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The Speech by Mr. B. Muthuraman on VISION 2007
at Jamshedpur, 2002
All of us in Tata Steel are aware of the power of VISION. We know that
individuals who have a clear VISION of their future do better in life than others. Nations
whose people share a common VISION outperform other Nations. Organisations who have a
clear, shared VISION of their own future outperform their peers in the industry.
We have seen this in our own lifetime. The VISION of our founder, Jamsetji
Nusserwanji Tata, has made it possible for Tata Steel to approach its centenary year with
a great deal of pride: pride for its contribution to nation building, pride in having
improved the quality of life of its employees and of the communities it serves, pride in
being one of the lowest cost producers of steel in the world, pride in the sustained
profitability of the Company in an industry that has chronic overcapacity, that is
fragmented and where profits are difficult to come by for many companies both in India and
in the rest of the world.
In the most recent past, we have been guided by the VISION that we created
for ourselves in the 90’s
Of entering the new millennium with the confidence of a learning,
knowledge based and happy organisation
To establish ourselves as the supplier of choice by delighting our
customers with our services and products
Of becoming the most cost competitive steel plant and so serve the
community and the nation.
How have we fared against this VISION that we set for ourselves? What is
our scorecard?
Here is our scorecard:
One of the lowest cost producers of steel in the world and globally
competitive
Technologically up-to-date manufacturing facilities
Customers happy with our products and services
Becoming a learning and knowledge based organisation
A culture of continuous change and improvement
Profitable
But
EVA NEGATIVE
We are not, as yet, returning the cost of capital. The financial return
from our business is lower than the cost of capital by 3 – 5 %.
What is ECONOMIC VALUE ADDED? Or EVA as we call it? It is the difference
between return on the capital we invest in our business and the weighted average cost of
Capital multiplied by the Invested Capital. This is negative in our case simply because
the returns from our business is less than the cost of capital. Cost of capital represents
the cost of debt that we borrow from banks and the expectations of our shareholders in
terms of dividends and share prices.
What is the relevance of EVA? A positive EVA meets the expectations of the
shareholders and makes it possible for a Company to meet the expectations of other
stakeholders, the employees, customers, suppliers, society and the government in a better
manner. A negative EVA does not meet the expectations of the shareholder and a
continuously negative EVA over time will weaken a Company from discharging its
responsibilities to its various stakeholders.
The fact that the steel industry is asset intensive and it does not
generate a positive shareholder value and that there are only a handful of steel companies
in the world that are EVA positive and that too not on a sustainable basis is not really
relevant. What is relevant to us is that we need to make Tata Steel an EVA positive
company.
This is the peg on which our new VISION rests. TO MAKE TATA STEEL AN EVA
POSITIVE COMPANY.
Work on the new VISION of Tata Steel started in December 2001 when a group
of 40 senior executives of Tata Steel, facilitated by Mr. Arun Maira of Boston Consulting
Group, spent a day and a half dreaming, discussing and deliberating the possible elements
of the new VISION. A rough cut picture of a possible VISION was the result of that
Workshop. These rough cut ideas and thoughts were then put on the Company wide intra-net
so that many employees of the Company can have access to it. I am thrilled and delighted
to tell you all that more than 4000 employees made contributions and there were more than
7000 inputs that finally shaped the VISION of our Company. On behalf of the Tata Workers
UNION, Mr. R.B.B. Singh, President, TWU had a look at the VISION and made valuable
additions and contribution. A small group then worked on these various inputs and what you
will see just now is the VISION 2007, co-created, and shared by all of you.
The challenge in Visioning to be an EVA positive Company is that no
steel company in India has ever been EVA positive and there are only a handful of steel
companies in the world who turned EVA positive and that too in brief spells of time. This
is a very big challenge in an industry that has chronic over capacity, is fragmented and
there are market distorting practices.
But Tata Steel can do it. Perhaps we alone can do it. Our current score
card suggests that over the last ten years a solid foundation in technology, facilities
and business processes has been laid on which our EVA aspirations can fly.
As we aspire to become an EVA positive Company, we will not forget our
other responsibilities. We will continue to improve the quality of life of our employees
and of the communities we serve, if possible, better than what we are doing today.
Revitalising in the area of operations, marketing and sales, supply
chain management, customer relations and in many other areas through a programme that we
will be calling "ASPIRE’.
Venture into a new business that will grow, one day, to the size of our
present core business.
We will do these only in the TATA way and not in any other way.
Steel is often called a commodity. I do not like the term
‘commodity’ being assigned to steel. We have already started positioning our new
brands, Tata Shaktee and Tata TISCON in their rightful place in the maket. Together, these
two contributed an additional Rs. 35 Crores to our bottom line of last year. We will
create more brands in the coming years and translate the full potential of our brand into
our bottom line.
We will make the steel business into an EVA positive one by 2005 –
06 through new initiatives, to be called ASPIRE, in all relevant areas of our business.
We will continue to be the lowest cost producer of steel in the world by
continuous improvement, benchmarking and by continuous up gradation of technology and
business practices.
We will strengthen our partnerships with our customers and suppliers,
build new models of relationship and business with them, and create mutually value
creating opportunities.
Some of our recent decisions, absolutely necessary from the point of
view of the overall health and well being of the Company, may have dampened the spirit and
enthusiasm of some of our employees. We will accelerate our efforts to provide a work
environment that will ensure a sense of purpose and personal growth for each individual.
We wish to see the smile on every face every day.
We will grow but with financial prudence. Not borrow too much. Spend
what we earn wisely. Live within our means.
Creating an atmosphere conducive to gathering and sharing knowledge and
providing an infrastructure that will facilitate knowledge management.
Outsource those activities that do not form part of our core business so
that we concentrate our mind, time and energy towards making the core business an EVA
positive one.
Encourage innovation. Creating an atmosphere where risk taking is
encouraged and failures in attempting stretched targets is praised, rewarded, and not
criticised.
March towards excelling in Tata Business Excellence Model, which has
been a guiding torch to us in the last few years.
Unleash people’s potential and create more leaders. This Company
has had and has many outstanding leaders and we need to create more for the future.
The new business we are searching for will be less asset intensive
yielding quicker and higher returns.
Safety is not one of our strong points. Our record on safety is very
poor. We need to pay special attention to Safety. Environmental sustainability will
continue to be a part of our business plans.
We will divest from those businesses that do not have the potential to
become EVA positive in a 3-year time frame. We will aggressively seek acquisitions and
mergers as means to enhance shareholders value.
This, my dear colleagues, is our VISION for 2007. It is now up to all of
us to act and live up to this VISION.
Thank you.
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