World Changers

When Ratan Tata was just a boy, his grandmother used to send what he recalls as a “huge and antiquated” Rolls-Royce to pick him and his brother up at school. The car would bring them to Tata Palace, a white Baroque Revival—style building in the center of Mumbai tended to by a retinue of fifty servants. “Both of us used to be so ashamed of that car that we used to walk back home,” says Tata now, laughing.

If anything, the memory is a reminder of his aristocratic lineage. It was his great grandfather, Jamsetji Tata, who is thought of as the patron saint of Indian business and one of the early builders of India’s economy. He and his family built the country’s first steelworks, its first hydroelectric plant, its first airline, and its first luxury hotel, the world famous Taj Mahal Palace hotel in Mumbai.

So Ratan Tata, whose father had risen to deputy chairman of Tata Group, has long been an essential part of India’s business aristocracy. And yet he is also one of the country’s great entrepreneurs, a man who came of age just as India itself became a global economic powerhouse. He reshaped the formidable enterprise and led it to become India’s most valuable public company.

If his early schooling was any indication, few would have thought that Tata would surface as a business icon so closely aligned with the country’s own emergence on the world stage. Though he enjoyed French and English literature, Tata notes that “whether you liked it or not, most of us were forced to go to school. It seemed terrible when you were there, questionable when you got out of it, and cherishable in the latter years of your life.”

For his university education, Tata was sent to the United States, where he studied architecture and structural engineering at Cornell University. After his graduation with a bachelor’s degree in 1962, he returned to India. On the advice of his uncle, J.R.D. Tata, who was then in control of the family company, he turned down a job with IBM. Instead, he was dispatched to the shop floor at Tata Steel, where he shoveled limestone and helped to feed a raging blast furnace, along with the factory’s other blue-collar workers.

His uncle cast him in the role of a turnaround expert, putting Tata in charge of one troubled company after another in fields as varied as consumer electronics and textiles. When J.R.D. Tata finally relinquished his job as chairman of Tata Industries in 1981, he became his uncle’s successor. Ten years later, as the newly named group chairman of the Tata Group, Ratan inherited a sprawling, and loosely controlled, group of more than eighty companies in every possible business. “My goal at that time was to restructure so that we had a much more cohesive, smaller number of companies, and the rest we would try to divest,” says Tata.

The effort was not without controversy. When he sold the company’s soap business to Lever Brothers, the response was blistering. “The reaction I had from our employees, from the media, from the shareholders, was unbelievable,” he recalls. “I didn’t have a friend—yet I had actually made a lot of money for the shareholders, and I negotiated a no-layoffs deal with Lever. I thought I did a very honorable thing for everyone, but I got so battered publicly that I have to admit I lost my courage, and the great restructuring plans that I had for the rest of the group sort of took a backseat.”

Still, over time, he prevailed, bringing sorely needed discipline and coherence to the enterprise, transforming Tata Group from an Indian-centric conglomerate to a true global company with annual revenues of $60 billion a year. He acquired Tetley, Jaguar, Land Rover, and Corus. Against the advice of friends and colleagues, he pushed the development of India’s first indigenously made car, the Indica, in 1998, and then the cheapest car in the world, the Nano, in 2009. And he has emerged as a humble yet effective statesman for Indian business the world over.

No, I don’t think so. I graduated from college in the United States and one thing I didn’t take to was the cold weather in Ithaca, New York. I just could never get used to it. So I headed for a warm part of the U.S., Los Angeles, and was working very happily in an architect’s office and had no intention of returning to India. At that age, there was no way to come back to India, let alone work for the firm. But a year and one half in that job, my grandmother fell ill and asked for me. She had really brought me up because my father and mother divorced when I was very young. So I went back temporarily to be with her.

In fact, the first job I had, which was short-lived, about fifteen days, was with IBM World Trade because I had met [IBM CEO] Mr. [Tom] Watson in the States and he said if you’re going back you’ve got to see our people and wrote a letter, which became my first job when I got back to India. I never had really gotten into the job because my uncle contacted me more out of an issue of shame. He said, “You can’t work somewhere else. You have to work with us.” In those days, electric typewriters were very scarce. But I remember sitting in the IBM office and writing my first resume, which I gave to my uncle because he and I were not very close. We hardly even knew each other. Then they said I was to go to our truck company for a training program, which I accepted and did. And that was where it started.

Not really. The first seven or eight years I was very frustrated, and I almost went back to the States two or three times. My grandmother had passed away. I think it was only six or seven years before [my uncle] actually stepped down that I became one of the possible contenders for his job. He had been there for fifty years. When he stepped down, he was ninety. I know it sounds ridiculous but we had all come to believe he was immortal. The day he decided to hand the company over to me was a bit of a shock. By then we had become very close, more on a personal basis than on a work basis.

