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December 21, 2009

Change Management In Tata Motors

DRIVING CHANGE

Change is the only constant thing in life. Tata motors went through a period of significant transition in 2001. A number of changes were worked out during that phase with respect to customer expectations, innovation strategy, and regulations governing safety and environmental protection and continual competitiveness in terms of cost. These changes were and are brought about by the company systematically driving its processes ahead through a high level of product and process innovations. Tata Motors has a long history of investment in R & D. It is a statement that has been corroborated by a very large number of business successes. The road treaded by Tata motors in 2001 required them to take lots of crucial decisions. At that point of time the company showed willingness to take risks and drive itself aggressively ahead.

There is no doubt that Tata Motors will be at the forefront of the changes that will be evident in the automobile industry of the future.

Change Management

Change management or change control is defined as the process during which the changes of a system are implemented in a controlled manner by following a pre-defined framework/model with, to some extent, reasonable modifications .Change management in individual and organizational perspective

Can be defined as “Change management is a structured approach to transitioning individuals, teams, and organizations from a current state to a desired future state “.

Individual change management

Change management entails thoughtful planning and sensitive implementation, and above all, consultation with, and involvement of, the people affected by the changes. If you force change on people normally problems arise. Change such as new structures, policies, targets, acquisitions, disposals, re-locations, etc., all create new systems and environments, which need to be explained to people as early as possible, so that people's involvement in validating and refining the changes themselves can be obtained .Change must be realistic, achievable and measurable. These aspects are especially relevant to managing personal change. Furthermore, before proposing changes, it is important that leaders ask for the opinions and reactions of their subordinates to the proposals, to make the changes beneficial to all of the members of a particular corporation or organization.

There are many models in understanding the transitioning of individuals through the phases of change management and strengthening organizational development initiative in both government and corporate sectors. They are

1. ADKAR Model

2. Unfreeze-Change-Refreeze

3. K├╝bler-Ross

4. Formula for Change

5. PCI (People Centered Implementation)

Organizational Change Management.

Organizational change management includes processes and tools for managing the people side of the change at an organizational level. These tools include a structured approach that can be used to effectively transition groups or organizations through change.

These are some of three models that help us in managing and understanding the change

1. Dynamic conservatism

2. John P Kotter's 'eight steps to successful change'

TATA MOTORS

Tata Motors, division of one of the largest business houses in India has grown significantly over the last 64 years since its establishment in 1945. Tata Motors Ltd is India’s largest automobile company with revenue of about 14 billion dollars. It is the first company from India’s engineering sector to be listed in the New York stock exchange. Tata motors presence indeed cuts across the length and breadth of India. Over 4 million Tata vehicles ply on the Indian roads since the first rolled out in 1954. The company is going strong with its 23000 employees guided by the vision to be “the best in the manner in which we operate, best in the products we deliver and best in our value systems and ethics.” The Tatas are known and are always sought to be a value driven organization. The 5 core Tata values being Integrity, understanding, excellence, unity and responsibility.

The TELCO saga started off with Tatas acquiring an Eastern railway workshop to build boilers and steam locomotives for railways. Then they ventured into commercial vehicles in 1954 having entered into a partnership with Daimler-Benz in Germany. In global context it caters to three main market segments: Passenger cars, utility vehicles and commercial vehicles.

They followed the strategy of acquisition and joint ventures in its mid-stage and launched new products at a rapid pace in different market segments. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand and Spain. Among them is Jaguar Land Rover, a business comprising the two iconic British brands that was acquired in 2008. In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea's second largest truck maker.

Tata Motors is also expanding its international footprint, established through exports since 1961. The company's commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia and South America. It has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia and Senegal.

A significant breakthrough for the company was the development and commercialization of the truly Indian cars – Tata Indica and Tata Indigo. Within 2 years of the launch, Indica became the India’s largest selling car in its segment. Ratan Tata had always been keen on entering the lower-end of the market as he believed the big market lay there. He initiated steps to develop the Indica. Billed as India's first indigenous car and kept as a secret for a long period of time, the Indica promised much.

