1

REINVENTING TATA STEEL (A):

The company’s situation in late 1980’s and early 1990’s

Tata Steel’s Founding

Ninety-five years is a long time for the life of any company. Tata Iron and Steel
Company Ltd. (TISCO or Tata Steel for short) is one of the India‟s oldest companies. It
was established in 1907 (operations started in 1911) by its visionary founder, Mr.
Jamsetji Nusserwanji Tata (J.N. Tata). To give life to his dream of setting up a world-
class steel plant, the founder traveled all over the world to locate the best technologies of
the time. Even before he started raising money from the Indian public for his ambitious
project, he saw the best steel plants in Great Britain, Germany and US, and consulted
with the best geologists and mining engineers in the world at that time. Unfortunately he
did not live to see his dream project complete. It was his son, Dorab Tata, who continued
the implementation of his father‟s vision, with the same passion. Tata Steel‟s first blast
furnace was set up by Americans, steel shop by Germans and coke ovens by the Welsh
and with this it began operations as India‟s first steel plant.

Overview of Tata Group

TATA group, of which TISCO is a crown jewel, is 134 years old. It is diversified, with a
wide business portfolio spanning automobiles, steel, cement, chemicals, beverages,
pharmaceuticals, textiles, infotech, communication, power generation, consumer
products, hotels, and much more. The group has some 95 operating companies (over 30
of them publicly held) and employs about a quarter of a million people. It is India‟s
largest private sector employer, biggest taxpayer and perhaps its largest foreign exchange
earner. Combined revenues for the group are over USD 9 billion (about Rs. 450,000
million) and fast growing. The name of TATA has always been synonymous with Trust.
The market perception of the group has been that of an ethical, value-based and dynamic
business house. Its name generates implicit stakeholder loyalty and respect in the country.
For better manageability, the operations of the group have been divided into seven
sectors. Each of these seven sectors has several companies in its fold. The chief
executives of these companies report to the Chairman of Tata Sons, which is the group‟s
primary holding company. Table-I describes the sector-wise break-up of the Tata group.

______________________________________________________________________________________
This case has been prepared by Prof. DVR Seshadri, IIM, Bangalore and Prof. Arabinda Tripathy, IIM,
Ahmedabad, as a basis for classroom discussion rather than correct or incorrect handling of a managerial
situation.
© 2003, Indian Institute of Management, Ahmedabad
© 2003, Indian Institute of Management, Bangalore
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by
any means - electronic, mechanical photocopying, recording or otherwise – without the permission of the
copyright holders.
 2

Table-1: Sector-wise break-up of the Tata group

Sl. # Sector Major product % share of

categories / sector in
Companies Tata
group‟s
recent year
revenues
1 Communication and TCS, VSNL 27%
infotech
2 Engineering Cars (Telco), 24%
& construction
3 Materials Iron & steel 19%
(TISCO),
Tinplate
4 Services Hotels, housing, 9%
insurance
5 Consumer products Tea, coffee, 9%
ceramics
6 Energy Power generation 7%
7 Chemicals Wide variety of 5%
chemicals

As can be seen from the above, TISCO, Telco and TCS are the most important
companies of the group, together accounting for over 50% of the total revenue of the
group. Furthermore, TISCO and TCS account for over 75% of the group‟s profits. The
Tata group has a legacy of many firsts in the country. Starting from the first Indian-
owned cotton mill founded by Jamsetji Nusserwanji Tata (which commenced operations
in 1886), the Tata group enjoys a special place in the annals of Indian corporate history,
as being a pioneer.

