Simplicity, Synergy, and Scale

Simplicity, Synergy, and Scale

One of the world’s most venerable business organizations is celebrating its 150th anniversary this year, and the challenges it faces today are the same, in many ways, as those it faced at its beginnings. Then, its entrepreneurial founder started businesses across a variety of emerging industrial sectors; now, the group includes a diverse portfolio of companies, 30 of which are publicly listed, under a single holding company — Tata Sons — headquartered in Mumbai.

From its Indian roots, Tata has evolved into a global powerhouse in multiple industries, with two main goals. On the one hand, it is fiercely oriented toward shareholder value: It has an aggregate market capitalization of more than US$160 billion and 4 million shareholders. On the other, it is a community-oriented company, with more than 60 percent of shares held by a set of philanthropic trusts that fund health, education, and development in the communities where it conducts business. Keeping these two goals in harmony in an age of technological disruption is the chairman of Tata Sons, Natarajan Chandrasekaran.

Chandra, as he prefers to be called, came to his current role in February 2017 after eight years as CEO of Tata Consulting Services (TCS). Under his watch, TCS’s revenue nearly tripled, from $6.3 billion to more than $16.5 billion, as the company became India’s largest private-sector employer. It also moved to embrace new technologies, such as artificial intelligence, the Internet of Things, and blockchain. Over the past 18 months, Chandra has begun to organize the companies in Tata’s portfolio into strategic clusters within sectors: automotive, information technology, consumer and retail, financial services, infrastructure development, defense and aerospace, tourism and travel, telecom and media and investments and trading. Many Tata company brands are household names within India, and following two decades of high-profile acquisitions, some — TCS, Jaguar and Land Rover automobiles, Daewoo trucks, Tata Beverages, and Tata Steel (which entered a joint venture with Germany’s Thyssenkrupp in June 2018 to form the second-largest steel maker in Europe) — are leading global enterprises.

This business empire evolved from a trading company launched by Jamsetji Nusserwanji (J.N.) Tata, a Parsi (Zoroastrian), who was born in 1839 in rural Gujarat. His liberal education gave him a lifelong passion for humanism: He believed that the elevation of the Indian people could best be achieved through business. “In a free enterprise, the community is not just another stakeholder in business,” according to J.N. Tata, “but is, in fact, the very purpose of its existence.”

Raised in Tamil Nadu in the south of India, Chandra is the first non-Parsi to head Tata. He earned a postgraduate degree in computer applications and joined TCS as an intern. He is a dedicated marathon runner. As chairman, he presides over a complex corporate culture that combines past- and future-oriented, rural and urban, and outward- and inward-facing qualities.

In the year and a half that he has been at the helm of Tata Sons, Chandra has pursued a “One Tata” strategy — using the synergies across Tata companies to increase efficiency and applying the same standard of financial discipline to all the Tata companies (some of which had faltered and grown bureaucratic).

In July 2018, Tata’s Mumbai headquarters, known as Bombay House, reopened following a year of major modernizing renovations. That week, Chandra sat down with strategy+business in his Mumbai office. We asked him first about his priorities for Tata, and then about the two futures in which the company will play a pivotal role: that of India in particular, and that of the global economy in general.

S+B: You’ve used the phrase “simplicity, synergy, and scale” to describe today’s priorities for Tata. What does this mean in practice?
CHANDRASEKARAN: These capabilities are all related. As a business, you can’t scale if you’re not simple. Simplicity has multiple implications: the number of entities you have, the levels of management, the footprint your company has in terms of the markets, the number of products and services you offer. With the Tata companies, we’ve been in business for a really long time, so every company has evolved. With time, always you get complexity. So simplification is a priority. It is not limited to operational processes; it encompasses everything.

Simplicity across businesses — the “One Tata” initiative we have started — fosters synergy within the Tata group: with the parent company and intercompany as well.

S+B: Does the adoption of digital technology play a role?
CHANDRASEKARAN: In all of the Tata businesses, digitization is a top priority. It is a question of thinking through your own business model. Typically, the digitization of any business will disrupt a set of processes throughout the chain.

