"Economic transformation entails painful change which Indian organisations have to come to grips with if they want to be a global player," says R. K. Krishna Kumar, chairman, Tata Tetley, vice chairman, Tata Tea, and managing director, The Taj Group of Hotels. A product of the Presidency College, Chennai, he joined the Tata Administrative Services 37 years ago; today, he is at the helm of two of the Tata Group’s major business ventures.
In an era where competition is intense and the only marketplace is the global marketplace, Mr. Kumar’s objectives are very clear: to make both his companies world leaders in their area of operation. Towards this end, he has been making cautious but steady professional moves, scaling up the companies’ operations, and restructuring to become globally competitive.
He has been an active participant in the transformation of two of the Tata Group's oldest businesses — the more than 100 years old Taj Group of Hotels and Tata Tea. He narrates to Christabelle Noronha the challenges he has encountered in growing and scaling up a global operation through realisation (foresight) and restructuring.
tata.com: What personal challenges did you encounter in scaling up a global operation?
R. K. Krishna Kumar: The fundamental issue is the task of building a vision, structuring it and making it relevant so that it can be implemented. It is a process that has to evolve over time. Vision is part intuitive and part intellectual. It requires the gathering of intellectual inputs, keeping a close tab on trends, analysing and understanding their meaning and setting a strategic direction based on global trends. All these elements make up vision.
It also requires courage and guts to implement that vision. Every business requires a strategic direction. While you may have personal courage, using it for a corporate purpose is a tough call. You are after all a cog in that vast network that surrounds the corporate engine – the stakeholders, which include, shareholders, employees, the owners, i.e. the Tata Group, and a larger audience in the marketplace. The best safety net then, is to debate the validity or relevance of this courage through a process of intense debate and thinking amongst an internal audience.
A great benefit I enjoyed was my interaction with Ratan Tata and N.A. Soonawala, who helped me pilot concepts through. Like fixing a cap on the price you should pay, the areas you can get into and so on. I’m describing a complex process of addressing the personal challenges that one can face in building a global operation. A worldview of the compelling need to globalise precedes all this.
tata.com: How would you apply this to the challenges you encountered in catapulting Tata Tea to the global arena?
RK: In the case of the acquisition of Tetley, it was a large step into the global arena that we took last year. It evolved in the direction that Tata Tea was taking for the last 17 years. Seventeen or 18 years ago, Tata Tea recognised that we cannot market tea as a commodity. The future of the tea industry would undergo a change.
From as early as 1984 onwards, the consumer has been our focus and we embarked on a very aggressive, and, in retrospect, successful brand building programme which resulted in catapulting Tata Tea into the No. 2 position in the Indian tea market. In India, we are pitted against one of the strongest players in the world, which is Hindustan Lever.
Then again in 1989, we were witness to the most significant event in the postmodern era of history – the fall of the Berlin Wall. That sent a signal to me that the geopolitical landscape of the world is going to be totally transformed, that all country barriers, market barriers, and racial barriers would collapse and the dramatic outcome would be the birth of a new global market place.
We had now to decide what we would do to make Tata Tea a global player. The first thing was to define the marketplace. It occurred to me that the marketplace was not going to be India, neither would it be regional. There were views on whether it should be South East Asia. Then we witnessed the impact of technology and realised that there is going to be only one marketplace – the global marketplace, and everything else would readjust to that fundamental truth.
In 1991, we went ahead and looked at Sri Lanka where we needed a production base; that was the first step we took towards globalisation. Then in 1995, came the opportunity to make a bid for Tetley and, as I said, it evolved organically from the direction Tata Tea was taking over the last 17 to18 years. We wanted to create a global brand, because the marketplace was global and in a global marketplace only global brands survive, local players get marginalised. We did not want to get marginalised, so we had to either build a global brand or acquire one. Building a global brand was very expensive, so we acquired one.
In the process of acquiring a brand the major constraint was finance, so we had to raise capital by way of debt from the future earnings of the large global organisation we were yet to acquire and for that a very innovative financial plan was put together by Mr Soonawala. We now have two companies – Tata Tea in India and Tata Tetley, the global operation, in UK, operating as two different legal entities.
tata.com: What are the challenges posed by the acquisition?
RK: The challenge of the acquisition in stage one is to integrate the two companies, so we created task forces, we identified areas where we can synergise better, yield efficiencies, penetrate new markets and deliver the promise of a global brand with Tetley.
Sometime in the middle of next year, the market will see the results of this process. There will be several activities that will clearly signal this combined working between Tata Tea and Tata Tetley. Now, looking ahead, I see fusing of all these entities into one super global company -- maybe, with a listing on the New York stock exchange, the London stock exchange, the Bombay stock exchange, and so on – seamlessly operating as one entity, deriving all the efficiencies of integration and imparting the necessary aggression in the marketplace to gain market share. It will be a very successful global tea company, owned by the Tatas, an Indian company, and very successfully run across the globe.
tata.com: How do you apply this situation to the case of Indian Hotels?
RK: If I were to apply this to the Taj Group of Hotels, there is a tremendous impact of technology, not merely in localised technology like the central reservation system and the customer information system, but larger technologies with convergence that will break down travel barriers.
There are a large number of people in the world wanting to discover the world; inspired by what they see on television, they are seeking adventure, exploring new areas. Concomitantly, there is an expansion in travel facilities -- aircrafts are becoming bigger, air travel is becoming technologically linked across the world, and alliances are being formed between airlines, making efficiency possible, driving down costs and thereby creating an explosion in worldwide travel. When that explosion takes place, there will be hotel brand preferences, as a brand promises peace of mind.
