Ratan Tata's Biggest Contribution To Management Theory

'It is notable how humble he was and didn't want anything different just because he was a Tata.'

"He had clarity about the big picture. His clarity came from his training as an architect. He had the ability to see how things should fit together."

Arun Maira, who worked for the Tata Group for 25 years, puts on record Ratan Tata's greatest contribution in scripting the Tata Story.

A prolific author of several books on institutional transformation including The Learning Factory: How The Leaders Of Tata Became Nation Builders, Mr Maira was a member of the Planning Commission from 2009 to 2014. Prior to that he was chairman of the Boston Consulting Group and presently is chairman of HelpAge International

Mr Maira and Mr Tata's early learnings began on the factory floor at Tata Steel in Jamshedpur in the mid-1960s. In a conversation with Rediff.com's Archana Masih, Arun Maira speaks about how RNT transformed the Tata Group.

• Part 1 of the Interview: 'Ratan and I Were Good Chums'

Humility and clarity were Ratan's foremost qualities.

He did not want anything special.

I remember when he was transferred to the Bombay office of Tata Steel from Jamshedpur. We were three of us, including Ratan who had the same designation. I think we were called 'executive officers'.

The office in Bombay was very small. The other executive officer and myself had open tables around the clerks and junior officers.

Since Ratan had been brought to the headquarter, it was decided that it would be improper for him to sit in an open office and a cabin would be constructed for him. However Ratan said that unless the two of us had same sized cabins, he would not move into one.

Jamshed Bhabha, the director of Tata Steel and the National Centre for Performing Arts, was the Tata's person for style, architecture and decor. He was given the charge of building the three cabins side by side within a very small space.

Since Ratan was an architect, he wouldn't take no for an answer and so three identical cabins were built.

The question then arose as to which cabin would be given to each of us? So Ratan said, let's just write 1, 2, 3 on three pieces of paper and pick one. I was given one, he got the middle one and the third executive officer got the one on the side.

I won't tell you the rest of the story. You can read yourself [The Learning Factory, How The Leaders Of Tatas Became Nation Builders, Penguin Random House]. [laughs]

It is notable how humble he was and didn't want anything different just because he was a Tata.

He was very shy and therefore the title of the chapter on him in my book is called 'The Shy Architect'.

His second quality was clarity which came from his training as an architect. He had clarity about the big picture. He had the ability to see how things should fit together.

When he became chairman of the group in 1991, he was still struggling with the question that he was the head of a conglomerate, and conglomerates were and still are considered very bad for the stock markets.

The stock markets want every company focused on itself and if you want to release value, a conglomerate required to be broken and every company listed separately.

Fortunately, the Tata Group always had separate companies, separate shareholders and separate boards. They came together as a group in the 1950s after Independence and J R D Tata carried the tradition of all the companies being part of a family with the same values, and being supported by the central body -- Tata Sons.

It was a conglomerate, but J R D Tata's innovation was to create a group called Tata Industries, a wholly owned subsidiary of Tata Sons. Tata Industries would be the management company for the group. The CEOs of the various Tata companies would be on the board of Tata Industries.

The heads of all these companies would meet every week in Bombay House for a formal meeting to discuss new opportunities for the group, as well as what was being learned by each of the companies.

India appointed the Monopolies and Restrictive Trade Practices Commission in the late 1960s to break the conglomerates because it was thought that they commanded too much power.

The Birlas and Tatas were the largest conglomerates and the government passed an act to abolish management agencies. Since Tata Industries was seen as operating like a management agency, the CEOs of the separate companies could not meet every week because that would be seen as evidence of collusion.

The thinking was that the CEOs were being told by the Tata Group, through Tata Industries.

And that is when, and this is very important, that J R D Tata made the CEOs of the other [Tata] companies independent. These companies were to be governed by their own boards.

JRD could present his ideas, but could not tell the companies what the Tatas wanted and this is a very important aspect that one can learn from the Tata management.

By the 1990s India liberalised bringing in a corporate governance climate which gave Ratan the freedom to reconstruct some coordination between the separate companies which had independent boards and were accountable to their own shareholders.

When I came back to India, and since I had a history of the Tata Group, and with Ratan, he shared with me that McKinsey was helping them form a group structure which would meet both requirements.

There would be separate companies, but at the same time, there would be some cohesion amongst the companies and a sense of pride in being part of the Tata family and sharing the same values.

Ratan then created the structure where people could meet, not in the governance capacity, but to share ideas and learn together, thereby connecting the whole group.

For example, HR managers of Tata companies could meet and share practices, similarly on quality through the quality council.

This was a good idea of enabling a federation, leaving each company to be independent, and yet being able to learn together from each other - like it is in a flotilla of ships.

This was the biggest contribution to my mind that Ratan made to the Tata Group and to management theory in the world. He created a conglomerate structure where guidance comes through voluntary cooperation amongst independent entities.

I believe that this contribution made by Ratan must be on record. I therefore wrote about it in a book on management in 2003 that the Boston Consulting Group had asked me to write about my learnings in India about federal management, both at the government and business level. [Shaping the Future: Aspirational Leadership in India and Beyond published by John Wiley and Sons, Asia]

I begin that book with a story of Ratan's dilemma in 1991 when he became chair and how he had solved it by 2000 by architecting an architecture of a collaborative enterprise consisting of independent entities.

Tomorrow: 'Ratan could walk with Kings and not lose the common touch'

Feature Presentation: Aslam Hunani/Rediff.com