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"There is nothing more difficult to take in hand, more perilous to conduct, or more
uncertain in its success, than to take the lead in the introduction of a new order of
Ɯ Niccolo Machiavelli
The Prince (1532)

"In times of rapid change, experience could be your worst enemy."
Ɯ J. Paul Getty


1.m Tata Steel is the largest steel company of the country and at present stands as
the 10th largest steel firm in the world. The company with its headquarters in
Jamshedpur operates in 20 countries with a presence in about 50 countries across the
world. The past few years has seen Tata Steel growing from strength to strength
through the path of M&A, wherein, they have acquired Anglo-Dutch Steel company
Corus(renamed Tata Steel Europe), Millennium Steel (renamed Tata Steel Thailand) and
National Steel Holdings of Singapore. Its annual capacity of production is
approximately 30 million tons of crude steel and has set an ambitious target to achieve
a capacity of 100 million tonne by 2015. Managing Director B. Muthuraman stated that
of the 100 million tonne, Tata Steel is planning a 50-50 balance between greenfield
facilities and acquisitions.

4.m Tata Steel is part of the Tata Group of companies and like any other group
companies, it is known for its good corporate governance, transparent system,
employer friendly atmosphere and excellent Corporate Social Responsibility (CSR).
Therefore, the questions which trouble are Ơwhy did Tata Steel require a change?ơ and
Ơhow was the change managed and was it difficult?ơ. To understand how the winds of
change took place at Tata Steel and what were the hurdles, as well as the strategy to
overcome them, it is essential to understand the History and Culture of Tata Steel prior
to implementation of change in 4005-4006.

Ä.m Tata Steel was established in 1907 in a nondescript place called Sakchi (The
present day Jamshedpur) by Jamsetji Nursserwanji Tata and his son Dorabji Tata.
Establishment of Tata Steel also had a nationalistic fervour, as Jamsetji wanted India to
be self reliant in metals. The uniqueness of this company was that for the first time in
the history of India, the whole company was financed by the Indian populace (masses,
affluent and Mahrajas) with Tata contributing 11% of the stake. The Steel Company
obtained its first colliery in 1910, adding six more in course of time. Several mines were
spread over the states of Bihar, Orissa and Karnataka. The Tatas had a holistic plan,
wherein, they established a township for its workers with all the amenities, which was
named after the founder as Jamshedpur. Today Jamshedpur can boast of being one of
the most planned cities in India with best of the amenities.


4.m The house of Tatas including Tata Steel has always stood for and is known for
their honest dealings, corporate governance, welfare of their workers and CSR. The
following instruction by the founder to his son that ƠBe sure to lay wide streets planted
with shady trees, every other of a quick growing variety. Be sure that there is plenty of
space for lawns and gardens. Reserve large areas for football, hockey and parks.
Earmark areas for Hindu temples, Mohammedan mosques and Christian churchesơ
epitomises their concern for the workers. It is a known fact that even during the great
depression; Tata Steel did not layoff a single worker.

5.m In addition, the Tatas were the first employers to introduce an 8-hour working
day (1914), free medical aid (1915), workersƞ provident fund scheme (1940) and many
other welfare schemes even before they were introduced in the West. The Ơemployee
association with managementơ programme initiated in 1956 gave the workers a
stronger voice in the affairs of the Company. Forty-one joint departmental councils were
formed to encourage their involvement in matters as diverse as production, quality
improvement and safety measures. This clearly indicates their belief that welfare of the
employee takes priority over the company profits.          
!"#  #"   "  $$   , to assimilate the
entire process and appreciate why it is rated as one of the most difficult change
brought in the history of any industry in the country.