I looked at it as if he was really being hard on me, but in hindsight, he probably consciously or unconsciously was giving me tough assignments one after another. I couldn’t understand what he was doing. Any company that was either going bankrupt or failing I got assigned to. We were in the textiles business and it was really doing badly. I got assigned to that. There was no interest on my side to be involved in textiles. There was a small electronics company that was going under before that. I was put there, and I turned that around.

But I didn’t know where I was going. I was sent off to Australia to set up a joint venture company, which I did. I was bobbing all over the place and thinking to myself, I’m not going anywhere. I went to him and said, “Can I just have an assignment where I would have a chance to prove myself and to get job satisfaction?” He said, “Yeah, yeah. That’s going to happen.” And it just went that way.

The day he actually told me I would succeed him, I remember walking into his office in the morning and he had a pat phrase he used like, “Hi. What’s new?” And I said, “There’s nothing new. I met with you on Friday.”

And he went and did it. So the first four or five years, I had a fair amount of opposition from the contenders. I spent the first four or five years dealing with them. They were all people of great stature who in fact felt they should have that job, and there was quite a lot of backstabbing and negative moves in the media and everything else. It was not a smooth transition. I don’t think that there was a long-term plan by my uncle or a long-term aspiration on my side.

With humility, I have to say that I didn’t succeed very much in what I set out to do. We were in forty different businesses in eighty companies and I had wanted to bring this down to a much lower number of companies by merging them in synergistic businesses. The first thing I did was to sell our soap company, which was sitting in the middle of steel and automobiles and software. I sold it to Lever’s [Lever Brothers] and they had become a lifelong enemy of every employee in this company. Many of the employees were second-generation employees of our group.

I thought we did a very dignified sellout that hurt nobody. Shareholders got Lever shares, and Lever signed an agreement that they wouldn’t lay off anyone for three years. The vendors and suppliers had a lock-in situation for a period of time. But the media just attacked me and within the company people just went for me. I was cast as a guy who was throwing tradition to the wind. They asked, “What will happen to our core businesses?”

I got cold feet. So we did very little after that. We did reposition the ownership of companies so when we had businesses akin to steel, we put these companies under our steel company. But we did very little to sell off or divest ourselves of the companies that I had on my initial list. If you looked at the group, we had fewer companies because they were folded into fewer businesses. Some of them closed down over a period of time or just got absorbed into the larger company. But it wasn’t in the way that I had undertaken to do.

I learned a very intangible thing: that people in this part of the world were much more important than the business. Everybody went for you if you did things to people. You had to be sensitive to what you were trying to do. After that, in the steel company, we were a company of seventy-eight thousand people producing two million tons of steel because it was legacy, man-powered, old systems. As we modernized, we could never be truly competitive or contemporary. I devised a scheme whereby people retired voluntarily because you can’t lay off anybody in India. We would pay them their current wages for the rest of their working life. If somebody retired at forty, for the next twenty years we would pay him his current wages so his family wouldn’t be concerned where money would come from. We have brought that seventy-eight thousand down to around forty-five thousand, which is an unheard of thing in India, and still every year we go through a process of this for three thousand or four thousand people. So I learned that there is another way to deal with this other than the straight divestiture or closure.

This was before I was involved in the running of the group. But prior to the reforms, being entrepreneurial depended on getting a license and those licenses were very constrictive. Let’s say you made automobiles. You would get a license for 20,000 automobiles and you couldn’t produce 20,001. You were criminally liable if you did. Everything was based on the government’s planning commission deciding that India would make 40,000 autos and produce 200,000 minicomputers. And then the capacity was divided up among the people given licenses to do that. It was getting more and more destructive as we went into systems because the way the system worked was, you had to get a license for censors, processors, and something else. Putting all these things together, you couldn’t say how many systems you were going to deliver and what the component parts of those systems were.

So the whole system was coming under a certain degree of overload. My uncle was always shouting for reform and taking away the protection. And when they did, we just zoomed forward because we had been crying for that all along. Many of the other businesses unfortunately spent their time trying to hang on to their protected environments, blocking new entrants. We did not. So we moved ahead much faster because we didn’t spend our energy trying to regain the protection that was lost. We just marched on ahead in this new free environment. It really made a difference.

Not immediately. I sat down and tried to draw a vision, which I then enunciated and understandably everybody thought we could never do that because it involved doubling the revenues in three years. I had a plan to do it, but they didn’t think it was possible. It did become possible and we actually achieved that in four years. After that I think the group has been tremendously responsive to the goals we have set. We also restructured ourselves into seven core business areas and regrouped our company into those. By that time, we were moving with a certain momentum. We added two other facets: acquisitions, which we had never done before, and the other was looking outside the country for growth. We had been very inward looking as a group before that.

