18  Deep Dive Cyrus Mistry

THE ECONOMIC TIMES | NEW DELHI | TUESDAY | 11 OCTOBER 2016

Under Mistrys Watch, Tatas

March to a New Drumbeat
Cyrus Mistry, nearly four years into his tenure as Tata boss, is slowly steering the group in a new direction and growing
out of the shadow of his predecessor, write Kala Vijayraghavan, Devina Sengupta and Baiju Kalesh
t a leadership conference ranging from automobiles to retail to
session addressed by Facebook executives
in Mumbai in June 2016, power plants to software, but just two have The Evolving
and conducted by Harvard University. He Mistry is pushing for a
Bhaskar Bhatt, managing been consistent performers IT services
was also present when Suresh Narayanan, performance-oriented
director of Titan Industries, exporter Tata Consultancy Services (TCS) Leader
MD of Nestle, talked to Tata managers on

Mistry is slowly coming

into his own and steadily
changing the way the
group conducts its
business, according to
several Tata insiders
as he took charge.
In March, the Tatas said it will shut down
its British steel plants and explore ways
to revamp the remaining European steel
business. The decision created a flutter
among employees and the British government, despite losses of $1 million a day.
Under Mistrys watch, Tata Chemicals
also sold its urea business and Indian
Hotels recast its international operations
by shifting to managing the hotels rather
than owning them.
In August 2016, when shareholders of
Tata Motors complained that the dividend of 20 paisa a share was piddly, Mistry
justified the move. We have raised capital from all of you last year. We are now
employing that capital in new products. I
think the journey is going to be long and
not for the faint hearted. He conveyed the
same message at several recent AGMs of
companies such as Tata Tea, Indian Hotels
Company and Tata Motors.
After the untimely death of Tata Motors
managing director Karl Slym in 2014,
Mistry took over the companys reins
for two years until he picked Guenter
Butschek as Slyms successor. Rajeev
Gupta, managing director at investment
bank Arpwood Capital, says Mistry
showed the conviction to launch a series
of models. It needs guts to not shut the
business, says Gupta who has worked
closely with the Tatas in several transaction in the past.
Harsh Goenka, chairman of RPG Group,
says Mistry has taken his time to understand the complexity of the organisation.
Tata group now needs leaders who will
execute well.
Mistry no doubt has his task cut out. The
Tatas are present in about 100 businesses

and Jaguar Land Rover, the marque car

company it bought from Ford Motor in 2008.
Several other companies are struggling.
The domestic automobile business, despite
accounting for roughly half of Indias
trucks business, has long been under
strain. Tata Steel, once the brightest star
in the Tata constellation thanks to the
$12.5 billion acquisition of Anglo-Dutch
competitor Corus in 2007, is bearing the
brunt of a sharp plunge in prices since 2012
abetted by Chinese glut. The loss-making
telecom business is locked in a bitter and
potentially costly battle with erstwhile
partner NTT DoCoMo of Japan, which
secured a $1.2 billion arbitration award
in June 2016. Dozens of consumptionlinked businesses such as Titan, Tata
Global Beverages, Indian Hotels, Trent,
and Rallis India are slightly better off, but
their collective operating profit has grown
only 4% CAGR in the past five years. In
FY16, nine of the 27 listed companies in the
group reported losses and the earnings of
seven others dropped. The only bright spot
was that Tata Power and Tata Chemicals
reported strong earnings growth in FY16
after turning profitable the previous year.
The turnover of Indias largest conglomerate dropped to $103 billion in 2015-2016
from $108 billion the previous year. Net
debt rose to $24.5 billion in March 2016
from $23.4 billion a year ago.

the lessons from the Maggi fiasco and attended sessions by Brics Bank boss KV
Kamath and Howard Shultz, chairman
of Starbucks, a Tata partner, on consumers and pace of growth.
A Tata spokesperson says decisions taken by the boards under the leadership of
Mistry have not been overnight, dramatic
decisions. These have typically been deliberated upon, reviewed and worked out
through several quarters of debate
and discussion. He has been very
candid in pointing out what is
wrong with something and
equally quick to give a pat on
the back for something well
executed. He has shone a
light on critical requirements like going digital
and being agile, and has
clearly placed his finger on the right issues,
stressing sustainable,
profitable growth.
Tata insiders say
Mistry is a workaholic who is in office
even on weekends.
Many of them receive his emails late
into the night. On a
Parsi holiday a
month back,
ET caught
Mistry
wa l king

