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How Tata Steel Made It To The Top Of The World

MANAGING CHANGE

R Jagannathan / Mumbai July 02,2004

If you were to believe Peter F Marcus, managing partner of World Steel Dynamics (WSD), the steel
industry Bible, Tata Steel is Indias only world class steelmaker and one of the few steel companies in
the world with such a standing. In fact, the 2001 report of WSD ranks the company No 1 in a field of 12
of the worlds best steel companies that includes the likes of Posco of South Korea, Usinor of France,
Nucor of the US and Nippon Steel of Japan. Today, Tata Steel is the lowest cost steel producer in the
world, but the man who can justifiably claim to be responsible for this achievement would more modestly
like to claim that he is among the lowest five. Says Dr Jamshed J Irani, who passed the managing
directors baton in July 2001: We may be the lowest, may not be the lowest, because costs across
different countries and currencies are difficult to calculate. But we are within the lowest five, and probably
the lowest.

How did Irani and his team at Tata Steel achieve this status? Irani, 66, will be the last one to claim that he
did it overnight. In fact, the change has been so steady and incremental, starting from the late eighties,
that it had a certain inevitability about it. There were no flashy moves, no spectacular decisions.

Every battle in the war to make Tata Steel a global leader in steel was the result of strategy, followed by
effective communication and implementation. For example, the company uses the Balanced Scorecard -
a performance management and strategy deployment methodology - to break down strategy into its
component elements and track performance from top to bottom, the managing director included.

But more than the use of tools and techniques, Tata Steels journey to international competitiveness had
much to do with the personal commitment and change-oriented leadership of Irani that focused on the
3Cs - Change (mutate and improve furiously), Costs (cut wasteful expenditure ruthlessly) and
Customers (strive relentlessly to build relationships and influence consumption).

Irani says the company knew as early as the late eighties that it would be facing global competition at
some point of time and, therefore, decided to start making the changes before they were forced upon the
company. Iranis enchantment with quality began when he accompanied a high-level delegation of Indian
corporate leaders to Japan in 1988. He had merely gone to see what the Japanese had accomplished
through TQM, but one glimpse was enough to convince him that Tata Steel had miles to go and there
was no time to waste. As soon as he was back, he immediately constituted a group of executives in his
office to drive quality in a systematic way.

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Beginning with some 11 improvement projects involving 38 persons and saving a tiny amount of Rs 1.3
crore, Tata Steel has come a long way since then. Value engineering was the first technique to be
adopted on the way to quality and cost savings. Then came the adoption of ISO 9000, benchmarking,
quality improvement projects, ISO 14000, QS 9000, and Six Sigma the whole works. The high point of
Tata Steels quest was the adoption of the JRD Quality Value Total Quality Award process in 1995 as an
integrated way of carrying the work of constant improvement forward. The JRD Award, equivalent to the
US Malcolm Baldridge award, won fittingly by Tata Steel in 2000, was followed by Irani winning the
IMC Juran Quality Medal in 2001.

In a conversation with R Jagannathan of Indian Management, Irani tells the story of Tata Steels ascent
to the top of the world steel industry by becoming one of its lowest-cost steel producers. The
accompanying charts tell the story of Tata Steels achievements by embracing change under Irani and
other change leaders. Over to Jamshed Irani...

How did Tata Steel become one of the lowest-cost steel producers in the world? Every major event needs
a call, a waking up signal. At Tata Steel, we got that signal much before Manmohan Singh brought out his
(reforms) Budget in 1991. Some time in the mid-eighties, it became apparent that we would one day have
to fight international competition.

At that moment of time we were totally uncompetitive. We were an old plant, had a huge labour force and
had many costs which were internationally unacceptable. We were surviving in that era - and quite
profitably - because of protection and the fact that there was no competition within the country - except
from SAIL. We were living in an age of shortage. We were distributing steel, not marketing it. In fact, we
were rationing steel. We were in a cost-plus situation; so life was comfortable.

RAW MATERIAL COST

The largest cost in making steel is the cost of raw materials. And these started right from our iron ore. We
have very good deposits and we wanted to make full use of them in Noamundi and Joda. Joda was an
unutilised deposit. We realised that it had certain characteristics which were better for blast furnace
usage. So one of the things we did in the late eighties was develop Joda as the main supplier of iron ore.

This was a major change. But, in my opinion, the biggest change for making us a low-cost producer was
the introduction of a new coke-making technology. We no longer import any fuel. We dont need it
because we have made our plant energy-efficient and the only liquid fuel which comes into our plant is
the fuel that we use in our cars and trucks. Otherwise everything else is managed by fuels we generate
ourselves. The LD gas we clean and use, the blast furnace gas we clean and use, the coke oven gas we
clean and use. It is an integrated system and no liquid fuel is required to keep Jamshedpur. This is a

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major reason for our low cost.

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ON OVERSTAFFING

As far as manpower is concerned, I can tell you very easily our defining moment. In the early nineties, Mr
Tata and I went out to collect money for our convertible issue internationally - $100 million. And when we
made all these presentations, the financial people said your reputation has preceded you. Tata Steel is a
good company. But please tell us what business you have keeping 78,000 people on your rolls. And that
was when Mr Tata and I said we must do something about our manpower. Till that time manpower was
cheap and we kept on adding.

