The amazing story of Tata Motors’ success


November 20, 2005

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The amazing story of Tata Motors’ success

Kausik Datta and Prabodh Chandrasekhar | November 19, 2005

His table in the corner office on the first floor of Bombay House is full of papers, giving it an almost disheveled look. But the man who occupies that table – Ravi Kant, managing director of Tata Motors – isn’t complaining.

“Most of these are letters from people all over the world wanting to be our partners. Some want to sell our products in their countries, some want to be our manufacturing partners, while others are complaining about why we aren’t giving them an opportunity to take the fascinating Tata Motors story abroad,” he says.

The flood of letters is only an acknowledgment of one of the biggest turnaround stories scripted by a team led by Tata Group chairman Ratan Tata.

His most trusted lieutenant in that story was Kant, whom Tata handpicked from Philips in 1999 as executive director, commercial vehicles business.

Consider the challenges Kant faced: two years after he joined, Tata Motors almost sank and reported a net loss of Rs 500 crore (Rs 5 billion) – the worst in its history.

All that is distant memory now for the 60-year-old MD.

And it’s all in the figures: the company reported a net profit of Rs 1,237 crore (Rs 12.37 billion) in the year ended March 2005. In the second quarter of this year, the net profit was Rs 338 crore (Rs 3.38 billion).

India’s largest commercial vehicle manufacturer with a 59 per cent market share is also the country’s second-largest car manufacturer.

And Kant has already moved on to the next level – the more difficult one – of strengthening the company’s position as a leading Indian multinational.

The central theme of the second part of the story (the target is to double vehicle production from 4,00,000 now to 8,00,000 in four years) that he has scripted is “management of the development of new products” and not trying to develop everything in-house.

That’s a huge change in mindset for a vertically integrated company that believed it could do everything better than others. “We are moving from a hierarchical model to a collaborative approach,” Kant says.

And the results are already showing: 80 per cent of Ace, the only diesel mini truck in the world, is outsourced. The 0.75 tonne mini truck is now available in only five states in the country and already sells 35,000.

The plan is to increase the sales to 60,000. “That’s the model we are now going to follow for all our new products,” Kant says.

And vendors are key partners in the process. If Kant is always on the move (a reason why the letters keep piling up on his table), the reason is simple: he is constantly meeting vendors in India as well as abroad.

“We are urging our vendors to take a more holistic approach. Earlier, an axle supplier used to think only about the quality of the axle at the best possible price. We are now encouraging them to think about the entire vehicle and how the axle fits into the overall plan that we have for the vehicle. The suggestions we get are simply amazing,” Kant says.

In a way, Kant is following the business process outsourcing model and has decided not to manufacture low-end items anymore. The company will look after only two key functions directly: understanding and developing the market segments and commitment to customers.

Everything else will be part of the “collaborative work” — be it new product development, supply chain management or design and styling of its products.

“It’s a complex process as we have to build a web of network outside but the strategy is simple: we will give away the low end of manufacturing and take the high end of specialised knowledge from outside,” the MD says. The outsourcing model has also been expanded to designing and styling of new vehicles.

If such initiatives helped clean up the supply chain and saved costs {Rs 1,000 crore (Rs 10 billion) in three years}, the new model – that of “management” of new products – meant several other things, one them being taking care of the “people factor.”

Kant has forced the hierarchy conscious company to push forward its bright young managers to positions of responsibility. Take Ace, for example.

A young team of designers and engineers was given the brief to produce a rugged, reliable, modestly priced mini truck with easy manoeuvrability and great mobility. The team got it ready for production in just 42 months.

Kant’s main contribution to Tata Motors has been the push for international forays – one of the main reasons for his elevation to the post of MD ahead of ex-colleagues like V Sumantran.

Says Kant: “In a cyclical business such as ours, it is important that we hedge against cyclicality. International business offers an opportunity as different countries go through peaks and troughs in demand at different points in time. Our capacity utilisation is more effective and risks of downturns can be mitigated.”

The first step was to align the international business to the two business units – the passenger car business unit and the commercial vehicle business unit, to bring greater focus and increased synergy between the domestic and international operations.

From being present as an exporter in 70 countries, the company today focuses on 15-20 key countries where it will have a significant presence in terms of volumes and market shares.

The crowning glory was of course the acquisition of Daewoo in Korea – a deal personally supervised by Kant. The synergies were significant – a presence in the 250-400 HP range of trucks was what the Korean company brought to the table.

This complemented the existing product range of Tata Motors, which delivers vehicles up to 210 HP. In the commercial vehicle business, says Kant, “our competitive edge will be in our ability to offer cost-effective products and services to each market”.

It seems the Tata Motor MD’s mailbox will always be full.