One year in, Tata Group Chairman Natarajan Chandrasekaran is tasked with rethinking the iconic Indian conglomerate’s structure, strategy and identity.
India’s largest business, Tata has more than 100 operating companies under its umbrella, across seven business sectors, with a total market value of $155 billion. The organisation is vast, and vastly complex – part holding company, part conglomerate, and part philanthropic venture. It is comprised of roughly three tiers, with the operating companies on the bottom. In the middle is holding company Tata Sons, which owns stakes of varying size in the operating companies. At the top is the group’s majority owner, the Tata Trusts, led by 80-year-old-patriarch Ratan Tata.
Over the course of its 150-year history, Tata has grown cumbersome for two primary reasons: a tolerance for lacklustre businesses, and a complicated succession plan. Tata himself, who has no direct heirs, was Chairman from 1991 to 2012. He led an ambitious globalisation drive. His successor, Cyrus Mistry, wanted to pare the organisation down and close its weaker businesses. This precipitated a row with Tata, which ultimately ended Mistry’s term in 2016.
Chandrasekaran, known as “Chandra”, was appointed Chairman of Tata Sons in January 2017. In his former role as CEO of Tata Consultancy Services (TCS), he had created $60 billion of value. This track record gives him leverage, which he will need. With the development of a succession plan looming, views differ as to what direction Tata should take. The Economist opines that it should become a holding company that “makes strategic investments but does not normally exercise operational control, like Berkshire or Investor AB in Sweden.” Since Tata Sons does not have an equal interest in all of Tata Group’s companies, it could adapt to this model.
Chandra has stated outright that Tata has too many companies, and he has sought to restructure, in particular by shedding weaker companies. This step is crucial. Thus far, while Chandra has allowed weak performers such as the domestic steel operation to continue falling short, he has sold Tata’s struggling mobile-telecoms arm. Deals like this eliminate some risk, but have not released much capital. That would require more drastic actions.
Top performers, including TCS, Jaguar Land Rover Automotive (JLR), and Titan, a jeweller, could be left untouched, as they continue to thrive. A capital infusion could be used to enter new growth businesses, and to grow Tata’s more promising operations, such as retail, defence and financial services. Tata Sons, functioning as a holding firm that invests in competitive businesses and produces strong returns, could thus allow Tata to continue to prosper in the long term.
