Putting the Shine Back Into Tata Steel
Image: Dinesh Krishnan
“It was a bad start,” says Leahy. And he blames Kirby Adams. (Adams, once MD of BlueScope Steel, was chosen by B Muthuraman, then MD of Tata Steel, to replace Philippe Varin, who was exiting Corus after seeing off the acquisition.) “We had a fraught relationship with Adams,” says Leahy. “He didn’t understand how to deal with unions. It was an unmitigated disaster.” Not surprisingly, Adams left in 2010. Even as all of this was happening, a slowdown started to loom and job cuts were rising.
At Corus, more than a year had passed before Uday Chaturvedi and T Mukherjee (who had just retired as joint managing director of Tata Steel) were sent to the UK, Chaturvedi to turn around CSP, and Mukherjee as an advisor. Mukherjee came back within a year. He was completely disheartened that none of his recommendations were taken seriously by the senior executives at Corus.
Chaturvedi initiated a dialogue with politicians and local communities, and put together long-term partnerships with customers, such as automaker Nissan. Under his leadership, CSP had started generating operational profits of $400 million by 2011. Carwyn Jones, a First Minister in the Welsh government, called Chaturvedi’s leadership at CSP “inspirational”. Similar initiatives needed to be replicated in the rest of the units.
But Chaturvedi’s stint was short-lived. Karl-Ulrich Köhler, a steel veteran from the German ThyssenKrupp, was chosen by the management in India to replace Kirby Adams. And Chaturvedi was moved from CSP and made Chief Technical Officer for Tata Steel Europe, under Köhler’s leadership. “I felt constrained and had no elbow room to take decisions,” he says. He eventually sought retirement in January 2012.
Köhler, the third managing director in two years, shifted gears in the restructuring process that Adams had initiated in Europe. He centralised functions across verticals and regions. His aim was to integrate key functions like operations, sales, marketing and the supply chain.
While the intentions were noble, the organisation was completely unprepared. Instead of improving communication channels with the leadership team across units, insiders said Köhler surrounded himself with ‘yes men’. An executive from Tata Steel Europe, who declined to be named, said Köhler surrounded himself with former colleagues from ThyssenKrupp: “There is no British executive in the top management.”
Throwing more light on the problem, Chaturvedi says, “Culturally, Tata Steel Europe is very diverse. You need to have someone at the top who understands the cultural differences, as the company’s operations are spread across Europe.”
To get around the problems, $80 million was spent to call in consulting firms, of which $30 million went to the Boston Consulting Group alone. But, says a former executive, “The consultants left when it was time to deliver.”
Corus, as a result, has a long way to go before it begins earning its keep; the nearly $5 billion loan taken to finance the acquisition has now ballooned to close to $8 billion. Worse, it needs an operational profitability of about $1 billion to cover its interest and capital expenditure alone. Instead, production is down 30 percent and it has slipped into the red in the third quarter of this financial year.
When he joined, Köhler is said to have promised Ratan Tata that he would turn around European operations in three years. That time is up. In the UK, the word is that a search for Köhler’s replacement is on. And not a moment too soon: There are raging fires across the European business to quench, even as things in India are not quite on course.
The Battle of Kalinga
Tata Steel’s ambitious $7 billion greenfield plant in Kalinganagar is currently the largest industrial project in India. When done, it will have India’s largest blast furnace.
The new plant, which will produce flat steel to be used mostly by the automobile sector, is important for the company. “It is imperative we grow with our customers,” says TV Narendran, vice president of the flat products business. “Right now we are not able to meet their demand.”
Increased volumes at the new plant will add muscle to Tata Steel’s product mix. It will allow the company to produce steel that is wider, thicker, with higher tensile strength. This opens a potential window to get into new sectors like oil and gas, even as it improves what it can offer auto clients. “For example, right now we don’t make roofs for Toyota’s Innova. Once Odisha comes on stream, we will be able to,” says HM Nerurkar, MD, Tata Steel.
It ought to have gone live in February. But it is horribly behind schedule and has overshot budgets by almost $2 billion.
This situation, coupled with India’s ongoing troubles with Europe, has had a telling effect on the Tata Steel share price at the Bombay Stock Exchange: The scrip has plunged more than 60 percent below its 2007 high (the benchmark Sensex has risen by 15 percent over the same period).
And late entrants into the steel business, like JSW Steel and Essar Steel, are nipping at Tata’s heels.