Rightsizing Strategies Tata Steel

By: Mr. Vinayak Patil (39) Ms. Zareen Khan (59)

Indian Steel Industry An Overview

Fourth largest producer of steel in the world. About 50% of the steel produced is exported. Accounts for over 7% of the total steel produced globally. India accounts for around 5 per cent of the global steel consumption. Steel industry Will Generate additional employment of around 4 million by 2020. India is expected to become the 2nd largest producer by 201516.

World Steel Industry in 2012-13

7
Germany 42.7 mT Russia 70.4 mT

10

1
China 716.5 mT

Ukraine 33 mT

10
Japan

2
107.2 mT

Turkey
35.9 mT USA 88.7 mT

S. Korea 69.1 mT

3 4
Brazil 34.5 mT

Global crude steel Production: 1546.8 million tonnes (mT)

Source: worldsteel.org

Based On Ownership
Public

Private

Tata-CORUS ESSAR ISPAT JSW STEEL LIMITED MUKAND LIMITED

SAIL VISAKHAPATNAM STEEL PLANT FERRO SCRAP NIGAM LIMITED SPONGE IRON INDIA LIMITED BHARAT REFRACTORIES LIMITED

Tata Steel - Introduction

The Swadeshi Movement encouraged Jamsetji Tata to set up Asias first privately-owned integrated iron and steel plant. Established in 1907 Tata Steel, formerly known as TISCO (Tata Iron and Steel Company Limited), is the world's 12th largest steel producing company, with an annual crude steel capacity of 23.8 million tons. It is the 3rd largest private sector steel company in India in terms of domestic production. Ranked 401 on Fortune Global 500 in 2012. Tata Steel net sales stood at Rs 32,794 crore and net profit of over Rs 6,843 crore in 2012.

Tata Steel - Introduction

It has over 81,600 employees across five continents. Its main plant is located in Jamshedpur, Jharkhand, It has global presence in over 50 European and Asian markets, with manufacturing units in 26 countries. Tata Steel is among the lowest cost producers of steel in the world and one of the few select steel companies in the world that is EVA+ (Economic Value Added).

Time-Line

1907: Tata Steel is established. 1924: On the brink of disaster, Sir Dorabji Tata pledges his personal fortune to secure bank loans to keep the company afloat. 1939: By now, TISCO operates as the largest steel plant in the British Empire. 1951: A Modernization and Expansion Program (MEP) is launched. 1955: The MEP is upgraded to the Two Million Ton Project (TMP). 1963: The government approves in principle expansion by OneMillion tons during the 4th Plan.

Time-Line

1970: TISCO employs 40,000 people at Jamshedpur and 20,000 workers in neighboring coal mines. 1974: Amalgamation with West Bokaro Limited for coal mine operations. 1978: The Indian government forces TISCO into modernization efforts. 1985: JRD Tata becomes Chairman Emeritus after guiding Tata Steel as Chairman for 46 years. Russi Mody takes over as new Chairman. 1986: Started an export cell which co-coordinated the Companys growing exports.

Time-Line

1989: The Tata Group doubles its stake in TISCO to thwart takeover attempts. 1990: TISCO begins expanding and establishes subsidiary Tata Inc. in New York. 1991: In 1991, Mr. Ratan Tata took over as group chairman. 1996: The company begins a joint venture with Inland International to build a steelworks facility in India. 1998: TISCO records a 61 percent decline in net income due to a downturn in the steel industry. 2000: TISCO completes a ten-year, $1.5 billion modernization program & got recognition as the world's lowest-cost producer.

Time-Line

2005: The company was also recognized as the world's best steel producer by World Steel Dynamics. 2007: On January 31 2007 Tata Steel won their bid for Corus; the joining of the two created the fifth largest steel company in the world. 2008: Centenary Postage Stamp Released by PM on Tata Steel's Centenary year. 2010: Tata Steel won the Most Admired Knowledge Enterprise (MAKE) in 2010 for sustained excellence in field of Knowledge Management.