6.m The Indian trade, industry and economy had been stagnating in the years
preceding 1991 due to Govt regulating the industry, and state protection policies of
licensing, high tariffs and administered prices. These protectionist policies made our
industries complacent and curtailed the competitive spirit of the firms, making them
inefficient in the intensely competitive global market. The state of Indian economy was
in such doldrums that there was a necessity for the Indian Govt to implement drastic
fiscal policies and a controlled deregulation.
7.m   "$" # ' ())(. The state of the Indian economy made
the govt realise that they could no more remain isolated from the world economy, and
therefore, brought in economic liberalisation and free economy. Deregulation, free flow
of goods within and outside the country and encouragement of foreign technology
became the order of the day. The new policies brought in a fierce competition, which
epitomised the age old dictum of Ɲsurvival of the fittestƞ. Many firms were forced to
close shop because of obsolescence of their product or technology and lack of skills to
match up with the international standards.

8.m $" '  . The govt policies post independence from 1947-
1991 impinged on Tata Steel from becoming a global steel firm in the face of cutting
edge technology. When liberalization finally came in the early nineties, the company
was ill-prepared to face the emerging business situation that was increasingly
characterized by market determined prices, lower import tariffs, intense competition,
and move from a sellerƞs market to a buyerƞs market. Since, Tate Steel as akin to the
other companies were used to the protected environment there was certain
complacency in the rank and file of the company. This amply showed in their
performance till early 90s, when their performance was worse than SAIL which was a
Public Sector Undertaking (PSU), and the industry experts started questioning the
viability of Tatas continuing in the Steel industry. This period also coincided with a
change in leadership at Tata Steel, when Mr. Ratan Tata took over as the Chairman of
the company and Dr. Irani took over as the Managing Director. Both of them were
progressive in nature and felt that if Tata Steel had to survive in the highly competitive
global steel industry, the company would need to take some far-reaching steps to cause
a turn around. The path of turnaround was filled with many difficulties like the intense
global competition, poor product quality, poor compliance of meeting the deadlines, old
and inefficient plants and over-sized workforce.


9.m Vn the ensuing years Tata Steel went in for major changes in their process and
organisation structure. This was implemented in two phases. The major features of the
two phases are appended in the succeeding paragraphs.
10.m   . The focus of Phase V was reducing the cost and increasing the
profitability. Following initiatives were undertaken during this phase:-

(a)m Harnessed better source of raw material from its captive resources,
wherein their Joda mines in Orissa was made the main source of iron ore.
(b)m Usage of blue dust, which resulted in uniform mining operations.
(c)m Benchmarked their plants with the best in the world like Nippon Steel, CST
Brazil, Posco South Korea, which increase their production by 60%.
(d)m Launched a programme for new coke making technology, which obviated
the use of much costlier imported coke which acts as a life line for a steel
processing unit. The success of this technology made considerable reduction in
production cost and the resultant increase in the profits.
(e)m Took aggressive steps to increase the utilisation of blast furnaces for
increasing the daily tonnage of production by means of process optimisation.

(f)m Vmplemented energy saving processes by stopping the liquid fuel taken
from other refineries and using gas produced by their own processes (blast
furnace, coke ovens and LD converters) for downstream processes.
(g)m Along with the other cost saving and productivity related steps Tata Steel
also went in for major modernisation of its plants.
(h)m However   $ '"  + ##  
*''   . When Tata Steel went to international investors in
early 90s, they were told that though the company was good for investment,
however, it was grossly overstaffed and much beyond the international norms.
This went on to become the most challenging task Tata Steel ever faced due to
the Tata reputation, which was known for employee friendly organisation.

11.m   . During the Phase VV the company concentrated on business
excellence, wherein they tried to bring in practices which were prevalent in Japanese
steel mills. A core group was formed, which visited Japan and essentially became the
trainers within the company for effecting the transformation. The important features of
this phase were the guidelines set for the top management, which were as follows:-
(Source: Case Study on Tata Steel in Vikalpa)
(a)m Top management taking personal ownership, where responsibility could
not be delegated.
(b)m Be the Role model and the first to change; personal involvement and
investment of time is key to success.
(c)m Create endless opportunities for two-way communication within the
(d)m Embrace change even when it does not appear necessary.

(e)m Train small groups and empower them to bring about the change.

(f)m Set Key Result Areas (KRAs) and include the top management into it.

