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'Turning the Titanic', the Tisco way

Shobha Warrier in Madras

Twelve years ago, when Tata Steel -- which had been 'doing everything the old way' -- decided to change, they called the process 'Turning the Titanic'.

When many questioned former managing director Jamshed J Irani's wisdom to call the process thus (as the Titanic had sunk), his reply was, "If the Titanic had turned, it would not have sunk."

Amidst endless doubts and criticism, Tata Steel -- an 'old economy company' set up in 1907 that started production of steel in a blast furnace in 1911 -- decided to turn the wheel and soon emerged a world-class steelmaker.

'Turning the Titanic' is the story of how the management and employees of a 90-year-old company changed their mindset to occupy the premier position in the world steel industry.

The World Steel Dynamics, a US-based research firm, last month placed Tata Steel at the top among 12 world-class steel makers.

It has also bagged the CII-EXIM award for Business excellence for the year 2000.

Peter F Marcus, managing partner of WSD, wrote to Tata Steel: "I will explain to the readers why your company is India's only 'world-class' steelmaker, and one of the few steel companies in the world with such a standing."

"This viewpoint is based on a variety of items including your raw material supply, low operating costs, a special company culture, good profitability, expansion prospects and location in a country in which steel demand should grow substantially in the future," he wrote.

Jamshed Irani, the outgoing managing director of Tata Steel who 'turned the Titanic', admitted that the journey to excellence began after a visit to Japan in the year 1989. The huge gap that existed between his company and those in Japan appalled him.

"I told JRD Tata that if we did not modernise our plant, it might turn into a steel industry museum."

JRD gave Irani full freedom to modernise the plant.

"As the journey began, we meandered, tasted, tested, and finally, we chose a proven world-class approach," Irani said.

It took Irani six months to draft a vision statement. "The inspiration finally came from a speech at our plant by advertising guru, Alyque Padamsee, and on my flight to Madras the next day, everything became clear and I wrote down the statement."

Thus went the vision statement:

'Tata Steel enters the new millennium with the confidence of a learning organisation; knowledge-based and happy organisation.
We will establish ourselves as the supplier of choice by delighting our customers with our services and our products.
In the coming decade, we will become the most cost competitive steel plant and so serve the community and the nation.
Where Tata Steel ventures ....... others will follow.'

Tata Steel ventured and others -- including the public sector steel giant SAIL -- followed. This was a reversal of roles, as SAIL had been doing better than Tata Steel, and the latter -- with 78,000 employees -- was at the crossroads with many clamouring for its closure.

Irani's vision statement talked about delighting the customers with their service and products. By his own admission, he had once asked the company to stop the supply of steel to a customer for he had complained about Tisco's inefficiency. It punished a customer who questioned their way of functioning. Now it emphasises on good customer service.

Under Irani's leadership, Tata Steel decided to move from 'assured margins' to 'market-driven realisations', from 'low-key domestic competition' to 'competing with new players', from 'no threat of imports' to 'ample imports at WTO duty structure, from 'emphasis on production only' to 'quality, delivery and cost', from 'self sufficiency' to 'value based make or outsource', and from 'no incentive to modernise' to 'the attitude of change or perish'.

Winning the confidence of the workers and taking them along in the journey was a tough task but they won the battle.

Irani said, "Rightsizing the plant from a strength of 78,669 in 1993 to 48,821 in the first half of 2001, and inspiring these 48,000 was even a tougher task. But here too we won. The unions neither encouraged nor discouraged the downsizing."

With 'rightsizing', labour productivity increased from 93 tonnes per man-year to 196 tonnes per man year, and the cost of steel came down. So did raw material consumption.

With knowledge and cost-management, Tata Steel could achieve the topmost position among all the other companies in the Tata group.

A proud Irani said: "We have reached the 643 points benchmark, while no other Tata company has reached the 500-mark. Titan, however, may touch the 500-mark soon."

This is the company about which McKinsey, in their report, raised serious questions and wondered whether it destroyed shareholder value.

From that position, Tata Steel has risen to a company that made the highest profit in the Tata group and became a leader in manufacturing steel.

From a company whose pipes belched black thick fumes into the atmosphere, Tata Steel has transformed itself to earn ISO 14000 for having an environment-friendly plant.

Irani admitted that when they started transforming the company, they were not sure if their method would prove to be successful.

"Now that our programmes have become successful, we know what we did was good."

He confessed: "Tata Steel is delighted and proud to have won the CII-Exim award. Every year, we have been receiving commendation certificates and that made us strive harder to win the award. It was sheer perseverance that helped us win the award."

The CII-Exim award had earlier been won by Hewlett-Packard India Ltd and Maruti Udyog Ltd

According to an international study carried out by World Steel Dynamics, Tisco ranks ahead of French steel giant Usinor and South Korea's Pohang Iron and Steel Co, which are second and third.

Brazilian firm CSN ranks fourth, China's largest steelmaker Shanghai Baosteel is fifth, followed by Taiwan's China Steel Corp, Brazil's Gerdau and US firm Nucor Corp.

World Steel Dynamics ranked the companies against several parameters, including operating costs, ownership of low cost iron ore, location, workforce, electricity costs, product quality, balance sheet and position in the domestic market.

Tisco has been awarded the top score of 10 on two parameters: ownership of low cost iron ore and coking coal, and favourable location for procuring raw materials. Its lowest score of five is against ownership of downstream steel-using businesses.

Irani said Tisco's manufacturing cost per tonne of steel was $152 in the previous financial year to March, among the lowest in the world.

Excerpts of the survey quoted in a Tisco statement described the company as 'highly profitable' and said it 'may be generating excess cash flows in 2001'.

"A new 1.2 million tonne per year cold-rolling and galvanising complex will improve its product mix," it said, adding the complex could add about $50 million per annum to operating profit when it was ramped up in the next two years.

Source: Reuters

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