In each Tata company, we aim to have a chief digital officer, charged with thinking through what that industry’s digital platform means for them and their business. Each company has its own multi-agenda digital initiative. We don’t tell them one night: “By tomorrow morning, it must be this way.” They’ve got to figure it out. But digital is one of the three or four top items they’re thinking about — both for the here and now, and for the longer-term future.

S+B: Is financial discipline another top item?
CHANDRASEKARAN: Yes. That is more here and now.

Throughout the history of the Tata companies, we have built businesses whenever we saw the need. When our founder, or any of our earlier leaders, started a textile or steel company, or an automaker or a hotel, I don’t think they sat and created a spreadsheet. India needed a steel mill, a bank, an insurance company, or an airline — and the leaders created one. Pretty much the first companies in India in all these industries were started by Tata family members. Once the need was there, they figured out a way to run the companies profitably.

We are still balancing these two imperatives. On the one hand, the business need is important to resolve. On the other, we need the financial discipline to run a good, solid balance sheet. That applies to all the Tata companies, regardless of how they have been performing.

The 21st-Century Conglomerate

S+B: Are the financials different for Tata companies that compete primarily within India versus companies that compete globally?
CHANDRASEKARAN: No. In some businesses you go for growth rates, seeking cash flow in an expanding market. In other businesses you look at the demand that already exists. We have metrics in either case. We just have to make sure that we have the discipline to follow them.

S+B: At a time when many companies are focusing on single businesses, and divesting those that don’t fit, what does a conglomerate like Tata provide its member companies?
CHANDRASEKARAN: Many things. First of all, there is the brand. The goodwill people have for the group, including our financial strength and the credit rating of Tata Sons, derives directly from the heritage and credibility we have established over time. This reflects the power of our brand and values system.

The second is the quality of management, and of our talent. This includes a certain integrity. Tata companies will always do business in a certain way. The rules are established.

The third is the management tools that the companies share. We have a single performance model, which we call the business excellence model. We use it to drive operating performance, business performance, and excellence in everything we do.

Fourth, there is the “One Tata” approach I spoke of. It is focused on synergy: on bringing our best capabilities to bear for all members of the group. Each of the companies operates individually, but we leverage their strengths together in developing more comprehensive industrial ecosystems, particularly in India. For example, we might build an automotive ecosystem. Tata Motors has the capability to produce cars. Tata Power can build charging stations. Tata Communications can provide connectivity. We can all borrow technological expertise, marketing talent, and other capabilities from one another. Putting it all together gives us a holistic solution, particularly for major initiatives such as Smart Cities. [The Smart Cities Mission, launched in 2015 by India’s prime minister, Narendra Modi, is a multilateral initiative to prototype sustainable, citizen-friendly urban areas within India. One hundred cities have been selected to date, through a competition managed by India’s Ministry of Housing and Urban Affairs.]

S+B: What is the potential that you see with smart cities?
CHANDRASEKARAN: The smart city is an area where we have lots of capabilities, but we definitely want to deploy them at scale. We don’t know what the future will hold, but we know that environmental sustainability is going to be an important factor in technological progress. In that context, business leaders should look not only at smart cities, but at digital delivery, digital governance, electric vehicles, and water conservation. These are all going to be big businesses in the future.

AI and Other Challenges

S+B: What are the big technological changes that could affect your business? For example, what are your thoughts about artificial intelligence?
CHANDRASEKARAN: Major technological changes are going to happen everywhere, and their impact differs from company to company. Before talking specifically about artificial intelligence, we need to recognize that business is all about data-centricity right now.

This represents a change in the way most businesspeople think about operations. For the past 30 or 40 years, we have all been focused on process reengineering. Every management consultant wrote a book on process engineering.

Now, as I tell people in our companies, process maturity is no longer your day job. If you’ve been in business for a while, you should already have world-class processes. If you don’t, then you had better work all night to come up to speed. Your day job now is data maturity. Start working on that.

