Online Extra: Ratan Tata's Trials and Triumphs

Group Chairman since 1991, he looks back at his darkest and brightest moments, and ahead to future challenges

In the old Fort area of Bombay, where the British once had their mercantile offices, is a stately stone building called Bombay House. It's the headquarters of the $12.8 billion Tata group of companies, run since 1868 by the Tata family. Presiding over the conglomerate today is Ratan N. Tata, 67, a descendant of founder Jamsetji Tata. The patrician and courteous Ratan Tata has been chairman of the group since 1991.

He has had a hard tenure, but Tata is emerging as a victor. He has restructured the group, defied skeptics by developing and rolling out an indigenously developed passenger car, which is now India's third most popular, and remade himself from a shy, reclusive man into a confident chieftain.

It's a rainy mid-July afternoon, and Tata is deep in the annual-meeting season for Tata group's many companies. Just the week before, he was the star at the meeting of the group's flagship, Tata Motors. After a few rough years, it has turned in a spectacular performance and paid out an 80% dividend to thrilled shareholders, thanks to the new Indica model. At the meeting, investors sang Tata's praises and composed poetry about his leadership qualities, embarrassing the chairman. Still, he listened patiently, gave thanks in polite and measured tones -- just what shareholders expected. In an extensive interview with BusinessWeek Bombay Bureau chief Manjeet Kripalani, Tata reflected on his coming of age in Tata group companies, his most difficult days, his recent triumphs, and what he dreams of now. Following are edited excerpts:

Q: I saw you at the Tata Motors annual meeting last week. Your shareholders are full of your praises. It was very different three years ago. Did they throw eggs instead of praises at you then?

A:

No. As a matter of fact at the end of my opening remark, I thanked one and all for staying with us during our difficult times. Yes, three years ago there was a good amount of noise. In fact the worst noise was made by an ex-employee of the Tatas who stood outside and was distributing pamphlets advocating my removal. But by and large, most of the shareholders were understanding of the situation and supportive.

This is my second such episode because the first year that I took over Tata Steel, it came fairly close to a loss -- we cut the dividend by half, and it was on the back of [previous Chairman] Russi Modi having promised growth. There was an angry session. But when the company turned around, we increased the dividend again, we compensated shareholders, and by and large they had a feeling that we were being fair.

Q: Let's talk about the upcoming [$1.2 billion] initial public offering of your software arm, Tata Consultancy Services (TCS). What is that going to do for the group apart from increasing the market capitalization?

A:

The market capitalization issue is of least consequence to us considering the size of the IPO we are working on. We are not doing it for the market cap and definitely not for the cash it brings to us. We are doing it because we really believe that the growth of TCS as a division of Tata Sons, rather than as a corporate in its own right, would have hurt its business growth.

In the marketplace also, going in as a division of an unknown private company, is not going to give it the kind of credentials that it might need to compete with the Infosys' (INFY ) and Wipros (WIT ) of this world. While we get one big dollop of cash upfront, we forgo all the profits that TCS has been providing us all these years on a continuing basis as we move forward.

It is really about taking a jewel and letting it shine. We will still be 80% owners. It's just another company that will take its place in our portfolio.

Q: One part of your overall strategy seems to be internationalizing the operations according to your vision, and the other part is looking at leadership in the domestic markets. Where does TCS fit in this big picture?

A:

In both areas. I think it is one of the few IT companies that has a serious space in the country. And secondly, it would focus on growth outside India. I visualize in the next few years the following companies to be the international face of the group: TCS, Tata Motors, Indian Hotels Co., and to some extent, one which won't be that visible, is Tata Power. [But] if you have an opportunity of establishing 1,500 megawatts in South Africa or acquiring a power-project agreement in Bangladesh or in Malaysia or wherever, why would we not think of Tata Power [having] a role outside India?

Q: As India went into liberalization, everything seemed to be falling as per your plans -- the 1981 plan while you were at Tata Industries and then in 1991, when you became chairman.

A:

Yes. In some ways the 1981 plan preceded the opening up of India. As luck would have it, when Rajeev Gandhi became Prime Minister, it was almost as if we had collaborated on what areas would be open up to private sector! We wanted to look at what we could contribute to the growing economy of India. We now have to look beyond reaching to the high-end of the market.

We started with Indica, didn't go to a Toyota (TM ) or a Honda (HMC ) [for a tie-up]. We tried to do something at the lower end of the market, and we are trying to do the same again with hotels. And we really must now look at that vast market of India and several other places outside India where we can really penetrate that market with good value, good-quality products and services which welcome the need for a mass market. Maybe not China, but other places in Asia, Eastern Europe and Southern Africa.

Q: Is corporate governance really going to hinder the group, or are you finally going to get premium out of it?

A:

I don't know about any premium, but it will earn us a reputation and preference as a brand. Many people look at quality as a cost. Quality is not a cost -- it is a gain. If it can do the same thing for us, then we can succeed in our efforts. We are not there as yet.

Q: Tell me about your entry into the Tata Group. When you finished studying at Cornell University in the U.S., were you conscious of the fact that maybe because you were a Tata, you got the job and you had to live up to very high expectations?

