“This will be a museum of steel and some of us will be selling entry tickets,” a corporate communications manager of Tisco or Tata Iron and Steel Co. as Tata Steel Ltd. was called, recalls its former managing director, Jamshed Irani as telling a group of workers.
The other story he liked repeating was about an imaginary Ram Prasad, who through sheer dint of effort and enterprise went from owning a single cow to a dairy, but could not adjust to a market that preferred packaged milk and saw his painstakingly built business collapse.
Irani, who died on Oct. 31, aged 86, took over as managing director of Tata Steel and also as President of the Confederation of Indian Industry in 1992 when India was itself convulsed by tectonic change.
Finance Minister Manmohan Singh had opened up the economy that year with a bang. He had devalued the rupee in two stages to boost exports and also reduced import duties to make Indian industry competitive.
Irani knew it could not be business as usual. If the company did not shape up, it would have to ship out. Global competition was snapping at the heels. The prices of domestic steel in 1992 and 1993 was Rs 15,500 and Rs 14,750 a tonne, when the global price was Rs 9,500 and Rs 9,250 a tonne, respectively.
While Indian import duties were still high, the government had put Indian industry on notice that there would be further reductions, and the inverted duty structure where raw materials like steel had higher protection than machinery made from it, would be reversed.
The company had to measure up on product quality and adherence to delivery commitments. An outdated plant, a bloated workforce of 85,000 and a rather bureaucratic culture were other challenges that the company had to confront.
Tata Steel had strengths. It had captive iron ore, coal and limestone mines. It had skilled and innovative employees who had developed a process to make low phosphorous quality steel from high phosphorous iron ore. They had also over a 10-year period developed ‘stamp charging technology’ to convert low grade coal into high quality coke, which gave the company a cost advantage and reduced dependence on imports.
Blue dust or fine iron ore powder at the mines that had accumulated over time was used in its sinter plant. Flue gases from the coke oven batteries, blast furnaces and LD converters were used in downstream processes.
Above all, it had the goodwill of employees.
Though mild-mannered and soft spoken, Irani was firm and tough. A leading publication awarded him “Steelman of the Year” in 1992. As a doctorate in metallurgy, he knew steel. And he had steel in him. At a union gathering in 1993, when he was impressing upon the audience the need to slim down, an employee said he had taken away the jobs of their children. He shot back that if they did not watch out, they would have to worry about their own jobs.
But Tata Steel did not throw people on the streets. They were eased out gracefully. The early separation scheme was generous. Those aged 50-60 were given 1.5 times the monthly salary till the age of 60. The pay out was 1.25 times monthly salary for those in the age group of 40-50. Employees aged between 30 and 40 could draw their last monthly salary till retirement age. Some took lumpsum payments and set up businesses. Over time, the workforce was reduced to 40,000.
The downsizing was managed very well. Union leaders were sent to companies like Posco in Korea to see for themselves how efficient their processes were. There were dozens of joint development council meetings where senior management and workmen discussed issues.
Along with cost reduction, there was capacity expansion. Among the highlights was a cold roll mill commissioned in 2000. It became the incubator of a new culture devoted to performance and quality. Select employees were posted there. They were computer literate, and the number of hierarchies was cut from 11 to three.
All this is detailed in a 2006 case study: ‘Reinventing a Giant Corporation: The Case of Tata Steel’, by DVR Seshadri and Arabinda Tripathy for the Indian Institute of Management, Bangalore.
When Irani was president of the Confederation of Indian Industry in 1992-93, it was focussed on improving the quality of Indian manufacturing. A core team was sent to learn quality management from the Japanese. Tata Steel was active in that movement.
Tata Steel won the Prime Minister’s trophy for best integrated steel mill in 1994-95 and 1998-99.
Between the time he took over as MD and his retirement in 2001, Tata Steel’s gross sales doubled to Rs 7,700 crore. Its after tax profits increased from Rs 181 crore to Rs 252 crore. Reserves rose from Rs 2,200 crore to Rs 3,700 crore and the gross block nearly doubled to Rs 11,700 crore, according to the case study cited above.
In the face of wrenching change, Irani set the ground for Tata Steel to become one of the lowest cost producers of the metal. In 2001, World Steel Dynamics named it the top among 12 world class steelmakers it had identified and studied. It was a fitting tribute to his innings as MD.