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.