Unlike a lot of private business houses in the country, the Tata group does not see its
mission solely to make money. The Statement of Purpose of the Tata group also
explicitly seeks to „improve the quality of life in the communities we serve.‟ Annexure-I
provides the Tata group‟s Statement of purpose, values and code of conduct. Annexure-II
provides the mission and vision statements of TISCO (these have subsequently been
evolved further in tune with the growing aspirations of the company). This mission is
diligently translated into action, as can visibly seen in Jamshedpur, the home of TISCO
and some of the other important TATA group companies. Unlike many other business
houses in India, the group has largely succeeded in staying clear of scandals. It is known
for its ethical and upright conduct of business and is considered an enlightened and model
employer. Perhaps there is no other Indian business group that has such an extensive
welfare net as Tata Steel.
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Overview of TISCO’s Core Operations

TISCO started production of pig iron in 1911 from its blast furnace. The company
progressively added various manufacturing facilities over the years. These facilities
together constitute a totally integrated steel-manufacturing complex, including raw
materials mining and processing, sinter making, coke making, iron making, steel making,
steel rolling, a host of services and various other profit centers (Annexure-III and
Annexure-IV).

An ill-prepared company enters the decades of the nineties

The control regime of post-independent India (1947 - 1991) greatly reduced incentives
for companies like TISCO to be at the leading edge of technology and competitiveness.
For TISCO, opportunities to grow into a global corporation were considerably curtailed
through government controls. Protection to domestic industry and administered prices in
many sectors including the steel industry greatly removed the competitive fighting spirit
of most Indian companies. It is in this background that most Indian industries, including
TISCO, entered the decade of the nineties with considerable apprehension

The early 1990‟s found the country in an unenviable situation of having foreign exchange
crisis. Its foreign exchange reserves depleted alarmingly and were barely adequate to
finance one week of the country‟s purchases in hard currencies. Up until that time, the
country‟s policies were crafted in a socialistic framework. There was little political will
to change the country‟s archaic economic and industrial policies, largely due to electoral
and vote-bank compulsions. The fortuitous change in the central government in Delhi,
due to a sudden turn in events, including the assassination of the then Prime Minister, Mr.
Rajiv Gandhi, that was a fall-out of the festering Sri Lankan crisis, catapulted Mr. P. V.
Narasimha Rao into the Prime Minister‟s role. He inducted and empowered an able and
world-renowned economist, Dr. Manmohan Singh as the Finance Minister of the country,
with a clear mandate to get the country out of the crisis that it was enmeshed in.

Accordingly, starting from the early 1990‟s, as the Government of India began
dismantling most of the controls that constituted the „License Raj‟, the company had to
reckon with market-determined prices, lower import tariffs, intensifying competition,
drying up of state support to private industry, and the heralding of a buyer‟s market. This
period also coincided with the change in leadership at Tata Steel, when Mr. Ratan Tata
(the founder Mr. J. N. Tata‟s great-grandson) took over as the chairman of the company
from Mr. J. R. D. Tata. Dr. J. J. Irani took over as Managing Director (1992-93) from Mr.
Russi Modi. The new top management thus had to reckon with significant new
challenges.

Having been used to decades of functioning in a protectionist environment, there was

considerable complacency in the rank and file of the company, as was the case with most
companies in the country during the pre-liberalisation era. This was reflected in the
performance of the company until the early 1990‟s (Annexure-V), which was anything
but spectacular. Even the public sector SAIL appeared to be doing better than TISCO!
 4

The led several industry experts to question Tata‟s wisdom in continuing with the steel
business. Some even felt that the group should concentrate on its other businesses and
perhaps exit steel, focusing instead on IT and maybe automobiles. However the Tatas
abhor exiting a business when it is in trouble. There were only two options for the
company: proactively get prepared to face the global competition, or alternatively be
relegated into the annals of Indian steel making, as a „also ran.‟

During that period, the Managing Director is reported to have told his Chairman: “If we
do not do something soon, we might soon turn Tata Steel into a steel industry museum
and stand at the gates selling tickets, saying, „Come and see the steel museum‟”.

It was clear to the company‟s top management that the old ways of doing things would no
longer be relevant. It was apparent that soon the company would have to face
international competition. Dr. Irani was part of a high-level delegation to Japan to learn
what the Japanese had achieved through TQM. Seeing the progress made by Japanese
steel makers convinced him that his company had a long way to go and that there was no
time to waste. His trip to Japan was thus a defining moment for the company. It came as a
wake-up call. The company was uncompetitive, burdened with an old plant, huge
workforce and a mindset that was totally unacceptable in the changing times.