Unfortunately for the Tatas, the development of the Indica coincided with one of the worst phases in the company’s history. During the period 1995-1998, the commercial vehicle business had been doing well and Tata Motors grew at 30-40 per cent. Then came the downturn in the economy and the market for com­mercial vehicles suddenly shrank by 40%. The lost sales compounded by the heavy investment for its entry into passenger car business, the cost of complying with new emission standards and increasing threat from overseas competitors caused Tata motors to shock the market by 5 billion rupees loss for the year 2001. Realizing the urgent need to cut costs, the Tatas embarked on a major restructuring exercise

Change Management in Tata Motors

Tata Motors marks the biggest turnarounds in the history of Indian automobile manufacturing industry which happened in 2001. This success story of Tata Motors can be entirely attributed to the timely change adopted by the Tatas and the then M.D Ravi Kant who led the change.

Drastic action was required. Over the next two years, the company shaved around 8 billion rupees from its cost base and nursed itself back to corporate health. Even while keeping a tight grip on costs, Tata Motors moved to the offensive by refocusing its investments on less cyclical products, including light commercial vehicles, buses, and spare parts; making a successful entry into passenger cars; and responding to opportunities presented by favourable social and economic trends. These included the new mobility of young Indians, the government’s substantial road-building program, and generally buoyant GDP growth.

Today Tata Motors ranks as the world’s fifth-largest manufacturer of medium and heavy trucks—it has a 61 percent domestic market share in this segment—and has taken the number-two position for sales of passenger vehicles in the Indian market. It has also built a significant global presence, both through sales efforts in overseas markets (such as the former Soviet republics, the Middle East, South Africa, South Asia, and Turkey) and through acquisitions such as the takeover of Daewoo’s commercial-vehicle business in South Korea and the purchase of a 21 percent stake in the Spanish bus manufacturer Hispano Carrocera. In addition, Tata Motors has formed a joint venture with Marcopolo, the Brazilian bus manufacturer. With an agreement in early 2006 to distribute Fiat cars in the Indian market and a more recent memorandum of understanding with Fiat to establish a joint manufacturing facility near the Indian city of Pune, Tata Motors has embarked on a wide-ranging global partnership with the Italian group—an arrangement that both sides expect to flourish.

Tata Motors was predominantly a manufacturer of commercial vehicles, and that is a very cyclical business. The commercial-vehicle market in India shrank by more than 40 percent, with massive consequences for both the top and, more particularly, the bottom lines of the company. The 5 billion rupee loss in 2001 was the first time something on this scale had happened in the company’s history, and it really shook everybody within the organization.

They tried to understand what had gone wrong and wanted to create a path for the future to ensure that they never got into such a situation again. So in 2001 they decided on a recovery strategy that had three distinct phases, each of which was intended to last for around two years—six years in all.

Phase one was intended to stem the bleeding. Costs had to be reduced in a big way, and that was going to be a huge challenge for a company that was not only the market leader but had been used to operating in a seller’s market and employing a cost-plus approach to pricing. Phase two was to be about consolidating their position in India, and phase three was to involve going outside India and expanding our operations internationally.

Phase 1:

The key objectives were to move to a system of market pricing and to reduce their break-even point, both of which called for major reductions in costs—variable costs, fixed costs, and interest costs. They used many approaches to cost reduction, including bench-marking our rivals. For example, they took apart vehicles to see what they could do to modify the products and to lower costs. They went in for e-sourcing, and today they are the largest company doing e-sourcing in India and one of the leading ones in the automobile industry worldwide. In two and a half years, they reduced the break-even from nearly two-thirds of capacity utilization to around one-third, which meant that even if the market shrank by close to 60 percent, they would still be in the black. The whole organization really got together to ensure that the bleeding stopped.

One of the major drivers of success at Tata Motors Ltd. (TML) was its ability to fully exploit information technology to drive business goals and reduce cost. The company was an early adopter of CAD and CAM systems. The company also uses Siebel Systems to manage its vast customer relationship network and SAP® for all critical business services, such as logistics, supplier relations management, customer relationship management, human resources (HR), and finance. A remote training network was utilized to deliver audio-video feeds for training, thus saving costs on network and bandwidth. In order to support growth and globalization, effectively manage its dealers, and gain downstream visibility, Tata Motors launched a customer and dealer management (CRM-DMS) program in 2003. It is this type of demand network, one that senses and shapes demand based on regional differences, which differentiates the leaders from the laggards. Throughout its transformation effort, the company partnered with Tata Consultancy Services (TCS) for consulting and IT services.

