hopefully, like Tesla, and they will also get into the battery manufacturing space. So all these are very, very positive moves that shows that Tata is looking at forward looking approach and they are trying to aim industries that are going to be game changers going ahead in the future.
if you take a look at Amazon. Amazon has Amazon Prime. They have the shopping website, Amazon.com, Amazon.in, they also have AWS, Amazon Web Services. So they are creating an ecosystem where backend is Amazon Web Services. Front End is the main website for Amazon and the logistics part is cloudtail and amazon Prime Delivery Services. Now similarly Tata is also trying to enter Tata Super App. Very recently acquired something called as big basket. Now if they build up an app, a delivery app, and they combine a different bunch of things. It would look something like Paytm in a way. So Tata is also attempting to play the technological game to some level, attempting to integrate all of their brands, or at least the bulk of their customer-facing brands, into that app, which will hopefully result in a significant increase in sales in the future.
Way ahead for TATA
Is it going to survive or is it going to fail? This brings me to the final part of this case study where I’m going to explain to you the answer to the question I had asked at the start of the blog, which was what is that single word that would define the business model of Tatas. That single word would be trust, now Tatas have build trust. They have built massive trust. It has taken them more than 150 years to build that trust. According to me, and this is the line that I would leave you with, that Tatas are industrialies, they are not businessmen. I will say it again that Tatas are industrialists, they are not businessmen. If you compare them to Adanis or Ambanis, without saying any ill about them, Tatas are seen in a completely different light. So if Tatas enter into any new domain, we as Indians are going to support them. And I would urge you all to support the Tatas in their quest because they have actually done a lot of work in terms of philanthropy, for example, they have done a lot of innovative work in terms of attacking malnutrition in India. They fortified the Greens and that was one of the key things that they did, their corporate. They simply make CSR donations and they are done. But under Tata Trust, Mr. Ratan Tata deliberately took that attempt to actually do something on the ground, make actual viable, sustainable changes in the dietary patterns so that it can actually address the problem of malnutrition. So to cut the long story short, I do feel that the 150 year old company that has built so much trust in our nation and in our economy, it will be rewarded,
whether it is technologically advanced currently or not. I do feel that the Tata brand is going to survive and it is going to thrive way ahead in the future. And I would urge all of you to support the Tata brand and support India in that context.