In the past, the company was surviving reasonably profitably in an era of government
protection, with only the state-owned SAIL as a competitor. The years gone by were one
of shortage. The company was essentially rationing the steel, not marketing it. Being in a
cost-plus administered pricing situation was the ultimate in comfort for the steel maker.
To get an idea of the extent of complacency, between the early sixties and the mid-
eighties, the company‟s engineering department had put up over fifty different proposals
to modernize the plant. Each one of them was turned down, because every one said that
the company had no money. The extent of complacency and „sense of well-being‟ was so
all-pervasive!

With the changed economic context however, the magnitude of problems confronting the
company by the early 1990‟s were indeed stupendous. These included: global
competition, product quality issues, meeting delivery commitments, unduly large
workforce, ageing plants, etc.

Dr. Irani challenged his senior management team: „How do we respond to the changing
times and the problems confronting us? How do we face the emerging future? How can
we better manage our resources, expenses, and assets? What should be done to
streamline our cost structure? What should the company do not only to survive, but to
emerge as a leader in the steel business?‟

At about this time, McKinsey conducted a detailed study for the Tata group. After the
study, McKinsey furnished „discussion notes‟ to the Tata group top management,
covering various industries. They raised some serious questions regarding Tata Steel and
whether it destroyed shareholder value. This also aided in awakening the management to
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the fact that they had to do much more in steel to make it an investor attractive area of
business. The question was „How?‟
 6

Annexure-I

Tata Group’s Statement of Purpose, Values and Code of Conduct

A. Tata Group’s Statement of Purpose

Our purpose in Tata is to improve the communities we serve. We do this through

Leadership in sectors of national economic significance to which we bring a unique set of
capabilities. This requires us to grow aggressively in focused areas of business.

Our heritage of returning to society what we earn evokes Trust among consumers,
employees, shareholders and the community. This heritage will be continuously enriched
by formalizing the high standards of behaviour expected from employees and companies.

The TATA name is a unique asset representing Leadership with Trust. Leveraging this
asset to enhance group synergy and becoming globally competitive is the route to
sustained growth and long-term success.

B. Tata Group’s Values

Why Values?

“A pattern of tradition and standards have been introduced by Jamsetji (the founder, Mr J.
N. Tata) in regard to fair and honest management, product quality, human relations in
industry and industrial philanthropy, all of which I am glad to say have become widely
recognized as the TATA industrial ethos.‟
-JRD Tata

Why are values important?

Behaviour in an organization is generally structured, patterned and recurrent. The

relationship between members of an organization is organised in terms of rules and
relationship. Values provide guidelines for behaviour of its members within the
organization.

Many successful organizations use values to energise and organize their people to
achieve their corporate vision and mission.

TATA Group’s Core Values

1. Trusteeship

Dictionary meaning: Trusteeship means to whom the property or its management is

entrusted for doing things that benefit of others.
 7

“The wealth generated by Jamsetji Tata and his sons…. The whole of that wealth is
held in trust for the people and exclusively for their benefit. The cycle is thus
complete. What came from the people has gone back to the people many times over.”
-JRD Tata

2. Integrity

Dictionary meaning: Uprightness, honesty and sincerity.

“Every employee of a Tata Company shall deal on behalf of the company with
professionalism, honesty, integrity as well as high moral and ethical standards.”

3. Respect for Individual

Employees of a Tata company shall be treated with dignity. Employee policies and
practices shall be administered in a manner that would ensure that in all matters,
equal opportunity is provided to those eligible and that the decisions are merit-based.

4. Credibility

Dictionary meaning: Worthy of belief, reliability, no disparity between what is said

and the facts.

A Tata company shall be committed in all its actions to benefit the economic
development of the countries in which it operates and shall not engage in any activity
that would adversely affect such objective.

5. Excellence

Dictionary meaning: Superior, very good.

A Tata company shall be committed to supply goods and services of the highest
quality standards.

“The company seeks to scale the heights of excellence in all that it does….”
- From Mission Statement of Tata Steel

C. Tata Group’s Code of Conduct

The Tata group‟s code of conduct encompasses the following key aspects.