Employee Welfare Initiatives

Tata Steel introduced an 8-hour work day as early as in 1912 when only a 12-hour work day was the legal requirement in Britain. It introduced leave-with-pay in 1920, a practice that became legally binding upon employers in India only in 1945. Similarly, Tata Steel started a Provident Fund for its employees as early as in 1920, which became a law for all employers under the Provident Fund Act only in 1952. Tata Steel's furnaces have never been disrupted on account of a labour strike and this is an enviable record.

Analysis of Tata Steel

Strength

opportunities

weakness

Strengths

Tata Steels is self-sufficient in the case of its major raw material through its captive mines. Advanced Research and Development wing which is carrying out researches in the areas of raw materials, productivity, steel making, product development, process improvement etc. strong retail and distribution network in India and SE Asia. major supplier to the Indian auto industry and the demand is growing in this market. Adequate internal control systems and procedures Accelerated growth through aggressive mergers and acquisitions.

Weakness

India's hard coal deposits are of low quality and the prices of coking and non-coking coal are ever increasing. Raw materials for steel production are rapidly depleting and are nonrenewable; company has to come up with sustainable methods in steel production. Steel production in India is also hampered by power shortages. Insufficient freight capacity and transport infrastructure. Low Labour Productivity & High Cost of Basic Inputs and Services.

Opportunities

The biggest opportunity before Tata steel is that there is enormous scope for increasing consumption of steel in almost all sectors in India. Unexplored Rural Market. It is estimated that world steel consumption will double in next 25 years. Corus acquisition bring in a tremendous technological advantage by access to best practices in global steel industry. Booming infrastructure has opened up high demand for steel worldwide.

Threats

In the developed world, industries have been facing rising environmental costs due to the increased concerns on Global Warming. Steel industries are significant contributors to man-made greenhouse gases. High raw material input cost and scarcity of nonrenewable raw materials are a threat to the industry. Threat of Substitutes. Eg. Plastics

Rightsizing

Downsizing a company's workforce to the point where the number of employees remaining is deemed to be "right" for the company's current condition. A Rightsizing strategy reduces the scale (size) and scope of a business to improve its financial performance.

Tata Steel Rightsizing The shades of separation

External Environmental Factors

Sluggish demand Lack of investments in infrastructure projects Cost escalation in the input materials Reduction in import duty on iron and steel Increase in excise duty Competition from imports Dumping of finished steel in the domestic market by Russia and other commonwealth of independent states countries

Internal Environmental Factors

The company was saddled with a 78,000-strong workforce. They had about 3,000 people working as secretaries and office boys. The accounts department had 32 peons, chauffeurs, and security personnel. They had a separate departments that made paint, ice & dairy farm.
Plant was on the verge of obsolescence. The collective mindset that was resistant to change.

Challenges
Slashing workforce numbers was complex decision for Tata steel because The ethos of the company The relationship they had nurtured with there employees. Company was host of employee benefits that later come to be mandated through government regulations in India and abroad. It had second- and third-generation employees (sons were guaranteed a job when their fathers retired). History of zero retrenchment

Preparing employees for separation

The company spent 3 months to identify those eligible to take the offer. Company-wide communication campaign. Holding joint departmental meetings. individual sessions at different levels in the organisation. The employees' union was made an integral Dr J.J. Irani, Director of part of the consultative process, to prepare Tata Sons workers to be partners in the process. They spent nearly a year communicating the necessity of reducing there numbers.

Employee Separation Scheme

In 1994 Tata Steel introduced its first voluntary retirement scheme, with a package approved by the income-tax department of the government. A mere 1,000 employees opted for it. They realised it would have to think out of the box to make its rightsizing effort more successful. An internal survey was undertaken to find out what worker expectations were.

Benefits provided under ESS

The ESS allowed employees to get the current level of their salary (basic + DA) + additional amount depending on the age of the employee and years of service in the company , till they reached the age of retirement (60 Years) in the form of cheques. Workers under age 40 would be guaranteed their full salary for the rest of their working lives. Older workers would be guaranteed an amount greater than their salary, from 20% to 50% greater depending on their age.