In the commercial vehicle business, we already had a 70 percent market share. As the barriers came down, other people started entering the business. Some of our competitors spent all of their energy trying to block people coming in, so they would try to create difficulty for a Mercedes-Benz or a Navistar to do business in India. We decided to fight ferociously for our market share but we would also look at how we could grow outside India. It wasn’t in the United States, but in Asia and Africa. So we started to look for exports or assembly in a very discreet manner in the sense that we would study South Africa or Zambia and go into those countries with products they wanted.

In some cases, we looked at growth outside India where policy would still be a problem. For example, we had been waiting six or seven years for permission to build a new steel plant in India. So where would our steel company grow? So we went and in 2006 acquired Corus (an Anglo-Dutch steel company), which gave us twenty million tons of extra capacity overnight. In the case of acquiring Jaguar and Land Rover it was more of an opportunistic thing that would give us new brands that we would never hope to replicate from India and give us a base in the Western world. So it’s been more on the basis of filling strategic gaps in our portfolio or business model in each of our companies. Contrary to what people might think, we have been investing more in India in other areas such as hotels and software.

We have never looked outside India to become bigger. It’s always been a careful look strategically as to whether country A or B provided an opportunity. The learning has been not to go on an acquisition spree to become bigger but rather to strategically fill a gap. We also learned in acquiring companies in other countries that wherever we can we try to leave that company alone. When we bought Tetley Tea, we tried to leave that company with its own identity, very discreetly connecting it with our source of tea. With Jaguar and Land Rover, there was a lot of apprehension that we would try to move their manufacturing to India. Their products are not mixed with ours. I think we have probably done a little more sensitive job on that than Ford did for many years, which moved all the decision making to Detroit. Ours is in Birmingham [Michigan] and I go there once every month. But the management is the management of that company.

One might criticize us because we don’t have a unified culture. You go to Tetley and it’s different from Jaguar and Land Rover. But they all tie in to a code of conduct and a value system, which we impose and we then try to operate the business through those managements that we put in place. But we don’t have a transition group that goes in on Monday morning and takes over the company after we acquire it. We have to be sensitive to the fact that there can be a lot of resistance to an Indian company trying to take over a company in the U.K. or the United States. It’s been a good policy, a little more difficult to integrate.

At first, all my friends in the auto industry and elsewhere said, “Don’t do that. It is foolish to do this. No one has done this without going through a licensing agreement. You just can’t produce a car. It’s not like producing bakery products.”I felt it could be done and we did, in fact, produce a car. We really fired up a bunch of young engineers to work on something that hadn’t been done before. We produced this car and we had problems with it. When the car came out even my friends in India started to distance themselves from me because to be too closely connected to failure was not a good thing.

Business, as I have seen it, places one great demand on you: It needs you to self-impose a framework of ethics, values, fairness, and objectivity on yourself at all times. It is easy not to do this; you cannot impose it on yourself forcibly because it has to become an integral part of you.

What has to go through your mind at the time of every decision, or most decisions, is: Does this stand the test of public scrutiny in terms of what I said earlier? As you think the decision through, you have to automatically feel that this is wrong, incorrect, or unfair. You have to think of the advantages or disadvantages to the segments involved, be it employees or stakeholders.

I’ve often felt that this part of the world—India, China, and Asia—would play an important role in the dynamics of the world economy. Both India and China will have very high rates of growth. China has invested enormous amounts of money in its infrastructure. India has the opportunity to do the same. We are far behind what you would expect in this century. That is an opportunity. Also, as far as India is concerned, by the year 2030, we are supposed to have the largest working age population in the world.

What it means for the United States is there’s a tremendous business opportunity in this part of the world in terms of market access, goods and services, and above all technology. But the United States will have to take a view that they will work more together with these countries to take advantage of the skill base, the low cost base, and the large market and have a virtual integration in terms of ties with China and India.

In India, a lot of young people tend to be entrepreneurial. We have almost a culture of shopkeepers. An entrepreneur is quite happy to set up a small business that may be substandard. All I would say is there could be a tendency among young entrepreneurs in India to cut corners in terms of ethics and values to get what he rightfully thinks he should have. I say to young people, Don’t give up your value system for the business. Stay with it and work within the law rather than cutting corners where there is a tendency to do that because of high taxes.

I do not know how history will judge me, but let me say that I’ve spent a lot of time and energy trying to transform the Tatas from a patriarchal concern to an institutional enterprise. It would, therefore, be a mark of failure on my part if it was perceived that Ratan Tata epitomizes the group’s success. What I have done is establish growth mechanisms, play down individuals, and play up the team that has made the companies what they are. I, for one, am not the kind who loves dwelling on the “L” If history remembers me at all, I hope it will be for this transformation.