 National Interest
 Financial Reporting and Records
 Competition
 Equal-Opportunities Employer
 Gifts and Donations
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 Government Agencies
 Political Non-Alignment
 Health, Safety and Environment
 Quality of Products and Services
 Corporate Citizenship
 Co-operation of Tata Companies
 Public Representation of the Company and the Group
 Third Party Representation
 Use of the Tata Brand
 Group Policies
 Shareholders
 Ethical Conduct
 Regulatory Compliance
 Concurrent Employment
 Conflict of Interest
 Securities Transactions and Confidential Information
 Protecting Company Assets
 Citizenship
 Integrity of Data Furnished
 Reporting Concerns
 9

Annexure-II
Mission and Vision Statements of TISCO*

MISSION

Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to
strengthen India‟s industrial base through effective utilization of men and materials. The
means envisaged to achieve this are high technology and productivity, consistent with
modern management practices.

Tata Steel recognizes that while honesty and integrity are essential ingredients of a strong
and stable enterprise, profitability provides the main spark for economic activity.

Overall, the company seeks to scale heights of excellence in all that it does in an
atmosphere free from fear, and one, which encourages innovativeness and creativity.

VISION

Tata Steel enters the new millennium with the confidence of a learning, knowledge-based
and a happy organization.

We will establish ourselves as the supplier of choice by delighting our customers with our
services and our products.

In the coming decade, we will become the most competitive steel plant and so serve the
community and the nation.

Where Tata Steel ventures, others will follow.

* Note: The Mission and Vision Statements of the company have since been further
evolved, keeping in view the expanding aspirations of the company.
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Annexure-III
Schematic of the facilities and processes of steel making at TISCO
(Note: This schematic would change as plants get closed / added over a period of time)
COAL IRON ORE FINES FLUXES

COKE PLANTS COKE BREEZE SINTER PLANTS

#1 #2 #1 #2
COAL TAR
(BF+NUT) INJECTION
COKE

COAL INJECTION
IRON ORE BLAST FURNACES
A - G FOUNDRY

HOT METAL
SCRAP

SCRAP

LD # 1 LD # 2

CC BILLET SLAB
CASTER-1 CASTER-2 CASTERS

SLABS
HSM

M.M. W.R.M.
CRM
M.L.S.M.

WORKSAnnexure-IV
SALEABLE STEEL
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Annexure-IV
Intricacies of the company’s steel making process and facilities at TISCO.

There are eight distinct major divisions of TISCO‟s manufacturing operations that make
it a truly integrated steel manufacturer.

 Raw Materials Division

 Sinter making
 Coke making
 Iron making
 Steel making
 Rolling
 Services
 Profit Centers

Each of these is briefly described in the following.

1. Raw Materials Division

TISCO has its own sources for most of the key raw materials used in manufacturing
steel. Iron ore, the principal raw material for iron and steel making, fluxes and
manganese ore are supplied to the factory at Jamshedpur by the Mines Division,
mostly from captive mines located in different parts of the country (in the states of
Bihar, Orissa and Karnataka). Additionally a dolomite mine is located in Bhutan. The
company has six collieries and requisite coal washery capacity in Jharia Collieries,
Dhanbad District and in Jharkhand . The raw coal is crushed to specified size before
feeding to the plant. The collieries have extensive facilities for ensuring that there is
no pollution. A 10 MW fluidized bed (first of its kind in India) captive power plant
for the Jharia Division, using washery rejects containing high ash content, provides
power requirement to the Jharia Collieries. The highly mechanized collieries at West
Bokaro with its own 2 x 10 MW captive power plant, completes the sources of
captive coal for the company.

2. Sinter making

This consists of two sinter plants and raw material bedding and blending yard.
Washed and sized lump iron ore as well as acid sinter are supplied to blast furnaces
from here.

3. Coke making

At TISCO, coke is made using coal from the various captive sources as well as
imported coal from Australia. The facilities available include: coal handling (old and
new); six coke oven batteries; coke handling; and by-product plant (to clean the coke
oven gas).
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4. Iron making

The company has six older blast furnaces (A, B, C, D, E and F) and a seventh new
„G‟ blast furnace, to produce hot metal.

