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THE year 2001 was bad for the global steel industry. Most of the US and European markets were out of reach for Indian companies. Chinese and CIS steel was flooding the country and a severe downturn was making things difficult for most companies, with large majors falling like nine pins. It was during this time that Tata Steel managed to make a small profit of Rs 205 crore, one of the very few Indian companies to have done so, and one among the top five steel companies globally to have achieved the same.
Cut to 2008, and the signs are familiar. The steel industry is bracing itself for yet another steep slide and companies are again cutting production, slashing prices and generally worrying about where the next supply of cheaper ore would come from. But it doesn't surprise one to learn that Tata Steel is busy charting out a vision plan, quite similar to the one it had devised to ride out the 2001 slump.
How does the company insulate itself from the fluctuations of the commodity world which have claimed large and venerable steel companies globally?
B Muthuraman, the 63-year old managing director of Tata Steel, attributes it to the "Tatas' core values of involving everyone and working through a consensus". He should know — Mr Muthuraman was appointed MD in 2001 when the industry was in the middle of a big downturn and yet managed to steer the company to profitability in the seven years that he has been at the helm, and also crowned his term so far, with the $13-billion acquisition of Corus.
Mr Muthuraman recollects the time in July 2001 when, after assuming charge, he realised that it wasn't going to be a smooth ride — the industry was going through one of its lowest phases. Prices of hot rolled coils (a base category steel) were at all-time lows of $180 per tonne (below the average cost of production) and most companies were making huge losses, not to talk of mills in US and Europe shutting down.
It was at this time that Mr Muthuraman decided to involve everybody. "I still remember... we had this three-day workshop at Jamshedpur at our guesthouse on the banks of the Dimna Lake, jointly with Boston Consultancy Group, where we came up with a plan to counter the situation through a simple exercise: increasing capacity and controlling costs. I put this up immediately on the intranet and invited suggestions from my employees. Within days I received responses from about 8,000 employees, half of which were from workers. That was the most exciting moment in my life... to see everybody chipping in."
Philosophy apart, what also worked in Tata Steel's favour were its inherent strengths of captive iron ore resources and coal mines, two key inputs that make the 100-year old Tata Steel one of the lowest-cost producers in the world. Also, realising earlier on that improved cost structures was the key to success, the company started pruning its workforce — it has managed to halve its workforce in 13 years — mainly through innovative VRS schemes and now has a lean team of 35,870 employees.
Tata Steel's strong technological expertise, mainly in-house and some through collaborations, has also enabled the company to diversify its product portfolio by making more of high value products. "Since hot rolled coils were the most vulnerable to price movements, we decided to lessen our exposure to them and moved up the value chain," said Mr Muthuraman, who is backed by an able team that he always mentions: CEO HM Nerurkar, CFO Koushik Chatterjee and other members of the core team that are involved with strategising for the company.
The workshop at Dimna Lake resulted in a vision road map, which Mr Muthuraman, says should be a priority for any company. It was this love for the big picture that led a young Muthuraman to turn down a lucrative $400-a-month scholarship at UCLA in 1966, after passing out of IIT Madras, and opt for Tata Steel. Almost 42 years down the line, Mr Muthuraman says he tries to instil this need for vision in everybody.
The current situation is probably more severe than that seen in 2001, says Mr Muthuraman. Companies have been hit by rising inventory and slow demand due to reduced liquidity, and this implies that people are buying lesser cars and consumer goods. This is forcing steel companies to slash production and cut prices. Although Tata Steel hasn't yet reached the stage of production cuts, it has been able to limit tough measures to its international unit Corus, where production has been reduced by 30% and about 400 jobs have been cut at the distribution units.
Going by the current situation, the vision this time is more strict. "There are some new sets of actions that need to be taken — more emphasis on costs, operational efficiency, ensuring cheaper resources, enhancing revenue through better premium in products and the like," says the Tata Steel MD.
But it is easier said than done. How do you ensure premiums when everybody is cutting prices and how do you focus on auto grade when car companies are slashing production? The company has also recently taken realistic decisions. It has pushed back grandiose plans of building large steel plants and has instead stuck to vital expansion programmes in deference to the tight liquidity condition.
"Only those that are on the fast revenue track for us, we'll go ahead... rest are on the backburner," says Mr Muthuraman. So, while the company will go ahead with a Rs 27,000-crore investment plan at Jamshedpur and a new unit in Orissa, it hasn't shied away from admitting that the Rs 58,000-crore steel projects it had planned in Chattisgarh and Jharkhand have been pushed back.
The move is also in line with what chairman Ratan Tata outlined in a recent communication to his CEOs on the need to relook at large projects given the trying times.
Tata Steel, however, intends to retain its thrust on owning raw material assets across the world. Primarily driven by the fact that Corus doesn't have captive resources, Tata Steel has accorded priority to this and has formed an international company to consolidate its raw material assets and is also exploring options to list overseas to part-finance the acquisitions of resources. The company currently owns stakes in resource assets spread across Africa and Australia and plans to increase this profile.