Cyrus Mistry, though reticent, is becoming

visible and communicates more to
shareholders and investors
Has shown capacity to take tough
decisions like pruning of portfolio,
stresses on performance and growth
Has spoken about practising tough love
with employees, has asked group leaders
to be the change they want to see
Pushing group executives to
break silos and bureaucracy,
encouraging collaboration
Pushing for board
effectiveness, asks
CEOs to share
business excellence
details with
entire board
Pushing for by
empowering
managers on
the ground
Personally
assessing
progress of
new business
initiatives

Sprawling Structure
Much of Tatas problems is owing to its
elephantine structure. Cross-ownership
of companies Tata Sons owns stakes in
businesses like Tata Motors or Tata Steel
and these businesses own stakes in each
other has made it difficult for the group
to make the most of its identity as a diversified conglomerate.
The operational ethos
is actually engrained in
silos. There is an inherent bureaucracy in the system that has gone unchallenged
for years, says an insider.
Thats not all. Tata watchers say the
group is so infatuated with a long-term
vision that it has shied away from recalibrating strategy in key businesses.
It has even shown a strange reluctance
to focus on the growing Indian market;
the international market still accounts
for two-third of overall revenues at $70
billion. The performance of the group,
nearly four years into Mistrys reign as
Tata boss, has largely been listless. The
head of a top investment fund says Mistry
has a very tough job. There is an issue of
legacy and debt.
By 2025, Mistry wants the group to be in
the top 25 globally by market capitalisation and he wants the conglomerate to
reach out to 25% of the global population,
but he is yet to lay out a detailed strategy.
He is shy, not thrilled with the spotlight.
He has yet to give an interview to the press.
Even the in-house interview offers few
clues on strategy. To confront the challenging situations would ultimately entail
hard decisions on pruning the portfolio,
according to him. But Mistry continues to
follow the expansionist strategy of his predecessor, Ratan Tata. Tata Power, which
has long banked on coal fired plants, paid
roughly `4,000 crore to buy the wind and
solar business of Welspun Renewables in
June. The group is bullish on real estate,
financial services and defence, the last
business pursued by no less than three
companies. It has invested $9 billion in
each of the past three years.

ARINDAM

a Tata Group company, reminisced about the late JRD

Tata. Bhatt said the affectionate love of Tata, who was chairman of
Tata Sons, the parent company of the Tata
Group, for 50 years, was an effective tool
to attract and retain talent. Cyrus Mistry,
the current boss of the Tata Group, who
had come by, quipped, It is time for some
tough love.
The words of Mistry, who completes four
years at the helm in December, were not
lost on Tata insiders present at the event
that day. In an interview to an in-house
website in September 2016, he had emphasised on the need to confront the challenging situations faced by the group. The
Tata group could do well with some tough
love, no doubt.
Tata insiders say Mistry is slowly coming into his own and steadily changing
the way the group conducts its business.
Mistry recently said group companies
need to earn the right to grow, hinting
that performance would determine their
place in the portfolio.
Sanjeev Prasad, head of research at
Kotak Institutional Equities, says Mistry
is taking tough decisions, something
which people expected him to do as soon

Mostly Poor Returns

MarketCap (` Crore)

Company

Current 28-12-2012*

Return on Equity (%)

% Chg.

FY-16

FY-15

0.00

0.00

Indian Hotels

12667.99

5087.25 149.01

Tata Chemicals

13871.68

8907.68

Tata Power Co.

Tata Motors
Tata Steel

21880.21

55.73

25878.66 -15.45

162289.51

98770.61

64.31

40538.72

41601.78

-2.56

16.55

FY-14 FY-13

Return on Capital Employed (%)

FY-12

FY-16

FY-15

FY-14

FY-13

0.00

0.73

0.00

0.00

0.00

0.00

4.35

14.53 -10.94 10.08

16.44

11.23

10.34

3.09

9.34

12.92

0.00
-0.25

FY-12

8.17

3.12

0.69

-4.94

9.63

9.10

7.91

7.27

8.04

18.46

23.08

27.24 27.85

52.02

12.56

18.00

19.33

17.93

22.35

0.00 -11.15

9.59 -21.71

6.89

0.00

0.57

9.01

-1.28

8.39

Compiled by ETIG Database; *Date when Mistry took over as Tata boss

Professor Lord Bhattacharyya, member

of the House of Lords, who was on the selection committee that handpicked Mistry
as chairman, defended the slow changes
in the group. Tata Sons is more than just
a business it is an icon, a global symbol for doing business with integrity and
long-term vision. As such, it should not be
judged by the market hawker standard of
quick profits and opportunism, he said
by email.

