Tata Sons Under Chandrasekaran: The Journey So Far And The Road Ahead

Assessing the Tata group’s performance and strategy over the last five years, and its plans for the future. By Jaideep Prabhu.

<div class="paragraphs"><p>Natarajan Chandrasekaran, chairman of Tata Sons, at the Bloomberg New Economy Forum in Singapore, on Nov. 18, 2021. (Photographer: Wei Leng Tay/Bloomberg)</p></div>
Natarajan Chandrasekaran, chairman of Tata Sons, at the Bloomberg New Economy Forum in Singapore, on Nov. 18, 2021. (Photographer: Wei Leng Tay/Bloomberg)

On Feb. 11, the board of Tata Sons reappointed N Chandrasekaran as its executive chairman for a second five-year term. Chandrasekaran, who was first appointed chairman in January 2017, had then been given a mandate to deleverage and simplify the sprawling conglomerate’s operations around the world. As he starts his second term, it is an opportune time to assess the group’s performance since he took over and analyse the group’s strategy over the last five years. Alongside that, it is worth examining the choice of investments made by the group’s firms, as well as the inorganic opportunities pursued, the businesses it has pivoted towards and away from, and the modernisation strategies it has undergone for its legacy operations. Finally, the time is also right for taking stock of the group’s plans for the future, particularly for its operations in the digital ecosystems of the future.

Performance So Far

Since April 2017, as reported by BloombergQuint, Tata group stocks have gained in value by over Rs 15 lakh crore: an increase of nearly 190%, handsomely outperforming the Nifty 50 in the process. Indeed, 19 of the 28 listed Tata group stocks have outperformed the Nifty benchmark since February 2017.

It is worth noting, however, that the Tata Group started outperforming the Nifty 50 only after August 2020, when some of the group stocks beat the benchmark in an unprecedented rebound from the low of the pandemic. Until then, the two indices had moved in tandem.

Strategies Over The Last Five Years

Soon after he took over, in an interview with Tata Review in November 2017, Chandrasekaran stressed the need for the salt-to-software conglomerate to cut down on the number of businesses it owned. The mantra here was the need to focus on three things: simplification, synergy, and scale.

However, this is easier said than done, especially in a large, sprawling conglomerate like Tata, which consists of firms that have been developed or acquired over a long period of time, across sectors, not only in India but now across the globe.

How to balance simplification with synergy and scale, especially when these goals might conflict with each other?

Moreover, Chandrasekaran’s predecessors had already done quite a bit of this work especially through clever use of the Tata brand as the overarching glue, following the logic of making it a branded house rather than a house of brands. The job of deciding which businesses to shut or divest is potentially far harder. One has to resist the temptation to react to temporary downturns and think more long-term. One has also to think about other stakeholders, such as employees and communities. This is particularly true in sectors like steel, as indeed has been the case with Tata Steel in Europe.

Related to the issue of consolidation and simplification: a major strategic issue has been the group’s focus on global versus domestic markets. In the 2000s, under the leadership of Ratan Tata, the group went on a buying spree in foreign markets as a means to globalise. There were major acquisitions of Tetley Tea, Jaguar Land Rover, and Corus Steel. These acquisitions, alongside Tata Consultancy Services’ presence, made Tata a major player in the United Kingdom, for instance, and through it, Europe and North America. The financial crisis of 2008, however, dealt a blow to the group, which was made worse by Brexit, trade wars, and the pandemic.

Today, Tetley has to deal with a British public that is drinking less tea. Tata Steel is bleeding cash with its British operations having failed to break-even for a decade. And JLR has fallen behind other carmakers in its struggles with scale and bloated costs and has looked to make £6 billion in savings over the last two years.
<div class="paragraphs"><p>British Union flags fly along side a Jaguar flag outside the JLR assembly plant, in Castle Bromwich. (Photographer: Simon Dawson/Bloomberg)</p></div>

British Union flags fly along side a Jaguar flag outside the JLR assembly plant, in Castle Bromwich. (Photographer: Simon Dawson/Bloomberg)

Consequently, the Tata group is facing calls from analysts to pull back from foreign markets and refocus on India whose 1.4 billion population and rising incomes, consumption, and internet use make the West seem less interesting in contrast. For instance, Professor Nirmalya Kumar of the Singapore Management University, who was Head of Strategy for Tata Sons under the chairmanship of Cyrus Mistry, has said that “Given the opportunities of India versus the rest of the world, when combined with the capabilities of the Tata Group, we had gone overboard in the past with respect to the international versus domestic mix.” However, simply pulling back from the West is not so simple. While India might be growing faster, margins are still generally higher in the West than they are in India. Moreover, operating in foreign markets brings skills, capabilities, and synergies that merely operating in the home market would not provide. And of course, if your plan is to be truly global, operating in your home market is not sufficient. Again: we are back to the tensions between simplification on the one hand, and synergy, scale, and learning for the long term on the other.

Plans For The Future

Even in the pandemic year, the group companies did well. Among the many milestones was the successful bid to win Air India. Looking ahead, the aim is to make the group “simpler, more sustainable, and more technologically advanced” in order to help India achieve its ambition of a $3-trillion economy by 2024.

First and foremost, the group is banking on a post-pandemic boom for its flagship Tata Consultancy Services, with its presence in dozens of countries and more than $20 billion in annual revenue.

Second, there is a plan to transform Tata into a consumer-focused digital group at a time when “global tech companies are pouring funds into e-commerce in India, and hundreds of millions are using smartphones and shopping online for the first time.”

A major part of this plan is a ‘super app’ entitled TataNeu that will bring together diverse Tata products and services—from groceries and food to electronics and financial services—under one virtual roof. The hope is that this ‘super app’ will propel the group to the forefront of India’s booming consumer tech market. Indeed, this app—and digital technologies in general—could provide the perfect way to balance the three goals of simplification, synergy, and scale.

<div class="paragraphs"><p>A screengrab of the platform.</p></div>

A screengrab of the platform.

Another part of this plan is Tata bringing its food and beverage brands into a new global consumer goods company, including a new-look Tetley.

In the auto sector, the vision includes a broader push into electric vehicles in India as well as globally. “Tata Motors has got a huge potential to grow,” says Chandrasekaran. Again, this could prove challenging as incumbent gas-powered car companies have found it difficult so far to make the transition. Generally speaking, it has been easier for new entrants like Tesla to steal a march on incumbent car manufacturers who’ve been in the business for far longer but have struggled to make the tough tradeoffs needed to transform their operations, business models, and R&D teams to compete in the new electric vehicle space.

As the pandemic reaches its endgame, the Tata group is committed to focusing on four themes in 2022: digital, new energy, supply-chain resilience, and health.

Of these four: digital makes sense, because of the firm’s expertise in the space and the potential for new products such as the TataNeu. Energy too makes sense given the global need for a transition away from fossil fuels towards renewables.

Supply chain resilience and health, however, seem somewhat reactive towards the pandemic, and it isn’t immediately clear what the synergies with current Tata group firms are.

Again, it seems like these areas might take the group away from simplification and consolidation but also move it more towards focusing on the home market.

Taking stock of the group’s ups and downs over the past decade or so, however, the chairman has also said that he has no intention of turning back in Europe, or elsewhere. “We are doing all the things necessary to be able to address the future,” he says. “We are getting ready to capture the opportunities.”

Will India’s most significant business group be able to thrive in the years to come? Only time will tell, but the early signs would seem mostly promising, with some inevitable bumps along the way.

Jaideep Prabhu is Nehru Professor of Indian Business and Director of the Centre for India & Global Business, Judge Business School, University of Cambridge.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.