S+B: What do you mean by data maturity?
CHANDRASEKARAN: In developing data maturity, you have three layers to worry about. One is defining the core data. What is the type of data that drives your business? For example, power generation is a manufacturing-intensive industry. Machine performance data, plant performance data, and maintenance data are as important to that business as the customer and employee data. In consumer industries, data about the customer experience is more important.

The second layer is to make sure that your data is available in real time, in accurate fashion. Otherwise, you cannot apply analytics and develop insights rapidly enough. Capturing 99 percent of your data in real time is not good enough. Making this layer work involves a transformation for nearly every company.

The third layer is linking analytics with your other systems. The analytics don’t stop with gathering data; you have to have a platform with which to develop insights. Then, if you have the insights, what kind of inference systems — inference engines, machine learning, whatever you want to call it — do you need to offer a better solution?

S+B: And this represents a big transition for most companies?
CHANDRASEKARAN: For most companies around the world, yes. In my previous role at TCS, I worked on this directly with many CEOs and CIOs at other companies.

S+B: What are the other big challenges facing companies now?
CHANDRASEKARAN: Cybersecurity is key. The potential vulnerability and manipulation of data by outsiders is a deeply important concern.

The second challenge is one’s own inability to learn. The technology is changing so rapidly that people say, “What can digital do for me? How do we learn to use it?” But I think there are more important questions: “What happens if I don’t adopt digital technology effectively? How will my business survive? How might someone else disrupt it?”

A Digital Learning Ethic

S+B: How can business leaders ensure their organizations are more capable of learning?
CHANDRASEKARAN: I think it has to start from the top. You don’t need to know the nitty-gritty, but the power of everything that’s being developed in technology has to be obvious from the top to the bottom of the organization. You can’t outsource that level of understanding.

And it’s not just technological learning; it’s business model learning. Mostly you need to learn what you can do with this technology. What parts of the business can become data? How can it be digitized? If you digitize the business, what will your new business model look like? What possibilities does this change open up? At Tata, the possibilities are changing all the time.

S+B: If everyone recognizes the trends, why aren’t the strategic implications more obvious?
CHANDRASEKARAN: The issue is that we are seeing a maximum disruption in technology over a very short time. Each new set of technologies gradually adds power to other technologies, and when they reach a tipping point, we are not prepared.

We have been talking about artificial intelligence since the 1980s. Nothing happened; it didn’t affect business. Suddenly, cloud computing has made possible the real-time collection of infinite amounts of data. This opens up the possibilities for AI.

Robots were also made in the ’80s. But why are we talking about them now in new ways? Because today, the robot is also connected to the cloud. Suddenly, the memory, analytic capability, and data set available to the robot is infinite.

The Internet of Things interacts with both of these. Let me put a chip or a sensor anywhere in a system, and I can collect even more data, in huge volumes, on a real-time basis. As that comes in, my ability to do analytics expands. We are now moving into the world of anticipative computing. We’re not only gathering data in real time, but also anticipating the data to come. You can tell what’s likely to happen in the next 30 seconds. And if you can predict it in that time, that’s all the time you need to prevent it or make use of it.

Each technology is additive to what has come before. It’s happening very fast.

S+B: With all these technological changes, and the commitment that the Tata companies have to good corporate citizenship, what protections do you think need to be in place?
CHANDRASEKARAN: There is no foolproof defense system. Build a very strong defense system; somebody’s going to break it. That’s a constant concern. We also have to worry about what is ethical, and about data protection and the loss of privacy.

And we also have to focus on jobs and the future of work. But to some extent, the effect of automation and artificial intelligence on the workforce is misunderstood. We don’t have AI systems that will replace humans. They will increase productivity, and change repetitive tasks, but they don’t have the judgment capability of human beings.

S+B: What happens if a mechanistic system leads to problems that are not foreseen?
CHANDRASEKARAN: I think standards will evolve for responsible artificial intelligence. Different groups will be worried about different outcomes. As we make more progress, we need collective thinking to shepherd this technological growth in a positive direction, because there is always a negative purpose for which technology can be used.