COMMUNICATING WITH UNIONS

The first thing we did was to convince the unions. I have always believed in giving full facts to all unions.
We never hold anything back. After Mr Tata and I came back (from the roadshows for the convertible
issue), we took a decision that we must reduce our force. For a year or two (after that) we just kept on
giving examples (to the unions) of the type of productivity we had, which was very low for India. The same
message was repeated again and again and finally we even sent some of our unions leaders to steel
plants in South-East Asia and Japan. Everywhere, they could see for themselves how productivity was. I
(often) had discussions with people at what we call JDCs (joint departmental councils) - around 50 times
a year. And I gave exactly the same message every time so that people clearly understood. And now, I
must say, the unions themselves do that (give the same message). We have a system where we hear
questions and answers from our people. The union committee fellow speaks first and then I speak. These
people would demand something and I would say yes or no. Nowadays, these people are telling their own
guys what is to be done and by the time the management person has a chance to speak he has nothing
more to say. The unions are now exhorting the people that we must have better productivity, better
safety, etc. They are speaking the language of management, so to speak. I share every information with
the unions, including cost. There is nothing that we hold back. And I think thats a matter of credibility.
They know that what the management is saying is what is happening and they will ultimately do what they
are saying. No question of pulling a fast one. We absolutely treat them on par.

DEMONSTRATING TOUGHNESS

In certain departments, like the tubes division, even in the mid-nineties they were having restrictive trade
practices. The attitude was I will do so much in my shift and no more. I went and told them quite plainly
that if this continued for a year or two we would shut them down. There were three separate units and
after three years, I went and shut down one unit (the seamless tubes unit). That had never happened in

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the company (before). And 300-400 workers were affected. They were given voluntary retirement and so
on. But they realised that we meant business.

Something similar happened in our collieries. Our coal mines had for long been our weak links. I said that
unless the cost of coal comes down we will import and we will close you down. There was no impact.
There were six-seven collieries and we closed down two of them. They were the worst operating. Its
amazing how when theres fire behind your back you tend to run very fast. You get speed in your legs
which you didnt know existed.

Now, in fact, the collieries are turning out coal at much lower cost than five or six years back. And though
we do import some coal, we are mining more coal and sell it to SAIL plants. They are very happy to get it
and we make a profit on it. The colliery, far from being a cost centre, has become a profit centre.

SPREADING PERFORMANCE CULTURE

I have always found that the unions adapt, if you treat them well, to ideas faster than lower levels of
management. Because the lower levels of management have problems with areas of turf, authority, etc.
Everyone wants to have 10 people under him when they could deal with five and so on. The union
people, on the other hand, realise the advantage of five instead of 10 because the five earn more than the
10 through incentives and so on.

ON QUALITY There was a clear signal, a wake-up call. In 1988 I went with the CII to Japan. We went
through a course and saw how they were executing quality. And the difference was so huge. For
example, ISO 9000. We had not (even) heard about it at that time. But now in India there are thousands
and thousands of companies adopting ISO. It was actually the CII which took the lead and formed a
quality division.

We at Tata Steel subscribed to that. We started with certain systems, then integrated them into our
company. Then we went on to the next one and now we have a series of eight, maybe 10, good
practices. All of them were not taken up at the same time. Only one at a time. Value engineering was the
first.

After that ISO 9000. After that, the JRDQV process (which leads to the JRD Tata Quality Value Total
Quality Award, equivalent to the US Malcolm Baldridge award). After that, Six Sigma and so on. Each
system was integrated into the company. Its like a meal where you dont eat everything together. You eat
one thing, you digest it into the system, you get strengthened by it, and then you go on to the next course.
So that everything stays within you and you dont replace one thing with the other.

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One thing I learned from Japan is that the chief executive himself has to lead it (the quality movement). It
cannot be delegated. And the second thing is that to move it into the organisation - the bigger the
organisation the more difficult it is - you need a core team with you. So I appointed about six people from
all over the plant who reported to me directly. They still exist. The people keep changing but the concept
is there. Its next to the MDs office. They guide the whole process.

We trained them in Japan. They are now the trainers. So the first thing (in quality) is to train the trainers
and then let them loose, and give them full authority. If anyone short-circuits what they are trying to say,
you tell them that as far as you are concerned, he is the MD.

ON WHAT HAS BEEN ACHIEVED

Right in the beginning of the nineties, we had drawn up a plan. Tata Steel was then a very old plant. All
our steel melting shops, rolling mills were old and we had to spend money. We spent something like Rs
8,900 crore and we knew that by the turn of the century - that is now - we would have a modern plant.
We have done this very economically.

In steel everything doesnt grow obsolete within a matter of years and I personally feel that for (the
next) 10 years Tata Steel does not have to spend so much in Jamshedpur. Normal maintenance, yes,
but thousands of crores, no. Maybe in another 10-15 years we will have to go through another phase
(of investment), but the window of time is now available to us. We must properly milk the facilities we
have to make profits and invest that money in many ways. Unfortunately, steel is a cyclical industry and
we are now no longer immune from the international cycle.

When the steel cycle is down in India, it is down in South America, it is down in Russia, it is down in the
US. You cannot have a steel plant in the US which is doing well this year when you are doing badly
here. So, one view is that we should be in another industry which balances this cycle.

As far as Tata Steel is concerned, we have used downcycles to invest. We built our CRM and HRM
(cold and hot-rolling mills) during downcycles. We got them cheap. The CRM we got at a fraction of the
price. The new blast furnace came at a throwaway price. After our most recent blast furnace is
completed (we are doubling capacity), Jamshedpur will be beautifully positioned to go on for the next
five years without making any capital addition. As for the profits we generate now, well have to see
(where to invest).

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