Omkar Goswami: Ratan and remaking Bombay House

As Ratan Tata steps down from all group enterprises and the holding company, Tata Sons, I go back to 1991 when he took over from J R D Tata. At the time, it was an unwieldy agglomeration of over a hundred firms engaged in everything from textiles, printing and seeds to hotels, software, trucks and steel. While Tata Sons exercised some control over the companies, in most cases the actual share ownership was dangerously low; many failed to earn a return that covered the cost of capital; most were devoid of strategic focus; and some were run by powerful satraps such as Darbari Seth, Russi Mody and Ajit Kerkar who enjoyed J R D’s trust and were thus answerable to none else, certainly not a child in his early 50s.

For the first few years, Ratan watched and waited, presiding over a board of ancient mariners at Bombay House while international consulting firms advised him to sell most businesses in the name of ‘core competence’. Then he started to move.

The first was getting rid of the satraps. Darbari went quietly; Russi made a big fuss; and Ajit’s exit created some embarrassment. This was accompanied by getting some key people on to higher tasks at Tata Sons, such as insiders like his consigliore Noshir Soonawala and R.K. Krishna Kumar as well as outsiders like R. Gopalakrishnan, Alan Rosling and Arun Gandhi. The next steps were threefold: (i) focus on the key companies and get them to earn better returns; (ii) define a Tata group with common values and brand, and get a royalty fee from each Tata enterprise; and (iii) drive greater growth and profits of TCS, then a part of Tata Sons, to generate cash for increasing shareholding across the group to a minimum of 26%.

Then came the listing of TCS and the global acquisitions, which began in 2000 with Tata Tea buying Tetley of the UK for £271 million. This was followed by several sub-$1 billion deals until 2007 when Tata Steel won a nail-biting auction for Corus at £13 billion. That year saw Tata Power and Tata Chemicals making key buys. Then came Jaguar-Land Rover (JLR) in 2008 for £2.3 billion. Some acquisitions have become successes such as JLR; others have quietly done well; still others like Corus are experiencing difficulties. However, the fact is that in 2011-12, almost 59% of the group’s consolidated revenues of $100 billion came from international businesses.

In between was the turnaround of Tata Motors from a truck maker to a producer of popular passenger cars. The jury is out on the Nano; but there is no doubting the success of the Indica and the Indigo.

There are some things that Ratan could but didn’t do. For one, he didn’t divest enough. He could have better defined the areas where the Tatas should be, and weaned the group off the rest. For another, he could have been more clinical about return on capital across the businesses. His successor, Cyrus Mistry,will probably focus on these issues — not only because he is younger but also since he owns 18% of Tata Sons.

I have three dominant images of Ratan. Driving his own car in the evening. Not having a dozen flunkeys hovering around him at airports. And standing day and night outside Taj Mumbai during 26/11, until the police took full control and the last of his guests had been evacuated.

Ratan Tata created today’s Tata group. That’s the plain truth. Hats off to that.

-- The author is a noted economist and chairman of CERG Advisory Private Limited