Mumbai: Niru Mehta is the quintessential modern manager. Vice chairman of Tata Telecom Ltd and also managing director of Avaya India, he is unconcerned about the baggage of the past, and willing to innovate to ensure success for his company. The only constant on his horizon is the customer.
Concerned as Mehta is with the customer, he also has the shareholder clearly in focus. The company must provide a good return on investment for the investor. "[Tata Telecom] is not a story about technology; it's about developing shareholder value," he says.
That's what Tata Telecom set out to do, and, in order to do it, it has had to revamp its organisation and motivate its people. Getting it all to work together has been a major achievement for the company.
Only a few years ago, Tata Telecom was "caught in the middle," the way Michael Porter would have defined it, with neither a clear cost-competitive position nor a strong differentiation. There were others in the market offering much the same thing, and at a lower cost. The company was going downhill.
Today it is the market leader in India, it is profitable, and it is set to grow rapidly. Profit before tax has shot up to Rs 24.29 crore in the year ended March 2002 from a loss of Rs 14 crore in 1998-99.
In 1998 Tata Telecom was the leader in the EPABX market, with a strong base of over 6,000 customers and over 1 million installed ports. It had solid manufacturing capabilities and a presence throughout the country. With 750 employees, the company had a proven track record of over a decade.
This was not enough. The market was changing and there were threats as well as opportunities. While government policies opened new vistas, customer profiles were changing, customer expectations were changing faster still, and, with imports being more freely allowed, Tata Telecom's local manufacturing advantage was eroding fast. In order to get revenue growth, it had to reinvest and restructure.
One of the company's major decisions was to spin off Tata Telefone, the loss-making division that produced telephone instruments. But this was not enough. There was need to build some lasting advantages.
What the company saw in this flux was declining opportunities in the EPABX market and growing prospects in new areas like call centres, messaging solutions, video conferencing and networking. The company had to redefine itself - "from a successful manufacturing-centric PBX company to a customer-centric, profitable, e-communication solution provider," says Mehta. Another way in which he describes this shift is "from selling boxes to selling solutions."
"We had become a large fish in a small pond," Mehta explains. "We needed to expand the size of the pond." The company had to move beyond EPABX solutions. That's where the Lucent Technology collaboration kicked in. Lucent Technology, now Avaya (since end-2000), had all the technologies that would place Tata Telecom at the top of the spectrum in the Indian telecom solutions market.
Says Mehta: "My brief was to do this without additional investments from the promoters" - the Tata group, India's leading private-sector business house, and Avaya, a subsidiary of Lucent of the United States. That he has managed to do what he has done without any further funding from the group is one of his successes.
Tata Telecom has achieved something else that will not be evident from year-end figures. Its sales used to experience a seasonality that resulted in inefficiencies in resource investment and allocation. Typically, sales would rise in the second and fourth quarters and dip in the first and third quarters. This fluctuation has been evened out over the past two years.
The management has also been able to reduce the cost of sales, and brought down the expense-to-revenue ratio from 44 per cent in 1998-99 to 23 per cent in the year ended March 2002. Employee productivity has multiplied from Rs 17 lakh per employee to Rs 49 lakh in this period.
According to Mehta, the average rate of growth of the market in India has been 16-20 per cent. Tata Telecom has registered a 43 per cent growth in the second quarter of 2002-03.
Great news on the accrual front, but what about cash flows? There's good news here too for Tata Telecom shareholders. Accounts receivable have been reduced from 149 days to 115 days. Simultaneously, old account receivables were chased, and bad debts reduced. Also, the company's debt burden has been cut from Rs 42.7 crore in 1998-99 to Rs 30.5 crore in 2001-02 - and the company had Rs 9 crore in cash to boot.
You can't keep a good story like this a secret from the market. Naturally, Tata Telecom's share price has zoomed, from a low of Rs 41 in the past year to Rs 118 in end-September 2002. In between it touched a high of Rs 212, from where it has declined with the rest of the market.
Customer feedback too is "encouraging," says Mehta. The company has been doing customer satisfaction surveys, and the responses are improving. Both 'exceeds-expectations' and 'at-expectation' responses have grown, while the 'below-expectations' response has declined.
The employee angle
What's the use of all this success, you might ask, if employees don't benefit? In the year ended March 1999, employee satisfaction surveys conducted by an external agency showed that 80 per cent of employees said they were more than 20 per cent dissatisfied in eight out of 11 categories of responses. That changed, in the year ended March 2001, to all employees saying they are more than 80 per cent satisfied in all 11 categories.
This kind of thing doesn't happen automatically. The management has had to work for it. It believed in setting high expectations, and then getting everybody to work to fulfil them.
"We had to inculcate a passion for winning," says Niru Mehta. "Simultaneously, everybody had to get focused on the company's success." The top management had to lead from the front in all improvement efforts, and all functions were given importance.
A leadership team of some 20 people was created to catalyse the change. These people did the evangelising and guided implementation. They also empowered employees, enabling people to participate in decision-making and in taking decisions. Additionally, the management took care to improve the facilities and benefits for employees. Morale shot up.
There were casualties. Not everybody could take the pressures that some of these initiatives were perceived to have built. "But these were acceptable," says Mehta. They were also inevitable in a competitive business environment. The number of Tata Telecom's employees has declined to 540.
A major objective and achievement of this process of overall change was, for example, the aligning of organisational practices to ensure responsiveness to customers. Earlier, while the broad objective of the company was to serve the customer, different departments and individuals had their own different goals, often seemingly valid from a business point of view. The management has now got everybody pointing in the same direction of customer responsiveness.
The organisational structure has also been reengineered to ensure customer responsiveness. In the marketing area the company has 'account management teams' reporting to 'relationship managers', who in turn report to regional directors. Then there are expert teams which aim for sales excellence. Sales people are encouraged to spend more time with customers.
"Earlier we used to attempt to optimise functions," recalls Mehta. That, he thinks, was a "self-centric" approach. "Now we strive to optimise systems." This is what leads to becoming "customer-centric," he believes.
All this is easier said than done. The management has to spend its energy in a wide range of internal initiatives. Investments in training have doubled, specialisation is being encouraged, greater accent has been given on both technical and soft skills, performance is rewarded, people are given recognition for achievement, roles and responsibilities have been better defined, processes have been simplified, and authorisation actions have been brought "closer to the action."
The smart management doesn't just do good things; it also capitalises on them. Having revamped the company to make it customer-responsive, the management has taken on what Mehta calls "a key challenge": to develop the reputation of being a customer-responsive organisation, and an organisation that is ready and capable of delivering "converged enterprise solutions."
"We didn't rely on media advertising," says Mehta. "It's very expensive, and not so effective in our business. We relied on public relations, the Internet, and customer-related activities."
How? That involves a range of activities, including customer relationship management, monthly technology seminars, proactive public relations, strengthening the company's web presence, and so on.
Niru Mehta is an impatient man, as any good chief executive should be. He is not satisfied with good results; he wants to get "great results." That's not easy in the welter of competition in which his company has to operate, but he has a good notion of how to go about this task. His checklist:
- Use of technology to accelerate growth
- Discipline in execution
- Improved use of the Web
- Inorganic growth
Now that opens up a wide arena of discussion, which Mehta doesn't want to get into. Especially when you ask him about "inorganic growth." For example, which company or companies would you like to acquire?
Wait and watch.