Post on 23-Jan-2023
2019-20
SUBMITTED BY- SANJEEV SAHU AASHIQ HUSSAIN SHRUTI TIWARI GOPI SHANKAR SAGAR AGARWALLA NIKITA SHAH NAYANA CHURIWALA SAGAR AGARWALA
Strategic analysis of Tata Steel
ABOUT TATA STEEL
ABOUT TATA GROUP
The Tata Group was founded by Jamsetji Nusserwanji Tata in 1868 and headquartered in India, the Tata Group is a global business conglomerate operating in over 100 countries across 5 continents. From an early foray into steel and automobiles, to staying abreast of the latest technologies, the Tata Group today has a strong presence across diverse industries such as agrochemicals, automotive, chemicals, construction, finance, consumer products, and hospitality.
Overview of the group
There are 29 publicly listed Tata enterprises, which include Tata Steel, Tata Motors, Tata Consultancy Services, Tata Power, Tata Chemicals, Tata Global Beverages, Tata Teleservices, Titan, Tata Communications and Indian Hotels. The group has a combined market capitalization of around $103.51bn (2016-17).
Tata companies have made significant investments in different geographies. With ever-increasing international footprint, Tata group is now reaching out to customers in the farthest corners of the world.
The Tata Group's value system directs the growth and business of all sectors we operate in. Two-thirds of the equity of Tata Sons, the Tata group holding company, is held by philanthropic Trusts that have created national institutions for science and technology, medical research, social studies and the performing arts.
Cutting-edge innovation, a stringent focus on quality, sustainable operations and business excellence are the hallmarks of the trust the Tata name is best recognized for.
ABOUT TATA STEEL
Tata Steel Limited, formerly Tata Iron and Steel Company Limited (TISCO), is an Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India, and a subsidiary of the Tata Group.
Tata Steel is currently the world’s second-most geographically diversified steel producer. It is one of the few steel operations that are
fully integrated – from mining to the manufacturing and marketing of finished products.
Tata steel is one of the top steel producers in the world with total steel production of 13.23 MTPA (FY 2019) and the largest steel company
in India with total production capacity of 27.5MnT.
Tata Steel operates in 26 countries with key operations in India, Netherlands and United Kingdom, and employs around 80,500 people.
HISTORY OF THE ORGANIZATION
Tata steel formerly known as Tata Iron and Steel Company was founded by Jamsetji Tata and established by Dorabji Tata in 1907 and began producing steel in the year 1912. By the year 1939, it operated the largest steel plant in the British empire.
The company launched a major modernization and expansion program in 1951. Later, in 1958, the program was upgraded to 2 million metric tons per annum (MTPA) project. By 1970, the company employed around 40,000 people at Jamshedpur, and a further 20,000 in the neighboring coal mines.
In 1990, the company began to expand, and established its subsidiary, Tata Inc., in New York. The company changed its name from TISCO to Tata Steel Ltd. in 2005.
MACRO-ECONOMIC ENVIRONMENT
ANALYSIS
The macro-economic environment can be analyzed by analyzing the market and non- market environments and by forecasting megatrends, inflexion trends and weak signals.
The market and non-market environments can be analyzed using PESTLE framework. PESTLE framework is an economic framework which helps to monitor macro- economic factors that may have impact on an organization’s performance.
PESTLE ANALYSIS OF TATA STEEL
• POLITICAL: (Low direct state involvement, High political exposure)
1. Through different policies the government has been influencing the business of TATA STEEL, such as taxation policy.
2. The international trade regulations are also enforcing changes in the strategic implementation.
3. Tata steel has good relationship with the government and various political parties which helps them in land acquisition deals for increasing their production capacity.
4. There are no quantitative restrictions on import of iron and steel items. Iron and Steel industry has been included in the list of `high priority' industries for automatic approval for foreign equity investment up to 100%.
5. Tata group has always had good relationships with foreign entities which helps them to set their businesses easily in other countries. Tata steel has businesses in over 26 countries. Example: United Kingdom, Iran, Bangladesh etc.
• ECONOMIC
1. Steel industry is a core industry. Steel is a commodity has low differentiation and is generally a further raw material for other industries. When there is a slowdown in an economy, when macro-economic variables like consumption suffers, the steel industry also suffers.
