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Tata Motors: Struggling for Leadership*

CASE STUDY, ORGANIZATIONAL BEHAVIOR
ET Cases - GSMC, 13 Pages
AUTHOR(S) : Dr. Lakhwinder Singh Kang, Professor and Abha Bhalla, Senior Research Scholar, Department of Commerce, Guru Nanak Dev University, Amritsar

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Tata Motors: Struggling for Leadership

 

Indian Automobile Industry at a Glance


India is the sixth largest automobile producer in the world and its automobile industry accounts for 22% of the country’s manufacturing gross domestic product (GDP). Over the years, the Indian automobile market has evolved from being a sellers’ market to a consumers’ market. The Indian auto industry is expected to grow at a CAGR of more than 10% over the period of next 7 years. The Indian automobile industry is well positioned both demographically and geographically as it can serve both domestic as well as the export markets. A growing economy, increase in the disposable income, easily available vehicle financing, better road infrastructure, increase in the working population and general prosperity of the Indian population are the driving forces behind the growth of the Indian automobile industry.

The Indian automobile industry can be divided into four categories – two-wheelers, three-wheelers, passenger cars and commercial vehicles. Globally, India is the second largest two-wheeler market, the fourth largest commercial vehicle market, and the eleventh largest passenger car market. India is also Asia’s fourth largest exporter of automobiles, after Japan, South Korea and Thailand. The industry produced a total of 23,366,246 vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in FY2014- 2015 as against 21,500,165 in FY 2013-2014, registering a growth of 8.68%. Automobile export volumes increased to 35, 73,806 vehicles in FY 2014-15 from 31, 10,584 vehicles in FY 2013-14, registering a growth rate of 14.89%. Exports of Passenger Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers grew by 4.42%, 11.33%, 15.44% and 17.93% respectively during FY2014- 15 over the last year. ............................

Tata Motors Ltd.: A Brief Profile

With over 8 million Tata vehicles running on Indian roads (since the first car rolled out in 1954), Tata Motors is the country’s market leader in commercial vehicles and among top five passenger vehicle manufacturers in India. It has become world’s fourth largest truck manufacturer, the second largest bus manufacturer and employs more than 66,000 workers. It is a part of the Tata Group industrial conglomerate, which engages in a diverse range of activities, such as finance, steel, information technology, communication, energy, consumer products, chemicals and hotels...........

Appointment of Carl Peter Forster as Tata Motors Group CEO

Although Tata Motors expanded globally through its dealerships in other countries, its customer base was mainly concentrated in the Indian subcontinent. In 2009-10, the export ratio of Tata Vehicles from India was quite low – only 3% of passenger cars and 7% of trucks were sold abroad which made the Tata brand’s presence in the International Markets inconsequential (Exhibit V)................

Tata Motors under Forster’s Reign

Global recession had a deep impact on JLR. It suffered heavy losses, the volumes were under pressure and there were non-production shifts in 3 UK Plants - Castle Bromwich, Halewood and Solihull.  To recover from this impact, Tata Motors hired KPMG International and Roland Berger Strategy consultants. They suggested work force reduction and closure of one of its factories as the only way out but work unions firmly resisted such moves. The inability to strike a deal with the unions and failure to resolve sensitive labor and pension issues led to abrupt exit of David Smith (Smith), CEO of both the brands (JLR) in January, 2010.............

Forster’s Exit

On September 9, 2011, Forster resigned from his position due to unavoidable personal reasons. At the time of exit from the company, Forster said, ‘I deeply regret that my personal circumstances make it difficult for me to continue to perform the challenging duties of managing the thriving global activities of Tata Motors, with its main activities in India, UK and increasingly in additional overseas markets. I am glad to continue my association with Tata Motors’.............

New Appointment at Tata Motors: Karl Slym

On August 14, 2012 Ratan Tata announced the appointment of Karl Slym (Slym) as the Managing Director of Tata Motors to lead the operations in India and International markets, including South Korea, Thailand, Indonesia, Spain and South Africa, with effect from October 1, 2012. His appointment was aimed to revive flagging sales and market share domestically and internationally. However, JLR was kept aside from the scope of his responsibilities.............

Karl Slym’s Reign at Tata Motors

While at Tata Motors, Slym identified three problem areas of Tata vehicles – poor quality, lack of model upgrades and public perception that the company’s cars were only good for being used as taxis. He worked closely on reorganization of Tata’s automotive unit and formed an aggressive sales strategy called horizoNext- a plan to revive passenger vehicle unit by adding new colors and features to its existing models, an overhaul of its parts sourcing division and introduction of new products like ‘Revotron’ petrol engine. To make the company’s organization more efficient, Slym divided the back-end work, production and strategy into three divisions with their heads directly reporting to him..............

Tata Group’s ‘New’ Chairman: Cyrus Mistry

On December 28, 2012, Ratan Tata, retired from all executive responsibilities after turning 75. Ratan Tata, the adopted great-grandson of Tata group founder Jamshedji Tata, was appointed as the chairman of the Tata group in 1991. His supreme leadership for 21 years helped the Tata Group revenues grow 51 times more than the 1991 level. For all these years, he spent most of the time at Tata Motors, a unit of Tata Group. Even personally, he enjoyed driving cars and acquired a collection of cars that include Ferrari California, Maserati Quattroporte, Cadillac XLR, Chrysler Sebring, Land Rover Freelander, Mercedes 500 SL, Mercedes S-class and Indigo Marina..............