A:

No. Most people don't know that I came to India with a job offer from IBM (IBM ) in the U.S., assigning me to India. It was a three-year offer with IBM World Trade, presumably a market-oriented job.

But in the first few days J.R.D. [Tata, Ratan's uncle] was really upset that I was not working in the group. At that time, the IBM office had the only electric typewriter. J.R.D. asked me for my résumé, [so I went there and] got my résumé typed and gave it to J.R.D. And that's how I got into Tatas. I wasn't planning to be in India anyway and was planning to go back. I came to India because my grandmother was ill.

Q: So how was it, to work in the group as a Tata?

A:

I thought many times my name was a disadvantage. My elders were afraid of doing something lest they would have been accused of favoring a younger Tata. So if normal employees got a loan to buy a refrigerator, I could not. It was the reverse kind of thing, and so everyone seemed very careful about what they did for me. In many ways it was a disadvantage for me.

How did I overcome it? In the beginning, I let it ride. I didn't feel I had to work twice as hard to prove myself, but I could not ask for anything. On two or three occasions, I almost went back to the U.S., but I never asked for anything. I didn't know where I was going [in the company]. At that time, I would have rather gone back, but as time went on, going back became more and more difficult.

Q: What were your early years at the group like? At Tata Steel, you shoveled limestone and worked on the blast furnaces?

A:

I did little bit of everything. I wasn't employed as someone to shovel limestone, to drive a crane, or to do any of those things, but I got a chance to be involved in it. So I did shovel limestone, spent time at shop floors, at the blast furnace, steel shops. I felt I belonged to that shop while I was there. I was really rubbing shoulders with the workers, which I would have never have been able to do before. They treated me as one of my own.

I became chairman of Tata Steel and went back to Jamshedpur to Tata Steel and went from shop to shop. Some people came up to me and said, "You remember, we worked together." They got flowers for me. It felt really nice. That was 20 years ago. It's something I gained. It made me one with everyone, so I have been able to have the same kind of spirit on the shop floor today.

Q: Your strategy after 1991, was it something that you felt was actually needed or...

A:

I think the group needed cohesion, or let me put that another way, the cohesion the group had was through the persona of J.R.D. Tata, the patriarch. There was no institutionalized cohesion that existed, legally or financially, without him. My concern was that after him, it would be difficult to hold it together. I don't think I was wrong. He never agreed with me on that. We discussed it many times.

I really believed that whoever took his place -- it wasn't necessarily me -- that person would have a difficult time holding the group together. And I thought that there needed to be some institutionalized cohesion that we needed to create and articulate that, set up a structure for that.

Q: What was your darkest hour and your best time?

A:

Certainly, among the best times are now. The success of developing the Indica was another best time. And when we wiped out our losses at Nelco [the consumer-electronics business]. For the first time, I felt I was doing something. The group never supported it. At the time they didn't see electronics as a big thing.

I think my darkest moment was in the '80s, when the Tatas didn't support keeping Empress Mills alive. It was the first company that Jamsetji Tata started. The group needed to spend only a small sum at that time, just $630,000. It was literally that key moment of support. It made me feel bad because I felt we had let everybody [the workers] down.

I remember in that year, it's a stupid thing, very childish, but when I got my bonus, I shared it with the officers of the company. Our bonus at that time was very small, insignificant, but I gave the whole thing away. People may have got just about $200 each, but I felt I could not take it. It made me feel better to give it away.

The whole thing was shut down, all 8,000 employees lost their jobs. Eventually, the government took it over, and the Tatas ended up meeting liabilities and the litigation and so on worth $5 million thereafter.

Q: How would you describe yourself as a strategic risk-taker?

A:

I am a moderate risk-taker. I am not a gambler. But I love to take risks. If I believe in something, I would do it vigorously.

Q: What is your dream for the group dream? Apart from what you have done so far.

A:

I would be happiest if, 10 to 15 years from now, the group can [not only] be much bigger and more profitable but that we have reached a level where people say we are a group that provides value for money, whose customer sensitivity is very high, and that it really caters to the demands of its customers better than the others.

I have no desire to strive to be No. 1 in size, but being No. 1 in quality and No. 1 as a corporation in its human and business practices. I would say, I would consider that to be really great.

Q: Do you attribute that desire to your heritage?

A:

Maybe. I think that's the foundation on which the group was built and that it is a tradition or a legacy that it follows.

Q: Was your upbringing strict? Lenient? Stress on your cultural activities, or sports or academics?

A:

Neither was it very strict, nor very lenient. My brother and I were brought up by my grandmother. Yes, she was very indulgent. But also quite strict in terms of discipline. I can't think of any kind of pressure on us in terms of what we should do. We were very protected, didn't have many friends. I had to learn the piano, and played a lot of cricket. I'm trying to find a piano teacher, so I can play again. I just bought an electronic piano.

Q: Your succession plans?

A:

Not to talk of today. Yes, there is a succession plan. At the right time I will talk about it. In the meantime, I've plans to learn to play the piano.

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