The importance of failure
To show that failure is an increasingly central part of any business strategy, a unique annual competition has been instituted: A prize for the best failed idea.
Despite his starring role at the helm later on, early business failures in the Tata Group’s electronics and mill interests ensured that Ratan Tata had lots to contend with initially.
When he succeeded his uncle J.R.D. Tata as chairman in 1991, few expected the group to survive the challenges of liberalisation. But by trimming the “group’s 300 fiefdoms” and removing managers who did not share his global vision, Tata reinvented the company.
There were some low points though.
In 1971, Ratan Tata was appointed Director-in-Charge of The National Radio and Electronics Company Limited (Nelco) that was in dire financial difficulty. Although his suggestion that the company invest in developing high technology products, rather than consumer electronics, was not rejected outright, JRD Tata was reluctant, given the financial performance of Nelco until then — the company had never paid regular dividends.
When Ratan Tata took over , Nelco had 2 per cent market share in the consumer electronics market, with a loss margin of 40 per cent of sales. Later, JRD decided to act on Ratan Tata’s suggestion, and from 1972 to 1975, Nelco touched a market share of 20 per cent. It recovered its losses.
The blow, however, came in 1975 when Prime Minister Indira Gandhi declared a state of emergency, which led to an economic recession. Acute union problems in 1977 ensured a strike and an eventual lockout. Though Ratan Tata continued to believe in the fundamental soundness of Nelco, the venture did not survive.
At around the same time, in 1977, Ratan Tata was entrusted with Empress Mills, a textile mill controlled by the Tatas. It was one of the few sick units in the Tata group, but he managed to turn it around, even ensuring a dividend.
However, Empress Mills had a large labour contingent at the time and though Ratan Tata decided to invest in modernisation, it did not suffice. As the market for coarse and medium cotton cloth (which was all that the Empress Mills produced) turned adverse, the Mill’s losses began to mount .
Bombay House was also unwilling to divert funds from other group companies into the Mill, which was finally closed down in 1986.
In an interview several years later, Ratan Tata was still nursing the wound when he said, all that was needed to turn around Empress Mills was just Rs 50 lakh.
Even as Ratan Tata was facing criticism for the bankruptcy of two of the group’s businesses under his tenure, two senior lieutenants of JRD Tata, Russi Mody and Nani Palkhivala, were at loggerheads with him (Ratan).
The attacks became more vicious after 1991, when JRD Tata stepped down as Tata Industries chairman, naming Ratan Tata his successor. Shortly after, Ratan Tata reduced the retirement age from 70 to 65, which forced out many of the company’s older stewards.
Although a controversial decision, he claimed it was necessary for the company to progress. During this time, both Nani Palkhivala and Russi Mody, JRD’s favourites, were let go from the group.
Ratan Tata’s dream project for a Rs 1-lakh car came under fire when the Trinamool Congress chief and current Chief Minister of West Bengal Mamata Banerjee objected to locating the plant that would produce the Nano, in Singur. Facing allegations that the company was forcing people out of their lands in collusion with the then Left Front Government in the State, Ratan Tata and his team bid goodbye to their controversial tenure in West Bengal on October 7, 2008.
The Nano project was shifted to Sanand near Ahmedabad, with an investment of Rs 2,000 crore.
The car was launched on March 23, 2009, amidst much fanfare with advance bookings that preceded its launch.
FAILURE CAN GOAD INDIVIDUALS
In his final year as chairman, Ratan Tata has been keen to foster innovation. In order to show that failure is an increasingly central part of any business strategy, a unique annual competition has been instituted: a prize for the best failed idea.
“The idea is to keep the company from avoiding risks, with a prize meant to communicate how important trying and failing can be. The Chairman has termed failure as a gold mine,” notes an insider, on the condition of anonymity.
By recognising failure and even rewarding it, the Chairman is keen to show that failures are likely in the pursuit of innovation.
Though Ratan Tata is never tired of saying that most don’t have equal talents, yet, all have an equal opportunity to develop those talents, the 75-year-old is stepping down from the sprawling conglomerate leaving behind an innovative spark that can ride out most failures and help keep the company relevant on the global stage.