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BW Businessworld

Top 5 Reasons For Tata's Reboot

Several theories have been doing the rounds about the reasons why the reins of the conglomerate were suddenly snatched from Mistry and taken by Ratan Tata

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Ever since the shocking news of Tata Group chief Cyrus Mistry being sacked broke out, the corporate world has not been able to gulp it down swiftly.

After two days of twitter trolls about Ratan Tata's 'Ghar wapasi' and sad jokes on Whatsapp/ Facebook about jobs at Tata House being unsafe, we can finally think beyond and understand the speculative murmurs that might reached your ears.

Serving a period of less than four years, Mistry occupied a position of $103 billion conglomerate. The dramatic showdown of Ratan Tata entering the door as the interim Chairman for the next four months was another big news. Not surprisingly, several theories have been doing the rounds about the reasons why the reins of the desi MNC were suddenly snatched from Mistry and taken by Ratan Tata.

BW Businessworld takes a look at the top 5 reasons that might have changed the script behind the scenes:

1. Contrasting Operational Behavior
Our source tells us that there has been a rift within the group, ever since Mistry took charge from Ratan Tata. The cause for the divide was the way the two different personalities assumed culture and ethos of the companies. At the helm of affairs, people who have been working with Ratan Tata were not very fond of the way Mistry functioned at Tata Sons (largest private sector employee in UK).

No doubt Ratan Tata's period was an era of major acquisitions and investments in history. He bought European Steel-maker 'Corus' in a $12.9 billion deal in 2007 and Jaguar Land Rover $2.3 billion in 2008. The group acquired more than 40 companies across various businesses such as telecom, information technology, hotels and beverages.

However, such big acquisitions became rare after the global economic slowdown after 2008 as companies went ahead to focus on maintaining profitability. But one such marque acquisition wasn't very successful; Corus couldn't survive the tough business environment and Mistry decided to sell its UK assets.

Successively, in August Tata Chemicals sold its urea plant in Babrala, Uttar Pradesh to the Indian unit of the Norway based Yara International for Rs 2,670 crore. In the hotel business too, Indian Hotels Co sold Taj Boston, one of its three US-based properties for Rs 125 million (Rs 840 crore).

Back in May, Tata Commuinications Ltd. Sold a 74% stake in its data centre business to a unit of Singapore's Temasek Holdings for $634 million (approximately Rs 4,260 crore). To be fair, it has not all been divestments under Mistry's watch. Companies such as Tata Power Ltd (Welspun Renewables Energy Pvt. Ltd) and Tata Consultancy Services Ltd have also made acquisitions in the recent years.

Under Mistry, the Tata group has been focusing on improving return on capital in its business but there are some unsaid boundaries that one isn't supposed to cross.

2. Dependence On Third Party Consultancy Firms
The new age CXO's are busy building business and running operations in a new fashion. They have been accustomed to the digital age of data and using it with consulting. We agree this doesn't match at all with the styles of the predecessors and they do not take it lightly. Dependence on third party consultancy firms can be thought of as a strict No-No for a super-Indianised MNC like the Tata Group.

The debate is not about right and wrong ways of handling business, it's about agreeing to numbers (which is the new convention) or doing it in way that will be unconventional. Some say it's one of the most-scary things Mistry could do to several independently owned companies and democratically functioning companies.

But who says walking toward ROI and profitable businesses could kill? He might have taken a wrong route though!

3. Activeness of Reliance
It is being speculated that it is the most vulnerable time for the Tatas in history, even they are more valuable than Reliance for India. No one will deny that Reliance has become more active in the past one year, taking into consideration the R-Jio launch recently and the kind of marketing done around it.

Though there is big difference is in terms of market valuations where the Tata group is two-and-a-half times the size of Reliance at Rs 6,89,257 crore (versus Reliance's Rs 2,78,978 crore). And there is also a huge gap in market perception but there are several things which can be equated like:-

First, while the Tatas are a conglomerate and a diverse business group spread over scores of companies, Reliance too is one company with a diverse footprint. And this can make a huge difference to valuations, sooner or later.

Secondly, most of the Tata businesses are more global than Reliance; but despite some purchases of shale gas interests in the US and an occasional European buy (Trevira, a speciality polyester manufacturer), is largely an Indian company.

Third, the Tatas have grown global largely through debt. Reliance is a net debt-free company and is sitting on oodles of cash - nearly Rs 90,000 crore of it at last count.

Fourth, the Tatas, despite being called a group, are really a loose federation of independently-run businesses, each with its own growth trajectory. Reliance is centrally controlled by its promoter Mukesh Ambani, even though there are professionals running the actual operations in major strategic business units.

Together all these factors point out how the Tatas have something to fear and plan for when they have time. Ratan Tata's comeback might have such an angle also, industry experts say.

4. Indira Nooyi's Angle
The angle of someone else fitting the bill since the very first time Cyrus Mistry was bought in, is one of the strongest theories doing the rounds after the sacking.

The top most contenders for the chairmanship of the Tata Group are: Indra Nooyi of Pepsi, Arun Sarin, former Vodafone CEO, Noel Tata of Tata International, N Chandrasekaran, TCSBSE CEO, Ishaat Hussain and B. Muthuraman, say experts.

Speculation is rife in Bombay House that the future head would be an insider, probably from the Tata family or a Ratan Tata loyalist. The rush for the new person to take charge before the start of the new fiscal year is also to enable group companies to decide on crucial decisions including on possible sale or divestitures, said group sources.

BW Businessworld speculates on Indra Nooyi being ahead in this race than others as it looks like she has what Tata's need at this point. Her previous strategies have shown that she is focused on retention rather than succession.

Secondly, the time is ripe for her to leave Pepsi Co as it has been underperforming for a while and the MNC has been a considering Brian Cornell of Wal-Mart stores for a long time now for the top job.

5. Principal Shareholders and Their Dissatisfaction
Mistry's eye for talent was being questioned. The creation of the Group Executive Council (GEC) as Mistry's main brain trust had upset many in Tata Sons who perceived it as a parallel power center. Only a handful of its members had actual operational experience of running a business. Most of Mistry's key advisers, including Madhu Kannan, NS Rajan, Nirmalya Kumar, were also shown the door along with him.

Employees of the closely knit company, which was known to be the next best thing to a government job in India. Ratan Tata has had a very vital role to play in building the company's image in a globalized world today and the patriotic moves that he has taken make him one of the favorite in the list of corporate leaders in India.

The stories about acquiring JLR and Ford, still do the rounds today, show how much respect Tata has earned in the public eye. But under Cyrus, since 2012, with commercial vehicles being the cash cow for segment leader Tata Motors, the commercial automobile segment witnessed its biggest downturn, declining by over 25 per cent year-over-year from 2012 to 2014. Also, Cyrus Mistry deciding to move mass manufacturing of the JLR group out of the United Kingdom to countries like Brazil, China and Slovakia, which was against the directive set by Ratan Tata at the time of the JLR acquisition did not help either. Neither did the messy divorce with DoCoMo under Mistry do his image any favor in front of the board.

It looks like all said and done, the decision which made Cyrus a thorn in the flesh was his attitude towards the Tata Nano, knowing that it was Ratan's dream project.

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tata group cyrus mistry ratan tata