Benefits provided under ESS

The scheme also comprises the insurance rider - If they died before reaching retirement age, their families would keep receiving the full payments until the worker would have reached retirement age. Medical benefits for self and dependents up to 60 years of age In the same city, at the company hospital In a different city, reimbursement up to Rs. 95,000/- per annum. Medical benefits after 60 years of age for self and spouse as per the rules for retiring employees.

Benefits provided under ESS

They realised, people felt bad about permanently severing their connection with the company. So they came up with the idea of a pension plan. Group company Nelco had introduced a pension scheme. Worrying aspect for employees was prospective loss of company accommodation. Tata steel gave a three-year extension for families to vacate their quarters. Interest free loan of Rs. 2 lakhs

Benefits provided under ESS

For employee family benefits, Tata Steel has shifted its focus from employment to employability. While employees' children were given jobs in the company earlier, now they are imparted training. Studying at the RD Tata Technical Institution gives them the skills required to get decent jobs. Tata Steel also commissioned a survey to identify small businesses that separated employees could set up after leaving the company.

Financial Impact

The workers who took the offer would get their full salaries or more but that amount would stay constant until age 60 instead of increasing, as it would if they remained employed.eg.

The minimum wages ESIC PF Gratuity

Financial Impact

Company dont have to pay payroll tax They dont have to make retirement-plan contributions. Tata steel's labor costs began to decline immediately. Lower labor costs, combined with over $1 billion of new investment, turned tata steel into a far more efficient, globally competitive firm. Tata steel's voluntary retirement concepts was emulated by Birlas, Maruti-suzuki, The national thermal power corporation.

Results

There have been 40 ESS schemes single-window system for all settlements to reduce paperwork and bother for employees. An ESS Employees' Association was set up and this offered services for supply or housing projects. Tata Steel also provided financial counselling to employees who opt for ERS. The number of employees has been reduced from 77,448 in 1994 to 48,821 in 2000 and to 39,658 in 2005.

Conclusion

What distinguishes Tata Steel's rightsizing is that the implementation has been employee-oriented.
There biggest advantage was the trust they continue to enjoy.

Case of Mr. Deshpande

Mr. Charudatta Deshpande was working with Tata Steel's Corporate Communication department in Jamshedpur. He was company's former chief of Corporate Communication. He was found hanging at his Vasai home on June 28 2013. He worked with Tata Steel for a little less than a year & quit his job in April. He was due to join the PR firm Ad Factors on July 1.

Case of Mr. Deshpande

He had previously served as general manager, ICICI Bank, and prior to that as senior general manager of Mahindra & Mahindra. As a journalist, he had worked at The Daily, The Indian Express, The Economic Times, Business India TV, and the Business and Political Observer.

Case Overview

Forbes magazine published a story on Tata Steel with a focus on the big succession issue. The Forbes story took five months to research & Mr. Deshpande was facing resistance from within the company on facilitating interviews. officials at Tata Steel were placing the blame on him for facilitating a story they thought inimical to their interests. He was also being subjected to enormous pressure to admit to his complicity in leaking confidential company documents to the media."

Case Overview

There were allegations that Deshpande killed himself following harassment by the employees of Tata Steel. He spoke to his friends about being under House Arrest in Jamshedpur for over two weeks and being harassed after the story appeared. He was not allowed to travel without permission, only two of his 36 requests for travel were sanctioned. He expressed his concerns about his cell phone being tapped. He kept referring to a unnamed which was putting pressure on him.

Case Overview

He was being bullied into signing some documents or bonds after he left the group. It was discovered that Deshpande was the first person in Tata Steel who despite being appointed at very senior level -- was not confirmed in service after completion of his probation. His request for an audience with the senior management was repeatedly denied. After his death there were attempts made by Tata Steel officials and the PR agency to pass off his death as a heart attack, and not a suicide.

Action Taken

A departmental inquiry has also been ordered by Tata Group chairman Cyrus Mistry. Mr. O P Bhatt, independent director of the company is included in the committee. The committee has been mandated to convey its findings direct to the Board of Tata Steel within the next two months.

Thank You