2. Exchange rates also affect the steel companies and especially Tata steel because tata steel heavily exports its surplus. So, exchange rates play a huge role in international trade.
3. Differential growth rates around the world also affects tata steel because it has commercial presence in over 50 countries and every country is different from each other and has different demands depending on their economic conditions prevailing in the nation.
• SOCIAL
As mentioned earlier steel is a raw material for other industries so if economic factors like income distribution, lifestyle changes, culture and fashion will have an effect in steel industries as demand for other products increase the demand for steel will also increase.
• TECHNOLOGICAL 1. Tata group companies are known for their innovation and Tata steel
is no different. Tata steel constantly innovates by spending heavily in R&D to constantly improve their process efficiency and quality of their products.
2. Tata steel constantly comes with new products which helps the other equipment manufacturers, is a testament of their innovation and technological prowess.
• ECOLOGICAL 1. To reduce the CO2 emission in the environment tata steel has
invested heavily with the research of ultra-low carbon steel. 2. Tata steel also spends heavily for social and environmental causes.
Tata steel invests in saving aquatic lives by saving sea turtles and saltwater crocodiles.
3. Tata steel plants 400,000 saplings every year near the locations of its manufacturing units.
• LEGAL 1. Tata steel ensures the EHS (Environmental health and safety) under
which every employee’s activity is managed by the EHS framework. 2. Tata steel has strict ethical norms across all business functions and
processes which has led Tata steel to one of the best governed companies in India.
FUTURE OF STEEL INDUSTRY
The Indian steel industry is a stable industry, with few major players in the country and well-defined set of customers makes steel industry less prone to radical changes.
But given the nature of the product, the changes in other industries can affect the steel industry. Example- Automobile industry, agriculture industry etc.
If a company must survive these challenges, they should sense these market changes well in advance.
A few tools can help a company to forecast these changes, some of them are:
1. Forecasting under situations of uncertainty 2. Directions of change 3. Scenario analysis
THE INDIAN STEEL INDUSTRY ▪ India was the world’s second-largest steel producer with
production standing at 106.5 MT in 2018. The growth in the Indian steel sector has been driven by domestic availability of raw materials such as iron ore and cost-effective labor. Consequently, the steel sector has been a major contributor to India’s manufacturing output.
▪ The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for continuous modernization and up-gradation of older plants and higher energy efficiency levels.
Industry and sector analysis can be done by studying the various factors which makes an industry attractive. One such tool which helps us in identifying the industry attractiveness is Michael Porter’s five forces framework.
Forecasting
•electric vehicles might use less steel to improve the performnace and reduce costs.
• to comply with emission and safety norms aluminium could replace steel in future.
Directions of change
•Megatrends: as the cost of production reduces aluminium could replace steel.
• Inflexion points: with vehicles getting smaller the steel consumption could get very low in future.
Scenario analysis
•With poised to grow rapidly in future, the construction segment of tata steel will face stiff competiton.
•with vehicles getting smaller the steel consumption could get very low in future.
PORTER’S FIVE FORCES FRAMEWORK ON TATA STEEL
RESOURCES AND CAPABILITIES IN TATA STEEL
Every company has some resources and it’s the resources that enables a firm to superior performance and contribute to its long-term survival.
Resources help organizations to have a competitive advantage in the future, so it becomes necessary to analyze the resource and capabilities.
The resources and capabilities can be analyzed by an economic framework known as the VRIO framework.
COMPETITIVE RIVALRY
THREAT OF NEW
ENTRANTS
BARGAINING POWERS OF
BUYERS
THREAT OF SUBSITUTES
BARGAINING POWER OF SUPPLIERS
Medium to high: because of huge
investments requirement and approvals
by government. Mining norms to be
followed to ensure environment is not
damaged.
Low: steel is a commodity and doesn’t
have much product and price
differentiation.
Medium to low: Only aluminum usage has been
rising continuously, but it doesn’t pose any
significant threat because of its high prices and
can’t be used everywhere.
Low: because steel companies have their
own raw materials from their won ore
mines.