14.m  & ,"" c# The Tatas as a Group also adopted Tata
Business Excellence Model (TBEM) in 1994. Through implementation of this model, the
group aimed at bringing about organisational transformation. The objective of TBEM
was to improve the performance and efficiency of the Tata Group in various business
areas and to enable them to successfully overcome the global competitive challenges.
The management felt that the attitudes and perceptions of people had to be changed
first before bringing about a major change in the functioning of the organisation. The
Tata Quality Management Service (TQMS) in collaboration with Tata Management
Training Centre, the Department for Economic Studies and the Tata Council for
Community Vnitiatives (TCCV), was assigned the responsibility of implementing TBEM in
the various group companies. Vt adopted a 4A approach wherein it was to provide
"- $ # " to the group company. Once the company
was considered to have achieved the required level of business excellence, it was given
the JRD QV +#, which was the fourth A.

(Source: Tata Group website)

1Ä.m Vt was also necessary for these companies to achieve the minimum standards of
excellence which was determined by scores based on the Malcolm Baldrige model.
TBEM measured an organisationƞs performance both on the basis of no-financial and
financial parameters

14.m $$ ' & c   . Tata Steel gave major thrust on
improving the quality of product and processes. Vt also adopted several innovative
programs to improve its business performance and focused on reducing costs
significantly. Since the early 1990s, Tata Steel laid more emphasis on quality
consciousness across all divisions. Tata Steel focused more on training and customer-
focused aspects through a series of internal campaigns. External customer focus
concentrated on the customerƞs requirement and their perception towards the company.
The company benchmarked all its key processes and operations including product
development, market intelligence, complaint handling and determination of customer
satisfaction with the best industry standards and practices.

" '   #

15.m Though all the aspects included in the Phase V & VV of reinventing Tata Steel
relates to change management, however, the group has limited itself to the aspect of
ù*''ù or  ù , as this was most difficult task to implement and
was more relevant to organisationƞs culture. Vn addition, the group felt that addressing
the entire gamut of changes brought about by Tata Steel would increase the scope of
the study and it would not be able to do justice, especially since the study is limited to
literature available on web and journals.

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16.m The aim of drastic reduction of the staff was to make the company more cost
effective and profitable so it could compete with the global steel firms. The defining
moment for this decision was when the company interacted with the foreign investors,
and the investors asked the Chairman and MD what business they had to keep 78000
people on their role.
17.m However, it was not an easy task to implement, as the company was deeply
rooted to its founders philosophy that workers and their welfare were of utmost priority.
Providing its employee more than just a mere job was the ethos of the entire Tata
Group since its inception. Tatas were the pioneer company in employee welfare and
had taken following initiatives much before the govt or any company in the country:-

(a)m Eight-hour working day.

(b)m Free medical facilities.

(c)m Maternity benefits.

(d)m First provident Fund Scheme in 1940, much before the Govt who
implemented it in 1956.

18.m &# $. Tatas was one of the most admired corporate brands with
operation in Vndia. Vt was ranked the second in the list of most admired companies, in a
survey conducted among students of leading management schools of Vndia. Moreover,
Tata Steel was widely recognised as a corporate entity committed to taking care of the
interest of all its stake holders and unshakable values of trust. The sheer fact that Tata
Steel never lost a single day of work since 1948 stands testimony to the companyƞs
commitment to labour welfare and industrial relations. Vn the light of the image Tatas
had, downsizing the 78000 strong employee base to the required level was a huge
challenge for MD, Dr Vrani.

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19.m To implement such a revolutionary step Tata Steel required a strong leadership.
Fortunately, they had Dr Vrani at the helm of affairs who was very clear in his intentions
with a conviction that he had to make the Company survive in midst of the intense
global competition. He communicated very clearly in his many interactions with the
workforce that though the focus of the company of creating job and not wealth needs
to be now balanced against the productivity. His resolve was also backed by the fact
that after him Mr Muthuraman would take over the reins of the company, who was a
man with a democratic leaning in his leadership style, and would be the right person to
soothe the frayed nerves post down-sizing with empathy.