For his part, Mistry has spent the first

three years understanding the sprawling
Tata empire. Half a dozen Tata insiders
say he has been building knowledge about
specific domains to ask the right questions
and understanding geopolitics, technology and societal issues.
A senior Tata official says Mistry often
attends classrooms that have professors
and academicians sharing knowledge.
He recently attended a digital marketing

out of Bombay House, the Tata headquarters, talking animatedly with Butschek.

New Path
Mistry is also making critical changes in
the way the business is run, according to
insiders. To break the silo apparatus, he is
pushing managers to be more networked
and look outward for learnings. He is also
urging them to keep pace with disruptive
technology.

culture. He has created

parallel teams with the
freedom to challenge
hierarchical structures
Mistry is also pressing companies to focus on improving the efficiency of boards.
The chairman has been very clear from
day one that businesses have to focus on
the right strategy, backed by innovation
and a pioneering attitude, and executed
through talented resources within our
organisation or recruited from outside,
says the Tata spokesperson.
Earlier, the Tata Business Excellence
group headed by executive chairman S
Padmanabhan offered insights that would
be presented only to the CEO. Mistry now
ensures the entire board too is involved.
Mistry is clearly pushing for a performance-oriented culture. He has created
parallel teams and structures with the
freedom to challenge and break hierarchical structures, according to Tata insiders.
Tata teams now scout for younger talent
with an eye on the future and emphasis
on innovation. Tata Quality Management
Service has been rechristened Tata
Business Excellence Group (TBEG) to better reflect its objectives not just quality
management in the traditional style, but
pursue business excellence attuned to
strategic clarity. Each TBEG assessment
on the performance of companies is now
conducted by a cross-functional team,
drawn from trained assessors from various offshoots.
If we have to be agile in todays environment ,
we need to think of other
organisational structures,
network structures which
work alongside the traditional
hierarchical structures, which can
collaborate and break through hierarchical processes where needed, he
said in the in-house interview.
Any new plan made by Tata bosses
must now be backed by a clear strategy. Prior to the launch of Tata Cliq,
the groups e-commerce platform, KRS
Jamwal who is in charge of new projects, had submitted a plan. Mistrys
feedback was: No me-too business.
The company has an online-to-offline
model, which is its USP compared with
marketplaces like Amazon, Flipkart,
Snapdeal and Paytm.
Mistry has also been wary of external
experts trying to influence Tatas M&A
plans. He prefers the group developing its
own prognosis.
What Mistry has not done in earnest yet,
according to investments fund managers,
is reinvigorate the leadership in various
businesses. A top investment fund CEO
criticised the delay in appointing a CEO
for Tata Motors after Slyms death. Why
could not the group have deployed a
smart leader like Chandra (TCS boss N
Chandrasekaran)? The group has to create a strong leadership pipeline.
Nonetheless, Mistry has shown that he is
ready to step out of the shadow of his predecessor. Not only is he pushing his companies to focus more on the Indian market,
he has shown a willingness to recast some
of the businesses crying for an overhaul.
Goenka agrees. Mistry will transform
the group to a modern agile future-ready
organisation in five years.
Kala.Vijayraghavan@timesgroup.com

Uncharted Waters: Mega-Cruise Ships Sail the Arctic

Arctic tourism brings to the fore risks to the environment and impact on small communities, in an area where there is no port between Anchorage and Nuuk, Greenland
Gwladys Fouche