VRIO FRAMEWORK ON TATA STEEL
Here are some the important resources that Tata steel has:
❖ Financial resources ❖ Manufacturing resources ❖ Intellectual resources ❖ Human resources ❖ Nature resources
FINANCIAL RESOURCES
VRIO ANALYSIS
• VALUE: the turnover during current period was 70,611 crores. Tata steel is part of Tata sons’ group of companies. Its financial prowess is next to none. It gives them a financial advantage which is matched to none. This has been proved time and again when Tata steel has been able to take advantage of opportunities and neutralize threats. This in turn helps them to provide value to their customers.
• RARITY- financial prowess is not rare in the steel industry because companies that enter steel industry ought to have financial capability. But if we compare Tata steel to other steel companies Tata steel still has an advantage.
• INIMITABLITY- is not difficult because all steel companies have good financial strength but managing the resources is also crucial. Very few companies can match Tats steel’s management skills.
• ORGANIZATIONAL SUPPORT- Very few companies can match Tata steel’s management processes and systems.
Cash generated
from
operations
19,726
crores
Basic EPS
90.41
Rupees
Net debt to
equity
0.42
MANUFACTURING RESOURCES
• Acquisition of Bhushan steel- 5.6 MNTPA
• Kalinga nagar phase 2- 5 MNTPA
• Record production at Tata steel- 13.23 MNTPA
VRIO ANALYSIS
• VALUE- the efficient manufacturing processes at Tata steel are
critical to meet growth aspirations and address the evolving needs
of the customers. Tata steel is a cost leader in the steel industry
which helps them to provide products at a relatively cheaper price.
• RARITY- manufacturing efficiency is not rare to Tata steel only.
Other steel companies also have efficient manufacturing
processes.
• INIMITABILITY- its very difficult to imitate manufacturing
processes of this scale. It takes years to learn from the mistakes
and implement the changes.
• ORGANIZATIONAL SUPPORT- the organizational support for
manufacturing processes at tata steel is unparalleled.
INTELLECTUAL RESOURCES
• R&D expenditure- 216 crores
• Patents granted- 72
• New products launched- 114
VRIO ANALYSIS
• VALUE- tata steel is one the top 5 ranked steel companies. Tata
steel tries continuously to innovate and adapt to change. It helps
them to keep up with changing customer needs and deliver better
value to its customers.
• RARITY - Tata steel has many patents which makes this resource
a rare one.
• INIMITABILITY- Like said before Tata steel is a 112 years old
company, Tata steel has pioneered in this field so well and has so
many patents, information and technology that other companies
can never achieve and it also possess the brand Tata which it can
leverage which is Inimitable.
• ORGANIZATIONAL SUPPORT- Tata steel spends 1.5% of their
revenue on Research and development department which shows
how supportive they are in their stand to improve and sustain their
intellectual resources
HUMAN RESOURCES-
• 32,984 employees in India
• 49% reduction in LTIFR in last 10 years
• ~6.5% women in workforce
VRIO ANALYSIS
• VALUE- Tata groups are known to be well respected in the
industry for treating their employees right from the very beginning
even before any unions were made. Tata steels support and care
towards their employees with schemes such as Health insurance,
sufficient holidays, Tie up with Big hotels and other service for
subsidies, Great work life balance and amazing facilities sports.
• RARITY- a diversity and inclusion initiative– covers four aspects,
gender, Person with Disabilities (PwDs), LGBTQ+, and different
sections of society (e.g., Affirmative Action Community). 32% of
management trainees hired from top business schools are female,
a result of our diversity-focused recruitment processes.
• INIMITABILITY- Culture of Tata steel is very unique as Highest
importance are given to the employee due to which high morale is
attainted and this is reflected in the low employee turnover over
and a score of 3.29(out of 4) on happiness index
• ORGANIZATIONAL SUPPORT- Tata Steel also pioneered
several labour welfare benefits. These include an eight-hour
working day, free medical aid, establishment of a welfare
department, leave with pay, workers' provident fund scheme,
workmen's accident compensation scheme, maternity benefits,
profit sharing bonus and retiring gratuity. Seen in this context, it is
hardly surprising that the company hasn't seen a single strike since
1929.
NATURAL RESOURCES
Tata steel’s business is heavily depended upon the upon the
natural resources without which Tata steel would cease to exist.
Hence Tata steel takes upmost responsibility to use the resource
sustainability and efficiently.