5. Steel making

1983 was an important milestone for TISCO. Its steel making facilities were
upgraded. Prior to this, the open hearth process was used for steel making. In 1983,
the basic oxygen steel making process was adopted in LD1. Today the company has
two steel making shops using the basic oxygen process (LD1 and LD2).

LD1, with a capacity of 1.16 Million tpa, has the following facilities: hot metal
supply and handling (hot metal from iron making is supplied to the steel making
process), hot metal de-sulphurisation facility (hot metal is desulphurised as per the
process requirement), scrap supply and handling (scrap is supplied to the process as
per the requirements of the charge), convertor (two basic oxygen furnaces), steel
treatment centers (purging is done for making the temperature and composition of the
molten metal homogenous), argon rinsing system (for argon / nitrogen purging,
correcting alloy composition to suit requirements, temperature correction by scrap
addition, and for various measurements), scan lance system (for addition of calcium
silicate or coke, stirring with nitrogen or argon, and addition of scrap for cooling),
and continuous casting machines (6-strand billet casters, where molten steel is poured
into moulds, allowed to solidify to form billets, cut to required lengths and dispatched
to the cooling bed.)

The LD2 Shop has the following facilities: hot metal supply and handling, hot metal
desulphurisation, slag handling system (at the desulphurisation unit), scrap supply and
handling, converter (two basic oxygen furnaces), ladle furnace (where liquid steel
from the converter is tapped into preheated dolomite lined ladles and then treated at
the ladle furnace for homogenization, increase of temperature and for trimming
additions), RH Degasser (to produce steel for high-end applications, where the liquid
steel is routed through a degassing unit in which treatment takes place under vacuum)
and a slab caster (two single strand continuous casting machines, designed for casting
high quality slabs suitable for hot-charging to the downstream hot strip mill.) As part
of the on-going modernization, in 1999 another LD Vessel, a ladle furnace and one
more slab caster of similar design were added, thereby increasing capacity to 2.27
Million tpa.

6. Rolling

The Rolling facilities at TISCO can be broadly classified into two areas:

New Facilities: Hot Strip Mill (HSM) and Wire Rod Mill (WRM) and in 2000, Cold
Rolling Mill (CRM).
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Old Facilities: Medium & Light Structural Mill (MLSM), Strip Mill and Merchant
Mill (MM).

Hot Strip Mill: to manufacture flat rolled strips to meet the country‟s requirements of
superior grades of products. It is technologically sophisticated and was commissioned
in 1993.

Wire Rod Mill: This single strand high speed rolling mill was commissioned in 1987,
with state-of-the-art technology, to produce various grades of rolled steel such as mild
steels, reinforcing bars, steels for special electrodes, steels for high carbon wire rods,
etc. The plant capacity is 300,000 tpa

Medium & Light Structural Mills (MLSM): Commissioned in 1958 to manufacture

various steel sections ranging from ordinary structural steel application to medium
and low alloy grades used by consumers of different forging industries of the country.
The capacity is 200,000 tpa.

Merchant Mill: Originally Tata Steel had two merchant mills: Merchant Mill 1,
installed in 1924 and Merchant Mill 2 that commenced operation in 1960. Merchant
Mill 1 was subsequently closed in 1993. Now only Merchant Mill 2 is operational. It
is a continuous mill, with 14 stands in one straight line, and manufactures
reinforcement bars, from billets supplied by Continuous Caster 2 (CC2) (125 mm x
125 mm).

Strip Mill: Installed in 1956, it produces strips of various sizes (97 to 311 mm width
and 1.78 to 4.6 mm thick).

7. Services

The Services encompass a large number of facilities required to provide support to

the steel complex. These include:

 Works Design (to provide effective solutions to various problems such as

development, breakdown situations, repetitive failure of components, cost saving
through import substitution, reconditioning, improvements in operational
parameters by re-engineering, etc.)

