FEATURES/Boardroom | Apr 15, 2013 | 95971 views

Putting the Shine Back Into Tata Steel

The 106-year-old giant faces the toughest challenges of its existence. Can Cyrus Mistry hammer it back into shape?
Putting the Shine Back Into Tata Steel
Image: Dinesh Krishnan
View from the roof of three stoves that heat the blast furnace in Kalinganagar

“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.

This article appeared in the Forbes India magazine issue of 19 April, 2013
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Comments (11)
M. Kumar Oct 24, 2013
mention this magazine in any plant management intro , plant position , manufacturing
Milind Wani Jul 22, 2013
Capitalist shenanigans...eats up its own babies...notice how little has been written about the brutal killings at Kalingangar a decade of poor tribals is fluff-stuff for these Jamshedarites..fear and betrayal of those who trust them most is coded into their DNA
Aashish Jul 6, 2013
It is alleged that this article caused some officials at Tata Steel to intimidate Tata Steel's Head of Corporate Communications to the point that he recently committed suicide. I fail to understand what was such in this article that caused those fellows to fall so down?
Dipti Jul 5, 2013
Brilliantly written piece. Very well researched and analysed. Good job!
Avinandan Jul 4, 2013
Brilliantly researched and very well written - gives a thorough picture of the current condition of Tata steel
Jehangir Minina Jul 4, 2013
Excellent eye opening article -soft take over was indeed a mistake.However,there seem to be no choice as Tata Steel did not have Indian managers with international experience to take over key positions in Corus.
Corus acquisition was not a mistake -it was a right fit with Corus having wealth of R
Ash Jul 4, 2013
Insider story.
It will be very interesting to see how a CFO (Kaushik Chatterjee) transforms into a CEO. In manufacturing ( particularly Steel), CEO challenges are very unique.
May be Cyrus Mistry can follow the process used by Rata Tata, which resulted in Cyrus getting the top job!
Sd Jun 10, 2013
Excellent article .. thoroughly researched .. looks like an insider wrote it.
Onkar May 27, 2013
With Europe still slow, China slowing with a real estate bubble bursting and India dragging along at a slow pace, the macro picture over the next 3-4 years is gloomy. Add to that the supply glut with Chinese mills , JSW and Essar in India and Tata Steel will continue to remain flat.
The question is can a new financial CEO improve return on capital by integrating the operations in Europe and controlling costs in India remains to be seen. The trigger for the Tata Steel stock will therefore come from internal improvements rather than external factors.
Ratan Tata's biggest mistake was making a very big acquisition. As a thumb rule if an acquired company is more than 1/3 the acquirer, it's asking for trouble. So Tata succeeded with Nat Steel and flopped with Corus
Ravi Puttur Apr 23, 2013
Superb aritcle!
Ashish Jaiswal Apr 15, 2013
Tata should try taking leafs from other European Steel magnets (Arcelor-Mittal) of ending the diverse cross-cultural leadership issues.
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