Assignment Questions

I Examine the role of a leader in the Tata Motors Ltd.’s business performance.
II ................

Teaching Note Preview

Tata Motors: Struggling for Leadership

 

Synopsis

This case discusses the need of strong leadership at Tata Motors Ltd. – India’s largest automobile company for commercial vehicles and fifth largest for passenger vehicles. After giving a brief introduction about the Indian automobile industry in general and about Tata Motors in particular, the case study profiles the appointment and thereafter an unexpected departure of Tata Motors Group CEO Carl Peter Forster (Forster), who served the company from February 2010 to September 2011. He was an outsider with 24 years of auto experience, duly appointed by Tata group Chairman Ratan Tata to transform Tata Motors into a serious player in the international automobile industry. Forster’s initiatives helped improve the performance of business domestically and also turned around the fortunes of Jaguar and Land Rover business (JLR), a subsidiary of Tata Motors Ltd, acquired in June 2008. After Forster’s exit, to fill in the void, Ratan Tata recruited another auto veteran Karl Slym (Slym) as the MD of Tata Motors Ltd. with effect from October 2012 to help Tata Motors regain the declining market share domestically and internationally. Though, the attempts made by Slym proved effective in improving the company’s performance, his sudden death disrupted his turnaround plan. There was another big turning point when the Tata Group Chairman, Ratan Tata, retired from all executive responsibilities on December 28, 2012 and Cyrus Mistry, new to the automotive business, succeeded him. The case illustrates that in recent years, many top level officials quit Tata Motors after serving for long tenures and outsiders who were hired with high expectations quit the company in quick succession.

Case Positioning and Setting

The case study can be effectively taught to Post Graduate students or executives

Pedagogical Objectives

  • • The role of leader (CEO) in the progress of a company.
  • • The significance of succession planning and leadership development in large organizations like Tata Motors Ltd.
  • • The consequences an organization has to face due to unstable leadership and lack of succession planning.
  • • The strengths and weaknesses in recruiting a new person as a leader from within or from outside the organization.
  • • The role an incumbent has to play in the development and selection of his successor.

 

Questions for Classroom Discussion

  • 1. Examine the role of a leader in the Tata Motors Ltd.’s business performance.
  • 2. What are the likely challenges that a new leader has to face in heading Tata Motors Group? Is it significant to start succession planning at Tata Motors Ltd.?

 

Suggested solution to the questions for classroom discussion:


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Abstract

Tata Motors Ltd. (Tata Motors) launched its first commercial vehicle in 1954 in a technical collaboration with Daimler-Benz AG. Since its first launch, it has produced a variety of commercial and passenger vehicles like Tata Sierra, Tata Estate, Tata Mobile, Tata Sumo, Tata Safari, Tata Indica, Tata Ace and Tata Nano. Though, Tata Motors expanded globally, its customer base was found mainly concentrated in the Indian subcontinent. To consolidate its position in various product segments in Indian and global market, Carl Peter Forster (Forster) was appointed as the Group CEO and MD with effect from April 2010. Forster turned around Tata Motors' Jaguar and Land Rover unit (JLR) and sales of all commercial and passenger vehicles increased globally and domestically, but he resigned on September 9, 2011 due to unavoidable personal reasons. On August 14, 2012, Ratan Tata, Chairman of the Tata Group, announced the appointment of Karl Slym (Slym) as the MD of Tata Motors. Karl Slym joined Tata Motors in September 2012.However, Slym's sudden death on January 26, 2014 came in the mid of his wide ranging reorganization strategy.

In the meanwhile, Ratan Tata retired on December 28, 2012. Under his leadership for 21 years, Tata Group's revenues grew 51 times more than the 1991 level. For all these years, he spent most of his time at Tata Motors. Even before Ratan Tata retired, Cyrus Mistry was identified as his successor. Cyrus Mistry, before joining as Chairman of the Tata Group in December 2012, worked closely with Ratan Tata to gain experience of the automotive business. The Zest and Bolt, Tata Motors' newest car launches, were developed under his close supervision. However, the results for the fiscal year 2014-15 were disappointing as vehicle sales (both passenger and commercial) in domestic market declined to the lowest level in a decade. Total market share of Tata vehicles fell to an all-time low of 14.1% domestically and 'Profit after tax' reported loss of INR4,738.95 crores, being the highest annual standalone loss ever. To put things in perspective, turning around Tata Motors is not the job of the Group Chairman alone. All that is needed is stable and competent leadership.



Pedagogical Objectives

  • The role of leader (CEO) in the progress of a company
  • The significance of succession planning and leadership development in large organizations like Tata Motors Ltd.
  • The consequences an organization has to face due to unstable leadership and lack of succession planning
  • The strengths and weaknesses in recruiting a new person as a leader from within or from outside the organization
  • The role an incumbent has to play in the development and selection of his successor

Case Positioning and Setting
The case study can be effectively taught to Post Graduate management students or executives.


* GSMC 2016, IIM Raipur

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