&  +1

  +#   1. Vn 1994, a Task Force was
commissioned to evaluate and predict the size of workforce by the year 4004. A ƝZero
basedƞ manning exercise was carried out by the HR team, wherein, manning
requirements of each departments were examined afresh. Following are the salient
features of the suggestions by Task Force:-

(a)m Continued modernisation of plant and machinery.

(b)m Cost reduction and increasing labour productivity through closure of loss
making and uneconomic plants.

(c)m Rationalisation of manpower in the functioning plants.

(d)m Outsourcing non-core activities.

(e)m Downsizing or Ơright sizingơ manpower from existing 78000 to Ä5000.

41.m   $
" $ . The image of Tata Steel was the
main stumbling block in the execution of downsizing. Tata Steel was widely recognised
as a corporate entity committed to take care of all its stakeholders including the labour
force. However, with the realisation that a 78000 strong pampered labour force would
do more harm than benefit, the company went into a systematic process of downsizing.
Keeping in with the companyƞs ethos and the need to right-size, Tata Steel made sure
that there was a smooth transition for its workforce from being a Tata employee to
starting a second innings. Following measures were undertaken by the Company to
make sure that the outplaced employees have a respectable beginning:-

(a)m Attractive Voluntary Retirement and Early Separation Schemes were put in
place, wherein the employees do not feel cheated as far as compensation was

(b)m Outplacements were used extensively in the process, thereby ensuring
that no retrenchment takes place. Professional agencies were employed for the

(c)m Labour unions were taken into confidence by the management which
ensured the success of Early Separation Schemes. Attractive compensation,
effective communication and excellent design of the schemes allowed the
workers an exit with dignity.

  '   " c 2   ,"* 

44.m The downsizing of the blue collared workforce achieved to a large extent what Dr
Vrani had planned, but he was not yet finished. He knew that decision making process,
which was too hierarchical in nature and detrimental to Tata Steelƞs march to being a
global steel maker, was not yet addressed. Moreover, and rightly so, there were
questions raised from the union office and employee ranks as to why the company only
targeted blue collared workers in the process of downsizing leaving a 5000 plus strong
executive cadre untouched. Therefore, the management felt that a fundamental review
was necessary in the executive cadre also, to produce a structure commensurate to the
various needs identified in the organisation.

4Ä.m The management realised that existing decision making structure is

heavily layered and bureaucratic, which has resulted into lack of responsiveness to the
opportunities presented by the environment. Decision making was terribly slow with
each person looking over his shoulder for approvals. Another concern was the high
executive turnover of the company. The company had not only failed to attract talent
but also failed in retaining the existing talent.

44.m  ' c"3      " '  . Since the
Company was undertaking such a drastic step for the first time in history of Tatas, it
wanted to ensure a professional and an unbiased approach, and therefore decided to
hire a professional agency to undertake the study. Thus, McKinsey & Company was
hired as consultants. The task given to McKinsey was to:-

(a)m Redesign the organisational structure and redefine the job contents with
the aim of rejuvenating the organisation with richer jobs and fewer hierarchical
levels of reporting.

(b)m To incorporate clear accountability and autonomy in the structure thereby

bringing in cultural changes along with structural changes.

(c)m Suggesting new system of Performance Management which can be linked

to a career development plan for each employee.

(d)m To reduce the existing 1Ä layers among 5100 executives by increasing

span of control which were small at present.

(e)m Comprehensive project report on Organisation Redesign and detailed plan

on Selection and Staffing of the new organisation structure.
45.m On the basis of report submitted by McKinsey, on 01 Apr 4000, a Performance
Ethic Programme (PEP) was launched which delineated a code of conduct relating to

'$"  " $$ 4 5

46.m !6"*. The objectives of PEP were:

(a)m To increase the focus on attracting, nurturing and retaining talented HR

(i)m Creating development opportunities for rapid growth of Tata Steel

(ii)m Vmproving performance management by ensuring that targets are

set properly and people are evaluated on the right criteria.

(iii)m Rewarding high performers adequately.