VRIO ANALYSIS
• VALUE- Tata steel is investing in technologies to achieve the
highest environmental performance standards. They plan to
achieve this by adopting breakthrough technologies for raw
materials management, higher utilization of LD slag, setting up the
steel recycling business, achieving zero water discharge, carrying
out lifecycle assessments of their products and embedding the
principles of circular economy in our operations.
• RARITY-
Restoring the flora diversity
Optimized the plantation program in terms of precise type and number of
native species to be used. The diversity of the native species being used
for plantation activity increased by 22% and plantation of primary
keystone species increased by 5 times.
Completed the mapping distribution of invasive species at the Joda East
iron mine and had restoration plan is now being implemented
Planted over 2 lakh saplings of native species across Raw material
location
• INIMITABILITY- The Paris agreement aims at arresting the global
warming to <2 degrees Celsius for which the key requirement is to
make CO2 emission net zero by 2050. The steel industry
contributes to about 6-8% of global emission and is considered to
be a ‘hard to abate sector’ since carbon is used as a reductant in
the steelmaking process and low carbon steelmaking technologies
are yet to be commercialized. Cognizant of India’s commitment
and the sectoral requirements, Tata Steel has set an aspirational
goal of <2 tCO2/tcs emission by 2025.
• ORGANIZATIONAL SUPPORT- Tata steel to be more responsible
towards environmental performance is an inherent element of their
business strategy and these practices help them achieve a
leadership position in the industry. In Financial Year 2018-19, they
spent ₹286 crore on environmental management efforts focused
on the four pillars of emission, water management, circular
economy and biodiversity.
STAKEHOLDER MAPPING AND INDICATIVE
CULTURE The Founder of the Tata Group, Jamsetji Tata conceived Tata Steel to be a conduit to the economic freedom for the people of India. He emphasized on considering the interests of the shareholder, and the health and welfare of employees as the sure foundation of success. This defined the purpose and nature of Tata Steel’s relationships with its stakeholders.
A stakeholder approach to business
Tata Steel identifies its stakeholders based on voluntarily accepted obligations and those whose interests it must address in the value creation process. Strategic planning and risk management processes systematically collect and analyses information on existing and emerging stakeholders and continually define organizational priorities.
In Europe, the Company has adopted a common pan European system that allows it to identify, map and target the most relevant stakeholders. The Company’s Public Affairs team also conducts regular reviews of stakeholder lists across the European operations.
Communicating with stakeholders on the impact of the
Company's actions
Tata Steel engages with stakeholders prior to the implementation of policies or actions that are likely to have an impact on them. Here is an overview of the communication process: •
• Customer concerns regarding cost, delivery, value added products, quality complaints and safety and environmental issues are addressed through special
customer meets, satisfaction surveys and dedicated customer teams.
• The Company helps suppliers and vendors increase their capability through various training sessions, vendor meets and surveys.
• For employees, issues such as career planning, compensation, growth training and development are addressed through dialogues, Joint Development Councils, Performance Management System, etc. For issues related to health and safety, the Company focusses on the Safety Excellence
Journey, the Wellness Workplace programme and other training events.
• The Company interacts on a regular basis with the community, through public hearings and meetings with various groups such as the Zila Parishad, Senior Citizens, tribal leaders and groups, and local leaders.
• The Company uses the forums of the Annual General Meeting, analyst meetings and investor road shows to meet with investors and address issues of performance, long-term strategy and growth plans.
• Tata Steel regularly holds meetings with Governmental bodies that are connected to the steel industry, for example, the Pollution Control Boards, Tax Departments, Central and State Ministries and other influential groups.
• As a publicly listed company, Tata Steel interacts with the media, releasing information as required on various issues on compliance with the listing agreement.
• Tata Steel is an active and important member of various industry forums in India and around the world and plays an important role in policy formation and business development.
STAKEHOLDER MAPPING OF TATA
STEEL
BUSINESS AND CORPORATE
STRATEGIES OF TATA STEEL Tata Steel continually re-defines performance parameters in its journey towards becoming the global steel industry benchmark for value creation and corporate citizenship.
Today, Tata Steel is amongst one of the few steel companies that has its operations fully integrated – from mining to manufacturing and marketing of finished products.
Their manufacturing strategy has always focused on ensuring raw material security. This goes a long way in enabling cost competitiveness and efficiencies and has enabled Tata Steel to become the lowest cost producer of steel in Asia.