Confidence and Community

S+B: Most of the chief executives in PwC’s 21st CEO Survey are optimistic about global economic growth. They believe conditions are improving, despite the political headwinds of the past few years.
CHANDRASEKARAN: I would tend to agree. Global growth last year was very good: 3.7 percent. And it is expected to grow to 3.9 percent for this year and next. Although growth in the United States and China will probably level off, I think India, the primary market for many of our businesses, will continue its rapid growth. I think it will be an excellent growth market for at least the next 20 years.

There are many reasons. First, India has a growing consumer population, which I think will rise even faster than it has in the last 15 years. In the past two decades, as China and India have opened up to the world, our economies have surged: China’s GDP went from $1.2 trillion to over $11 trillion between 2000 and 2016 — more than ninefold. India went from a $500 billion economy to a $2.3 trillion economy in that time, comparable to Japan’s growth between 1980 and 2000. The growth in China started with exports, and then expanded to the domestic market. India is now where China was around 2005; we have had export growth, but now we will also have domestic growth as our consumer market expands.

The second factor is that we have both rising consumer spending and rising government spending. Third, look at the changes made over the past few years in financial and economic infrastructure. Regulatory reform, the Aadhaar [India’s new identity system for individuals], and simplified payment systems are driving the economy to become more inclusive. Many informal sectors will get more formalized, bringing more and more people into the formal economy and workforce, and this trend will accelerate. As India’s problems are addressed with technology, there will be more digital platforms. With more digital platforms there are more business models, and that means new businesses.

We should thus maintain our current rate of growth, at least, for a long period to come. And that will grow our per capita income, which is currently less than $2,000, but is estimated to rise to $15,000 or $20,000 over the next decade. Even if there is only 7.5 percent growth for four or five years, per capita income will dramatically increase. I feel very good about India’s prospects.

S+B: Do you see this growth taking place differently in different industries?
CHANDRASEKARAN: There’s no overarching way to define it. Steel, for example, will not be a growth industry everywhere, but it will be an excellent industry in India. As a nation, we use about 100 million tons per year now, and we might eventually double that number. There will be more demand as our infrastructure gets built.

Our automotive industry will also grow significantly. When China’s middle class emerged and demand for automobiles grew, the cost of an individual automobile dropped. The Chinese auto industry grew from making about 700,000 cars per year to 24 million. There is a takeoff point when per capita income rises, and India will experience it as well. But there are pluses and minuses to the auto industry, because we need a new generation of affordable, environmentally sustainable vehicles.

Consumer businesses will be high-growth industries in India for the same reason: People have more disposable income. A few hundred million consumers are looking for new products and services, and they are all connecting online, so their aspirations have grown. Everybody has an eye for the top-of-the-line products. We’ve got to make sure that we can provide that for them at the right price.

Electric power is also positioned to grow extremely well in India. The country’s current power consumption per capita is extremely low, compared with [that of] either China or the United States. But consumer demand and energy consumption growth are intertwined. For example, when more people can afford air conditioners, more energy is consumed. There are thus huge opportunities for growth, and at the same time, we need new, more sustainable energy solutions. I don’t know whether India’s power mix will involve large private plants, large government plants, coke, coal waste, renewables, or microgrids. But I do know technology will play a very important role.

Another fundamental challenge in this country is healthcare. Too many people have no access to healthcare. We need to figure out how to convert an urgent need for healthcare coverage into a solution, including a business model that allows healthcare providers to operate in a commercially viable way. If there is no current solution for this, there will be innovation to create one.

S+B: For 150 years, the Tata companies have been living with a question that many companies are just starting to think about seriously: “What is the role of my business in society?” What would you say to a CEO who is trying to figure this out for his or her own company?
CHANDRASEKARAN: Our company has a deeply ingrained belief, as our founder said, that the purpose of the business is the community. J.N. Tata’s famous quote is repeated by everybody. In every place we operate, we believe we exist for the good of the community, which in turn believes in us.

I think that this purpose is an integral part of any business. In fact, the development of society cannot happen without business, and business cannot prosper without the development of society. If any business tries to operate without a social purpose, it doesn’t last long. Social development and business go hand in hand, and that’s not going to change.

Published at Wed, 07 Nov 2018 06:00:00 +0000