(iv)m Articulating a clear policy for developing and supporting under


(b)m To improve the pace and quality of decision making by increasing degrees
of freedom and accountability.

" 2 7 # '$"8. Over the years Tata Steel had made
huge investments in modernisation of the plants and acquiring state of the art Steel
making facilities. Now the focus was on the people who would be ultimately exploiting
the assets in a profitable manner. The PEP was intended to fulfil this need i.e. to
redesign the current organisational structure and its processes to create a high
performing organisation of motivated and energised managers. The PE program had
two core elements ƛ new organisational structure with five work levels based on their
impact on company performance (Vmpact Level 1 to 5) and a new Performance
Management System (PMS) with a new HR Policy. PEP would involve determining
competencies required for each job in each impact level followed by assessment of
executives for their competencies. The whole process was envisaged to be objective,
scientific and systematic. The PMS would set Key Result Areas for every level, define
clear measures of performance and targets and regularise performance reviews. The
new HR Policy would foster meritocracy- as system which identifies, nurtures and
rewards strong performers and provides development opportunities for everyone.

48.m $" * ( # 9. The initial assessment started with 100 jobs which
were envisaged to have maximum impact on the affairs of the company viz Vmpact level
1 & 4 (VL1, VL4). The process involved matching of the executives against the jobs on
the basis of their past performance and future potential. Vn the first phase out of 5100
executives, 8Ä4 were shortlisted. Senior management along with CEO debated on each
of the 8Ä4 cases and arrived at a consensus on 4Ä5 candidates. Vn the next round,
these 4Ä5 candidates went through multiple rounds of analysis and discussions at the
assessment centres and 100 were selected with a resolution to consider the remaining
in the next cycle. Thus VL-1 (Vmpact Level-1) and VL-4 were finalised. The process can
be diagrammatically represented as follows:-




! " #  



49.m " 9. Vn cycle -4 many jobs were merged which rendered many executives,
who didnƞt fit into the competencies required of the jobs, redundant. Vt was decided
that senior persons would not be pushed down into lower impact levels, as that would
be detrimental to the morale of the company and would lead to disgruntlement. The
natural outcome was that some of the executives needed to separate from the
company. The whole process resulted into a total of Ä407 managers matched to five
layers- 10 to VL1, 98 to VL4, Ä67 to VLÄ, 460 to VL4 and 4474 to VL5. The final transition
structure is as tabulated below:

&'   4(: *5 '   4; *5
E1 47 VL 1 10
E4 ƛ EÄ 105 VL 4 98
E4 ƛ E5 Ä85 VL Ä Ä67
E6 ƛ E7 689 VL 4 1084
O1 ƛ O6 Ä769 VL 5 4474

 ;(<<  =:<<

Ä0.m The first phase of PE resulted in a reorganised structure of the company, the
fundamentals of which are creation of two strategic business units i.e. ƝSteelƞ and ƝNew
and Allied Businessƞ; Creation of the corporate service function; Decentralisation of the
Marketing & Sales; Finance and HR functions for each business unit; De-layering and
appropriate staffing for new structure.


Ä1.m De-layering at the Executive level was the most challenging part of the transition
at Tata Steel. The people at the Executive level would though understand the
requirement for change better, but were the most difficult to convince when it to came
to their individual future in the company. Therefore, Dr Vrani and his team took some
progressive steps to make this transition smooth, as well as acceptable. The steps taken
by the company are enumerated in the succeeding paragraphs.

Ä4.m $$" +  *. Effective communication with executives
was the key for the success of change of such a magnitude and the same was well
managed. Vnteractive sessions were organised to communicate the procedure and
methodology adopted to all executives. Executives who were offered Early separation
schemes were explained as to why they did not fit into the framework. Those who were
retained were explained about the assessment system and career progression in the
new structure. Vn a top-down approach, special dialogue sessions with the CEO of the
company was held for all executives to communicate the progress of PEP and the work
that lay ahead.

" ' "# . An "*  " was
developed and posted on the internet for out-placed officers. A "$ "
was hired to provide support by way of counselling, resume preparation, coaching
placement and entrepreneurship development.