TEAM ET
Cut to 2008, and the signs are familiar. The steel industry is bracing itself for yet another steep slide and companies are again cutting production, slashing prices and generally worrying about where the next supply of cheaper ore would come from. But it doesn't surprise one to learn that Tata Steel is busy charting out a vision plan, quite similar to the one it had devised to ride out the 2001 slump.
How does the company insulate itself from the fluctuations of the commodity world which have claimed large and venerable steel companies globally?
B Muthuraman, the 63-year old managing director of Tata Steel, attributes it to the "Tatas' core values of involving everyone and working through a consensus". He should know — Mr Muthuraman was appointed MD in 2001 when the industry was in the middle of a big downturn and yet managed to steer the company to profitability in the seven years that he has been at the helm, and also crowned his term so far, with the $13-billion acquisition of Corus.
Mr Muthuraman recollects the time in July 2001 when, after assuming charge, he realised that it wasn't going to be a smooth ride — the industry was going through one of its lowest phases. Prices of hot rolled coils (a base category steel) were at all-time lows of $180 per tonne (below the average cost of production) and most companies were making huge losses, not to talk of mills in US and Europe shutting down.
It was at this time that Mr Muthuraman decided to involve everybody. "I still remember... we had this three-day workshop at Jamshedpur at our guesthouse on the banks of the Dimna Lake, jointly with Boston Consultancy Group, where we came up with a plan to counter the situation through a simple exercise: increasing capacity and controlling costs. I put this up immediately on the intranet and invited suggestions from my employees. Within days I received responses from about 8,000 employees, half of which were from workers. That was the most exciting moment in my life... to see everybody chipping in."
Philosophy apart, what also worked in Tata Steel's favour were its inherent strengths of captive iron ore resources and coal mines, two key inputs that make the 100-year old Tata Steel one of the lowest-cost producers in the world. Also, realising earlier on that improved cost structures was the key to success, the company started pruning its workforce — it has managed to halve its workforce in 13 years — mainly through innovative VRS schemes and now has a lean team of 35,870 employees.
Tata Steel's strong technological expertise, mainly in-house and some through collaborations, has also enabled the company to diversify its product portfolio by making more of high value products. "Since hot rolled coils were the most vulnerable to price movements, we decided to lessen our exposure to them and moved up the value chain," said Mr Muthuraman, who is backed by an able team that he always mentions: CEO HM Nerurkar, CFO Koushik Chatterjee and other members of the core team that are involved with strategising for the company.
The workshop at Dimna Lake resulted in a vision road map, which Mr Muthuraman, says should be a priority for any company. It was this love for the big picture that led a young Muthuraman to turn down a lucrative $400-a-month scholarship at UCLA in 1966, after passing out of IIT Madras, and opt for Tata Steel. Almost 42 years down the line, Mr Muthuraman says he tries to instil this need for vision in everybody.
The current situation is probably more severe than that seen in 2001, says Mr Muthuraman. Companies have been hit by rising inventory and slow demand due to reduced liquidity, and this implies that people are buying lesser cars and consumer goods. This is forcing steel companies to slash production and cut prices. Although Tata Steel hasn't yet reached the stage of production cuts, it has been able to limit tough measures to its international unit Corus, where production has been reduced by 30% and about 400 jobs have been cut at the distribution units.
Going by the current situation, the vision this time is more strict. "There are some new sets of actions that need to be taken — more emphasis on costs, operational efficiency, ensuring cheaper resources, enhancing revenue through better premium in products and the like," says the Tata Steel MD.
But it is easier said than done. How do you ensure premiums when everybody is cutting prices and how do you focus on auto grade when car companies are slashing production? The company has also recently taken realistic decisions. It has pushed back grandiose plans of building large steel plants and has instead stuck to vital expansion programmes in deference to the tight liquidity condition.
"Only those that are on the fast revenue track for us, we'll go ahead... rest are on the backburner," says Mr Muthuraman. So, while the company will go ahead with a Rs 27,000-crore investment plan at Jamshedpur and a new unit in Orissa, it hasn't shied away from admitting that the Rs 58,000-crore steel projects it had planned in Chattisgarh and Jharkhand have been pushed back.
The move is also in line with what chairman Ratan Tata outlined in a recent communication to his CEOs on the need to relook at large projects given the trying times.
Tata Steel, however, intends to retain its thrust on owning raw material assets across the world. Primarily driven by the fact that Corus doesn't have captive resources, Tata Steel has accorded priority to this and has formed an international company to consolidate its raw material assets and is also exploring options to list overseas to part-finance the acquisitions of resources. The company currently owns stakes in resource assets spread across Africa and Australia and plans to increase this profile.
TEAM ET
B MUTHURAMAN: MD, Tata Steel COMPANY OF THE YEAR
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