India’s Ratan Tata Is On A Roll

Ratan TataRatan Tata had a dream: build a car cheap enough for average Indians.

He promised to price it at just one lakh, or $2,500. That was in 2003.Hardly anyone believed him.Critics called his project a folly. And when prices for steel and other car parts soared, they figured he would give up or raise the price.Tata didn’t do either one.

Although he’s chairman of Tata Group, India’s largest conglomerate, Tata isn’t averse to taking risks. His car idea was inspired by a problem he saw everywhere: whole families crammed onto a single motor scooter. He wondered how he could get them into something safer. He challenged suppliers and engineers to think differently. “They took a clean sheet of paper and said, ‘How are we going to create a vehicle that is one lakh?'” said Daryl Rolley, senior vice president of Ariba Inc., a supply-chain adviser to Tata. “It’s easier to start with an existing product and pull costs out.”

One supplier taking up Tata’s challenge was Germany’s Bosch, which designed a small generator and adapted a motorcycle starter motor to lighten the new car’s weight.On Jan. 10, Tata unveiled the Nano, named for its small size, at the New Delhi Auto Show. The price was as promised — one lakh, making it the cheapest new car on earth. Though it lacked flourishes such as a radio and air conditioning and had only a 33-horsepower engine and one windshield wiper, it looked as stylish as Mercedes-Benz’s Smart Car. And it could seat five people.

“Ladies and gentlemen,” Tata said to a throng of spectators. “I invite you to join me in this journey of innovation and evolution”.Tata’s perseverance shouldn’t come as a surprise. He has a history of facing down naysayers.

When he was named chairman of Tata Group in 1991, entrenched heads of companies within the outfit said he was wrong for the job: too shy, no stomach for business. Rivals didn’t think he’d last.Tata managers then ran their firms — hundreds of them — like independent fiefdoms, “forging ahead in different directions, some in an uncoordinated way,” R. Gopalakrishnan, executive director of parent Tata Sons, told IBD.

Century-old Tata Group appeared to be a plodding giant losing out to newer and leaner rivals just as India was opening its economy.Despite his quiet nature, Ratan Tata showed a fighting spirit as he steered Tata into the approaching millennium. By enforcing a mandatory retirement-age policy, he edged out some of the feudal chiefs.The most controversial involved Tata Steel’s 75-year-old chairman, who liked to compare himself to Napoleon and appealed all the way to the prime minister, to no avail.

Ratan Tata coordinated the disparate companies by organizing them into seven groups, trimming businesses along the way. He upset old-timers by selling the soap and detergent unit to Unilever.

The Spark

Tata set performance goals and groupwide standards of conduct. He motivated managers to do better by talking to them one by one on a grass-roots level. “Rather than telling them what to do, he asked them what they liked to do and how they would advance that (goal),” Gopalakrishnan said. “It’s a very empowering form of leadership, rather than a directive form of leadership.”

Tata’s top question: How can we think differently about doing this?

Tata took Tata Group from a loose federation of companies with less than $5 billion in annual sales to a more cohesive group with almost $30 billion in revenue in the fiscal year ended March 2007.That doesn’t include revenue from Anglo-Dutch steel giant Corus Steel, which Tata bought last year for $11 billion. It was the biggest Indian takeover of a foreign company.

Tata looked to expand outside India after his company posted record losses during an economic slump in the late 1990s. He didn’t want to be dependent on one economy. At the same time, he wanted to further India as a global player. Starting with British icon Tetley Tea in 2000, he bought foreign outfits, including undersea cable firm Tyco Telecommunications, coal and steel mines in Asia and the truck unit of Daewoo in South Korea.

Tata Motors was already a leader in commercial trucks in India. Now Ratan Tata, a car enthusiast, urged his team to enter the car market. He had just the kind in mind: a compact hatchback. It would be India’s first homegrown auto. Not everyone shared his enthusiasm for India’s first indigenous car. Many doubted customers would buy the car due to perceptions that Indian products lacked quality.

Even Ratan Tata had doubts. “I had a great sense of fear that it may not work out. We never designed a car before. India had never done it,” he told a local reporter. “Everyone was telling us that we were foolish”. He went ahead anyway. And in 1998, rolled out the Indica. It became the No. 1 compact car in India.

“He sees no boundaries and barriers,” David Good, former U.S. consul general in Bombay and now Tata’s North American representative, told IBD. “What seems impossible to other people, he finds ways to make possible. “Last year, in his quest to achieve global scale, Tata merged Tata’s steel arm with Corus Steel.

In March, he beat out two rivals for Ford Motor’s lagging Jaguar and Land Rover business in the U.K. He was personally involved in negotiating the $2.3 billion deal. A key roadblock was getting union approval. After meeting with all three vying parties, the union’s leader pronounced, “The one that we trusted the most was Tata.”

Though skilled at deal making, Tata gets more satisfaction when he starts from scratch. “Corus is a transaction,” he told an interviewer this year. “We didn’t build anything. “Tata wanted to build as a young man. He earned a degree in architecture from Cornell University, but duty to family compelled him to join the Tata business.

Moving Up

Even though Tata had the pedigree to secure a top post, he spent three years working on the floor of a steel mill. He then moved up the ranks. Now comes the Nano. It will go on sale later this year. Some critics wondered why Tata would pursue the tony car brands Jaguar and Land Rover while launching the world’s cheapest car.

Tata pointed out that multinational firms have no qualms about selling products that target all income levels. “He sees himself benchmarked against global companies, not Indian companies,” said Good.

When Ratan Tata took over the conglomerate, he had to face comparisons with his charismatic predecessor and distant cousin, J.R. Tata. Gradually people warmed to the younger Tata, who took over at 53 and is now 70. He has been called a “man of steel” and a frugal business version of Gandhi.

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