The raw Material Division operates captive iron ore and coking coal mines in the Indian states of Jharkhand and Odisha. Key manufacturing functions are performed by the raw materials and iron making groups, while shared services provides support for a smooth production. The downstream and allied business activities are structured into profit centers such as Ferro-alloys and Minerals, Tubes, Wires, Bearings, Agrico, Industrial By-products Management & Tata Growth Shop.
STRATEGIC PLANNING PROCESS OVERVIEW AT TATA STEEL
VISION MISSION
MATERIAL
ISSUES
STRATEGY
DEVELOPMENT
Strategic objectives
and enablers long-term
strategy External context
STRATEGY DEPLYOMENT
Long- term plan
Annual business plan
ENTERPRISE RISK
MANAGEMENT
Identification Assessment Mitigation
Review and monitoring
Leadership
direction
INTERNAL
CONTEXT
VALUES
STRATEGIC OBJECTIVES
While Tata Steel has consistently been one of the most profitable and
lowest cost producers of steel in the world, the company needs to
address challenges such as improving productivity, maintaining cost
competitiveness, and being agile and innovative in a rapidly evolving
business environment. Tata Steel aspires to further strengthen its
leadership position, and for this purpose, has defined a set of Strategic
Objectives (SOs). To achieve the SOs, we have also identified a set of
core capabilities, known as ‘Strategic Enablers’.
• STRATEGIC OBJECTIVE -1
INDUSTRY LEADERSHIP IN STEEL
Scale of operations is a pre-requisite for steel industry leadership.
• STRATEGIC OBJECTIVE- 2
CONSOLIDATE POSITION AS A GLOBAL COST LEADER
Tata steel aspires to be a global benchmark in operational
efficiency, ensure raw material security and strengthen our
logistics network.
• STRATEGIC OBJECTIVE – 3
INDUSTRY LEADERSHIP IN CSR AND SHE
Tata steel aspires to be a leader in sustainable business practices.
As a responsible organization, we are committed towards creating
and providing a safe working environment for our people, carrying
out environment-friendly business operations and improving the
quality of life of the communities we operate in.
• STRATEGIC OBJECTIVE – 4
INSULATE REVENUES FROM STEEL CYCLICITY
The steel industry is cyclical in nature. It is essential to build a
portfolio of products and services that can provide protection from
cyclicality and lend stability and momentum to our revenues and
profitability.
STRATEGIC ENABLERS
• EMPLOYER OF THE CHOICE
People are key for an organization aspiring to strengthen its
leadership position and being an employer of choice is a significant
aspect of their strategy.
• LEADERSHIP IN STEEL TECHNOLOGY
To prepare for disruptions in the future, our ability to innovate and
develop new products, improve processes, develop technologies
and transform business models is critical.
• AGILITY AND INNOVATION
It is essential to focus on creating the right organizational culture
that encourages agility and innovation.
• LEVERAGE DIGITAL TECHNOLOGY
Digitalization is critical for attaining technology leadership in the
Industry 4.0 era and drive innovation.
RECENT STRATEGIES OF TATA STEEL 1. Tata steel is working on a strategy to raise the share of value-
added steels to 30% of its total production, as part of an
initiative to insulate itself from the cyclicality of steel business.
The company also said it is planning to add new materials like
Graphene, Carbon fiber reinforced polymer and Advanced
ceramics that would constitute over 10% of its revenue by 2025.
2. The company’s acquisition of Bhushan and Usha Marin was a
step towards adding more value-added steels in its portfolio.
This will be reinforced by deploying more capital in value added
downstream assets and venture. It would also pursue a plan of
divestment, strategic restructuring and monetization of non-
synergistic ventures.
3. Due to the automobile slowdown in in current financial year, the
automotive steel demands were low. The automobile
manufacturers started producing less automobiles as the
demand for consumer vehicles was low. But tata steel
countered the sagging sales in automobile sector by logging
higher volumes in other segments- branded products and retail
industrial products. This helped tata steel to achieve 16 percent
overall spike in sales to 3.66 million tonnes, outpacing industry
average of 7%.
4. Tata steel terminated its plan to sell-off its South-East Asian
operations to Chinese HBIS.