Ä4.m # c" $. There were three categories among the surviving
executives. The first was the group which moved up in the impact levels and were
happy; the second category were the people who stayed in the same positions and felt
relieved and the third category of people included those senior officers who had been
brought down the impact level. The third group resulted into accumulation of
disgruntled officers at the impact level 5, which was at the lowest level. CEO interacted
with this level and the survivors were told in clear terms that company had to adopt a
Ɲperform or perishƞ policy to survive the global challenges and nobody is indispensable in
such a scenario. The new CEO adopted an open door approach where aggrieved
officers could meet him. The aggrieved officers used to feel relieved after meeting the
CEO even if they could not get full redressal of their grievance. Vn addition, a team of
senior executives under a Deputy CEO constituted a # ù to consider each
case on its merit and advise the PEP team accordingly. During the process, the
Redressal Cell heard out close to 500 representations ranging from change in the
reporting relationship, seeking another opportunity in the same impact level or a
reassessment under PEP.

#!" $ >  ". The new CEO who was
accessible and open to communication sought feedback from the field and people who
were affected. He instructed the HR and Organisation Design team to fill the gaps in
communication between the company and its employees. After the right-sizing, the
focus was turned on educating people on the opportunities available in the company for
career progression, which would be supported by a uniform appraisal system to bring in
objectivity in career progression. The aim was to bring in more transparency and
change the people mindset and convey that performance would be rewarded and
attract better talent to the company. This was also aimed at talent retention.


Ä6.m The various factors that contributed to the successful change management at
Tata Steel and rejuvenated the company towards attaining global competitive edge are
elucidated below:-
(a)m " '   + #  "*. The
company was able to pre-empt that it was ill prepared to face the emerging
business situation post economic liberalisation that was characterised by market
determined prices, lower import tariffs, intense global competition and a shift to
buyerƞs market. Company immediately reviewed its strategies and embarked on a
turnaround plan with a clear timeline.

(b)m Ë # . The economic liberalisation period also
coincided by change in leadership at Tata Steel when Mr. Ratan Tata took over
as Chairman and Dr. JJ Vrani took over as Managing Director. Both were
visionaries with a strong conviction and were the much needed change-agents to
bring out a turnaround in the fortunes of Tata Steel and make it globally
competitive. Today the world acknowledges Tata Steel as a global giant of the
Steel industry.

(c)m '" . The whole process was implemented in a well

structured systematic manner with target timelines. Recognising that the
philanthropic policies adopted by the company needs to be reshaped for survival
in the competitive world, external consultants like McKinsey and Eicher were
commissioned by the company to suggest a new organisational structure and
changes required in the organisation to bring about the competitive edge.

(d)m $$" # ". The company took the labour
unions into confidence while going for the blue collar downsizing. Salient aspects
of the restructuring and new HR initiatives were communicated clearly to the
executives. The whole process was kept transparent as far as possible.

(e)m Ë # " !. True to its values, the company did not
retrench a single person be it an employee or executive. Placement agencies
were hired to counsel and help the individuals. The Voluntary
Separation packages were made lucrative. Company helped people for self
employment by giving loans on soft interest and providing skill enhancement
trainings. All this initiatives helped the company to implement the plans with
minimal opposition. Perhaps, this is the aspect which separates Tata Group from
other business conglomerates.



4.m www.wikipedia.


4.m ƝDe-layering at Tata Steelƞ by Col Rajeev Kumar in Journal of Organisational

Behaviour Education 1 of 4006, pg Ä6-57 http://www.neilsonjournals /TataSteel

5.m ƝReinventing a Giant Corporation: The Case of Tata Steelƞ by DVR Sheshadri and
Arabinda Tripathy in Vikalpa, Volume Ä1, No1, Jan-Mar 4006, pg 1ÄÄ-146

6.m ƝHow Tata Steel Made it to the Top of the World-Managing Changeƞ by R
Jagannathan in Business Standard, Mumbai 04 Jul 04.

7.m ƝThe Tata Group: HR Challengesƞ, a case study from www.Case