Phase 2:

The concentration in phase one was indeed on cost reduction, but while this was going on they thought about taking action in areas that would have an impact during the other phases. For phase two, the concentration was on improving product quality and upgrading product features so as to make the products more competitive. They also started work on new products that would be required by the market after three to five years and strengthened the position in the marketplace by setting up a new sales-planning process, tightening credit norms, improving the liquidity and profitability of the dealers, reorienting toward customer satisfaction, and extending the reach of the distribution network. For phase three, the concentration was on starting work on international markets by identifying key markets and segments and developing a comprehensive plan to improve our competitive position so as to get a respectable market share. They also started looking at opportunities for inorganic growth.

Phase 3:

In phase the concentration was on starting work on international markets by identifying key markets and segments and developing a comprehensive plan to improve Tata Motor’s competitive position so as to get a respectable market share. They also started looking at opportunities for inorganic growth. International diversification was such a key part of the transformation strategy. It was all part of first, reducing the impact of domestic cyclicity – cyclicity is present across the world but in different phases in different places - and, second, seeking new geographies for growth in the face of the limitations of the domestic market, especially in commercial vehicles, where we enjoy a very high market share of over 60 percent. Tata Motors wanted to leverage the market-leading products internationally. By identifying about 12 countries as priority markets, rather than the 60 to 70 countries they tried to tap previously. They grew international sales to some 50,000 vehicles, against 7,000 to 8,000 four years earlier.

To facilitate globalisation, Ratan Tata reorgan­ised the company. The previously independent export division was merged into the passenger car and commercial vehicle divisions. The independent international divi­sion that looked after exports and overseas business was disman­tled. In the early 2000s, Tata Motors made several important moves in its efforts to expand and consolidate its global presence. In October 2003, Tata Motors forged a tie up with MG Rover of UK for supplying petrol-powered cars with the Rover badge and styling, labelled as the City Rover. A major step in Tata Motors’ globalization efforts was a bid for Daewoo Com­mercial Vehicles Ltd (DCVL), South Korea. Tata Motors had started explor­ing the South African market under a taxi recapitalisation programme, which aimed at replacing 120,000 of the country's 16-seater buses by 2006 with close to 80,000 buses in the 18-35-seater range. The Tatas were also set­ting up an assembly unit in Thailand which had emerged as the largest manufacturer of pickup trucks in the Asian region and the second­-largest market in the world. The Tatas tied up with Kho­dro of Iran for passenger cars, which promised a potential off take of around 20,000 vehicles per year. The Tatas also had a presence in Ukraine, Malaysia and Bangladesh.

Changes:

Generally, people with greater experience, especially in a successful company, are often resistant to change because they have been successful doing things the way they have been used to, not realizing that the context has changed.

The people were very dedicated, but the organization had become very inward looking. The trick was how to expose people to the outside world to allow them to see what is happening there rather than drilling change into them through speeches and letters. They felt that would be very artificial and would upset intelligent people. The most effective way to sustain change is to make those involved internalize it rather than just getting somebody to come and talk about it. For example, they had people listen to customers talk about the problems they were facing and the suggestions they had for product improvement. They exposed people to products of competitors by tearing those products apart and analyzing the good and bad and comparing them with their own, thereby making people see why customers buy someone else’s products rather than theirs.

Youth playing a major role in change management:

The most frozen layer in any organization is the people with experience who think they know best; who believe that nothing can be changed. When they started to connect with the younger high performers, it was very different. They used to have breakfast meetings with a dozen of them, and would invite them to give very frank views. They soon realized that they were suffocated and that they wanted change. So they started picking out some of these individuals and giving them challenges.

In fact, the whole cost initiative came from one of the breakfast meetings at an operation in Pune. Everyone had been talking about cost reductions and thinking in terms of one-half of a percent or 1 percent, but these young employees indicated that they thought a target of 10 percent was possible they made the senior people sit in front of the presentation, and it quickly became clear that 10 percent target was indeed achievable. After this, the young employees to put together a bigger team from Jamshedpur and Lucknow, to include representatives from sales and marketing, and spend ten days working on the plan. That was the defining moment because if they had tried to go only through the top, they might not have succeeded as well, and the transformation might have taken much longer.

Despite initial hiccups, they succeeded in establishing a strong presence in the car market through the launch of the Indica hatchback, followed by the Indigo sedan and the station wagon. Today they are the second-largest manufacturer of passenger vehicles in India. This has been achieved in an environment of intense competition with most well-known brands in the world.

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