 Engineering Shops: These consist of:

o Primary work centers (Forge shop, Fabrication shop)

o Finishing work centers (Machine Shop, Heat Treatment Shop, Segment

Shop for overhauling segment roll assemblies and mould assemblies of the
slab casting machines at LD2.)
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o Reconditioning work centers (Welding Shop, Machine Shop, Assembly

Section)

 Environment Management

 Energy and Economy (Energy management and Process Control Instrumentation)

 Foundry: This is a captive shop set up to meet the various casting requirements of
the company. The facilities include: Pattern Shop, General Foundry, Alloy Steel
Foundry, Electric Steel Foundry, Brass Foundry, and Ingot Mould Foundry.

 Power Engineering Department: Consists of Boiler Houses, Power Houses, and

Diesel Generator Station

 Electronics Department: It provides support for sophisticated electronic

equipment. Facilities include: Calibration, and Sophisticated Repair Center.
Additionally, the following facilities have been created to support the repair of
complex state-of-the-art industrial electronic equipment: Data Parametric Access
Library and In-circuit Functional Test Center (ICFT).

 Maintenance Engineering: This department is a centralized agency providing

technical guidance and support to the production departments of the Works
Division to ensure high equipment reliability. It also helps to monitor
maintenance costs, formulate and institute maintenance procedures and anticipate
future maintenance requirements.

 Research & Development Division: Major facilities include R & D laboratories

for raw materials, coke making, iron making, product development, corrosion and
tribology, metallography, non-destructive testing and evaluation, computational
facilities, etc.

 Refractory Development and Control

 Refractories Maintenance

 Refractories Production

 Roll Technology Services

 Automation Division

 Information Technology Division

 15

8. Profit Centers

These include the following profit centers:

o Bearings Division: Set up by Metal Box in 1978, since taken over by

TISCO, located in Kharagpur, manufactures a variety of bearings

o Tubes Division: Produces a variety of tubes. Capacity: 185,000 tpa,

diameter range 12 mm to 150 mm.

o TISCO Growth Shop: To design and manufacture custom-built steel plant

equipment for in-house use in TISCO.

o Rings: To produce world-class forged or rolled rings and automotive

components.

o Agrico: Pioneer manufacturer of agricultural implements in the country.

o Ferro Alloys & Minerals Division

o Secondary Products: To ensure that all by-products and secondary

products of all processes which cannot be recycled inside the plant are
sold to outside parties for value addition, with a view to achieve maximum
utilization of resources.

o TKM Division: Logistics arm of Tata Steel, taking care of international

freight, both imports and exports.
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Annexure-V
Financial picture of TISCO for the period leading up to the liberalisation policies in India
(Rupees crores*)

Year Total Total PBT PAT Dividend Capital Reserves Borrowings Gross Net
Income Expenditure & Surplus block Block
74-75 280 252 28 15 - 50.00 76 63 367 127
75-76 288 275 13 9 4.83 50.00 78 88 396 142
76-77 333 315 18 12 5.99 62.86 71 94 418 150
77-78 360 352 8 8 6.50 62.86 74 88 439 156
78-79 381 356 25 18 7.01 62.86 80 78 464 165
79-80 455 430 25 16 7.79 62.86 88 85 492 177
80-81 521 469 52 26 8.56 62.86 106 105 550 217
81-82 705 627 78 48 13.09 83.44 121 234 650 304
82-83 798 753 45 45 13.09 83.44 153 315 790 420
83-84 890 870 20 20 12.24 72.02 161 381 844 453
84-85 1105 993 112 100 15.12 72.02 230 399 912 452
85-86 1286 1128 158 108 20.60 82.74 334 447 1116 577
86-87 1416 1317 100 88 20.66 82.63 401 517 1300 708
87-88 1527 1415 112 92 29.34 136.01 476 577 1525 862
88-89 1862 1681 180 154 46.17 156.09 646 612 1753 999
89-90 2136 1960 176 149 50.59 229.43 1103 954 2063 1200
90-91 2331 2093 238 160 71.34 229.89 1194 1184 2703 1714
91-92 2895 2617 278 214 80.55 230.12 1315 2051 4026 2878
92-93 3423 3310 127 127 64.82 278.45 1708 3040 5463 4108

(Note: 1 crore = 10 million)