Tata Chemicals is turning a new leaf, and helping the resurgent company transform itself is the Tata Business Excellence Model

A new chemistry is at work at Tata Chemicals. And it is changing the language people speak at the ground-floor headquarters at Bombay House.

Sample a discussion at a monthly communications review meeting: "Manufacturing is no longer important. It's marketing that matters," says the operations head of the Mithapur unit, who has been strategically chosen to head a performance improvement initiative called 'Project Manthan'. Denouncing manufacturing would have been considered blasphemy a few years ago. No longer. Today it is part of a new culture the company is trying to embrace.

"It is a welcome change in mindset. Even conducting regular review meetings is a new feature. People are now discussing the poor performance of the company's stock price," says Prasad Menon, Managing Director.

"Today, employees come with analysed data to a meeting to put forward their points of view or review of actions," says R Mukundan, vice-president, strategy and business development. A newcomer into the company, he holds a new portfolio too — quality. And no wonder, quality is the catalyst for change at Tata Chemicals. Some of this, however, has also been driven by compulsion. From being the leader in the edible-salt business, the company began losing its status in the second half of the nineties. On the soda ash front too, despite being the largest producer in the country, Tata Chemicals lost market share to cheap imports, particularly from the US.

The fertiliser business of the company was the victim of bad government policies and the detergent and cement businesses of the company had to face the market might of focussed players. The result: operational losses and a steady decline in the share price. So much so, Tata Chemicals went off the radar of most analysts.

"The company lacked strategic planning. It did not have the ability to plan further. I would also attribute the decline to the fact that external issues and developments were not given adequate importance," says Mukundan. Precious time was spent on fire-fighting issues that took the company away from long-term objectives. This was partly due to the lack of processes and the failure to integrate the activities of individuals to attain a corporate objective.

This confusion is now a thing of the past. Sample this: cash profits for the financial year 2001 stood at over Rs 2.97 billion as compared to the previous year's level of RS 2.4 million. "We are positive on the operating profit level as compared to the operating losses of a few years ago," says Menon. It is premature to call it a success, but there are strong signs of a turnaround gathering momentum.

How has Tata Chemicals made it possible? "We decided to focus on all activities at a micro level and create a performance-oriented company. So we adopted the Tata Business Excellence Model (TBEM)," says Menon.

But why go for TBEM? Because TBEM had a holistic approach to improving business processes as a whole, unlike other quality initiatives. In 1998, when Tata Chemicals implemented the business excellence programme, it scored a paltry 168 on a total of 1000 points. The company found that it was lacking customer focus and required drastic changes in the mindset of its people to turn into a performance-oriented company. That's when it got serious about the implementation.

The TBEM implementation action plan was issued on January 5, 2001. A new function-strategy and business development plan was created at the corporate level. A number of focus groups were formed and employees were simultaneously trained for internal TBEM assessment. But most importantly, the Tata Chemicals management integrated all the activities of focus groups to avoid the exercise being mistaken as 'just another initiative' in the company. Further, it activated all communication channels to spread the message - the need of the hour was to be customer-centric.

TBEM helped the management identify cost-cutting, human resources development and developing marketing strategy as the three critical areas for overhaul. But TBEM was not a substitute for strategy. It was an aid to strategic decision-making by improving the quality of processes.

As part of the cost-optimisation and revenue-enhancement strategy, Tata Chemicals initiated the Manthan programme to intensify performance improvement across all business divisions. To start with, the soda ash business was broken down into 20 units spanning activities from sourcing to customer delivery.

Each activity is now being looked at in great detail and alternate improvement measures are being put in place. This initiative is expected to boost the company's bottom line by about RS 500 million. The Action 500 plan was launched in the Mithapur unit to cut costs through improvement in yields. The Babrala urea unit is the most energy-efficient plant in the country today at 5.53 gcal/tonnes of urea.

On the human resources front, Tata Chemicals devised the balanced scorecard system. The scorecard helped align individual goals with divisional ones, which in turn aligns with corporate goals and objectives. The scorecard helps measure performance objectively against targets, find out variances and chalk out an action plan. The compensation structure was linked to performance to encourage people.

The next major task was to redraw the marketing strategy. It meant reorienting people's attitudes, work and production practices. "We did not have a marketing network. We were into production only. Packaging, branding and marketing were looked after by Rallis for chemicals and by ACC for cement. We decided to de-link ourselves from these marketing tie-ups and carry marketing on our own through a new distribution network. We had to train our people to handle issues like brand management and customer relationship," says Menon. A cross-functional team was formed to handle product and package development.

But these efforts would have come to naught had the production department failed to understand the needs of the customer. Menon says, "The production department only produced, it was then the marketing department's job to find a customer. Earlier, the marketing department used to intimate the sales target and production used to prepare budgets accordingly. This approach was refined last year. Now, the marketing department dictates how much to produce and also specifies quality levels and technical specifications. The production plan is driven by marketing feedback."

Tata Chemicals' export orders to Thailand and sales to Saint Gobain made the production department realise the importance of exact customer specifications. It has also prompted the company to deploy information technology to address customer complaints. "We have instituted the weekly plan system to ensure just-in-time delivery to clients and shorten the production cycle," adds Menon.

The Manthan project was not confined to operations alone. The company is using the pocket margin approach to identify client-wise profitability and optimise delivery accordingly. "We have set up key account management and are moving towards micro marketing," says Mukundan The company is now focusing on cutting down distribution commissions to push up margins. It succeeded well too.

These early successes can be attributed to Tata Chemicals' focus on initiatives that are required to improve processes rather than on improving TBEM points. "If we get our act together, points follow automatically," says Menon. The change in the business environment and the easy interest regime helped the company in the process. "We used these opportunities to gain an indication of the focus of each team on the organisation's objective. Though it is difficult to quantify the exact benefits of TBEM, I would say the focus on cost, meetings, reviews and customers has made it possible," he adds.

"The very fact that we realise and accept that non-operational income has contributed to improved performance is an indication of the change in mindset towards performance," says Mukundan.

In the recently concluded internal assessment in December 2001, the company TBEM score jumped to a band of 350 - 450 points, a significant improvement from its 1998 levels of 168 points. It is planning to apply for external assessment once it crosses 550 points in 2003.

The approach now is to defend, consolidate and grow. "We have divested the loss-making detergents business and are looking for a buyer for the cement division. We are strengthening the core business of soda ash, launching a new edible salt brand and looking at new alliances," says Menon.

What next? According to the performance target, the company plans to double profit in three years and sales in four years. The net profit and sales as of financial year 2001 stand at RS 1.6 billion and RS 13.82 billion respectively.

"We are asking everybody to stretch their performance by 10-20 per cent and include the stretch in the budget too," says Menon. The company has initiated the Pragati programme along with Mckinsey & Co to identify new growth opportunities and leverage existing capabilities. The initial study has indicated opportunities in biotech research, global services outsourcing, agribusiness and speciality chemicals. These plans are expected to take final shape in June 2002.

But what about improving shareholder returns? The company-staged analysts meet after seven years shows its sincerity. Will the results bear fruit? At least the company has now earned the right to know.