Svalbard, Norway: A surge in Arctic

tourism is bringing ever bigger cruise
ships to the formerly isolated, icebound region, prompting calls for a
clamp-down to prevent Titanic-style
accidents and the pollution of fragile
eco-systems.
Arctic nations should consider limiting the size of vessels and ban the use
of heavy fuel oil in the region, industry
players said, after a first luxury cruise
ship sailed safely through Canada's
Northwest Passage this summer.
The route, which connects the Atlantic
and Pacific Oceans via the Arctic, was
once clogged with icebergs but is now
ice-free in summer due to global warming.
With a minimum ticket price of
$19,755, the 1,700 passengers and crew
on board the Crystal Serenity followed
in reverse the route first navigated
more than a century ago by Norwegian
explorer Roald Amundsen. They left
Anchorage in Alaska on August 15 and
docked in New York on September 16.
The ship's operator, Crystal Cruises,
says on its website it will repeat the
voyage in 2017. It declined a request for
comment when contacted by Reuters.
Two shipping executives expressed
concern that the one-off trip could
become a trend, citing worries over
safety, risks to the environment and the
impact on small communities, in an
area where there is no port between
Anchorage and Nuuk, in Greenland.
The Northwest Passage is thousands

Left: A tourist cruise ship is docked at the port of a research town Ny-Aalesund in the Arctic archipelago of Svalbard, Norway. Right: Visitors take pictures of a glacier in the
Kongsfjorden fjord from onboard the Polarsyssel, the ship of the Governor of Svalbard. Reuters

and thousands of nautical miles with

absolutely nothing ... There is a need to
discuss possible regulation, said Tero
Vauraste, the CEO of Arctia, a Finnish
shipping firm specializing in icebreakers.
Were a ship to be in trouble in the
Northwest Passage, there would be
little authorities could do given the lack
of infrastructure, he said.
So we must do everything we can do
to prevent this, said Vauraste, who is
also vice-chair of the Arctic Economic
Council, a regional forum for business
cooperation between Arctic nations.
Navigation in icy waters is made more

difficult by poor satellite imagery. An

ice field might move at a speed of 4-5
knots, but a ship will receive a satellite
picture of it that is 10-20 hours old, said
Vauraste. We need better quality
imagery.

Heavy Oil
Another concern is environmental.
Potentially, an accident involving a
mega-ship could represent an environmental disaster, said Daniel Skjeldam,
CEO of Hurtigruten, a cruise ship
operator in the Arctic and the Antarctic, whose biggest ships can accommodate 646 passengers.

Cruise ships usually use heavy oil, a

type of fuel that takes longer to break
down in the event of a spill. The Crystal
Serenity did not use heavy oil during its
trip, its operator has said.
Heavy oil in cold conditions is sticky
and takes much longer time to break
down so it has a prolonged effect on the
environment, said Marco Lambertini,
director-general of World Wildlife Fund
International.
If something happens at the beginning of winter, no cleanup can be
done. Oil can get trapped under the ice
and travel for a hundred kilometres, he
told Reuters.

A UN polar code will come into effect

in 2017 which toughens demands on
ship safety and pollution. It bans heavy
fuel oil in the Antarctic, for instance,
but merely encourages ships not to use
it in the Arctic.
What I call for is stronger regulations
coordinated between the Arctic nations, Hurtigruten's Skjeldam told
Reuters. He suggested the size of ships
should be limited, without specifying
by which criteria, that the use of heavy
oil be banned and shipping companies
should aim to reduce their emissions by,
for instance, using hybrid engines.
Vauraste said an update of the Polar

Code, addressing some of these issues,

could be on the agenda for the Arctic
Economic Council.
The impact of the mega-ships on small
arctic communities is also becoming a
concern.
Svalbard an
SAFETY FIRST
archipelago
midway between Europes
northernmost
point and the
North Pole is
experiencing a
tourism boom,
with the number of overnight stays by
visitors rising
14 percent in
July year-onyear to 18,000.
I stay home
when the cruise ship tourists
come. Too
many people at
the same time.
It is really
stressful, said
Fredric Froeberg, 37, a Swedish guide
who runs excursions on snow scooters
and boats from Longyearbyen, Svalbards main settlement, with around
2,160 inhabitants. This place should
not become too big. Otherwise it will
become overexploited, like so many
other places around the world. What is
fantastic here is the nature.

A UN polar
code will come
into effect in
2017 which
toughens
demands on
ship safety and
pollution. It
bans heavy fuel
oil in the
Antarctic

Reuters