When Americans travel and see a Mariott or Four Seasons sign, they know what to expect, they know that they will be well looked after. So a brand is very important in the hospitality business – a brand which is recognised as delivering quality standards. The Taj Group of Hotels has before it several challenges. It is an Indian chain, but I see a compelling need to reach out and have a largely noticeable global operation – not in size but in quality. It can pursue different routes – build new hotels, partner with other equity shareholders, buy hotels (which is very expensive and a risk prone route), it can get into a franchise arrangement where its expertise can be used to brand the property with the Taj name.
This, in my view, is possible in the Middle East or in South East Asia, where the Taj name is known, but may not be possible in Europe or the US where the brand is not known. Here it can acquire a small collection of luxury hotels which deliver high visibility to the Taj name in major source markets such as Europe and the US. It can use a combination of these routes to achieve a global physical presence, and that’s what the Taj is going to do.
Many of the properties we are looking at fall into these categories:
- It must add to the equity of the Taj brand
- It must be a high quality property
- By definition, it can’t be very large because raising capital is not easy
- It must be something we can manage efficiently.
So we are embarking on the same road of putting the Taj operation on the global map and, hopefully, within two or three years we will have a high quality selective presence across the world, specially the western world. This will give this chain high visibility in major source markets, and we should, in that process, lay the backbone for a central reservation system.
tata.com: What plans do you have to stimulate thinking and planning on these issues among the employees?
RK: That’s the issue. It is not merely physical expansion that we are looking at. Today, when everyone is talking about the Taj being renovated with high visibility, that in my view is the tip of the iceberg. What we are really looking at is process improvement, delivering much higher service standards, setting global service standards, providing world class service and that is a major effort for a very old organisation.
Managing a transformation of the entire organisation is what the Taj is trying to do. It’s a very complex and difficult task, with attitudes having hardened over a hundred years. There are old vested interests and also genuine differences and contrary views. To navigate through all this is quite a task, quite a challenge and the Taj is engaged in this task right now.
In executing this strategy of change, the Tata Business Excellence Model (TBEM)has been a very useful tool. Managing the upgradation process has been a tough task but we will persist so that, within a period of two-three years, the Taj will stretch out to occupy a world-class position.
We’re looking at two broad trends – we’re addressing the strategic compulsion of going global in our attitudes, in our policies, in the way we deliver service and in the way we do business, making it seamless and making it attractive to worldclass travelers.
There are subtle changes in the emphasis that we are bringing about in the process, for e.g. the Taj was and is seen largely as an Indian chain with a strong ethnic focus. It was designed and aimed at the tourist traffic -- those who came for leisure -- because that was the market then. I would certainly like to keep that market and get a larger share of it, but the real challenge, as I see it, is to go to the top-end of the corporate market.
In the globalised world, corporate travel is going to be a major driver of profitability, occupancy and all revenues in a hotel. In some ways that defines the quality standards of an operation; because corporate travellers do not come on a budget, they come to meet business prospects, to entertain and they expect world class service. I’m therefore putting a tremendous amount of emphasis on re-directing the Taj towards becoming much more service-oriented to meet the requirements of the world class business traveller.
Issues of training, therefore, and HR intervention assume tremendous importance in making this subtle directional change in the positioning of the Taj. Another issue is the fundamental change in the attitudes and service standards of people. Introducing systems and processes, a very strong injection of technology, together with a sharp focus on the customer, becomes crucial.
There were some hard decisions that had and have to be taken. Sometimes in old organisations you have to take hard decisions. Very often you are right and sometimes you are wrong. You can’t be 100 per cent sure about everything. It’s got to be combination of vision, intuition, and collective judgment and then you move on.
tata.com: With hotel room capacity in India already under-utilised, in-bound visitors (both business and tourist travellers) not picking up, will Indian Hotels concentrate on building capacity outside India rather than in India?
RK: I think the statistics are well known. India has been getting about 2.4 million visitors every year as against huge numbers in smaller countries like Sri Lanka. I expect India to become a more fascinating destination for the leisure traveller. With the Indian economy opening up, and deregulation taking place, there will be a tremendous number of business travellers and therefore the need for new hotels will increase.
We will not see very high occupancy rates (90-100 per cent). We will probably see occupancies at 50-60 per cent, with a steady average room rate (ARR) and an increase in the revenue spend per customer. We will see a lot more activity on the food and beverage front and tremendous activity in conferences and events of that kind. So, the revenue stream will be very healthy and, for hotel chains like the Taj, the profit margins will be high. So, while I do not see an explosive growth in terms of occupancy, I see an overall healthy picture ahead. So, to answer your question, we’ll do both, expand capacity in India and outside India.
tata.com: Despite initial reports that Indian Hotels was the frontrunner for the Carlyle acquisition, all is quiet now; can you throw some light on your US strategy?
RK: It remains unchanged. The Carlyle is a unique proposition. I’m hoping that it gets revived and we have the best chance to get back into the process, hopefully within the next few days. It has been a cliffhanger and if, for any unfortunate reason, the Carlyle does not come along, there are other properties we are looking at. The fundamental strategy will not change.
So, the answer to your question is yes, the newspapers carried it prematurely and then I was forced to make comments. We are silently pursuing the deal and I’m hoping that we can pull it off. If we can’t, we’ll pull off something else. The direction remains unchanged -- we will look very strategically at western markets and we have identified a strategic partner to work with us.
tata.com: Will Indian Hotels take recourse to building a full-fledged travel portal as an effective marketing tool to service the global marketplace, especially with the convergence of travel, tourism and hospitality?
RK: Yes, as it becomes a strategic need, we will do that. For now we have an excellent website: www.tajhotels.com, and its very satisfying to see the number of bookings being made on the net; and the momentum is building up.
tata.com: Globally, the trend to build services around products or to emphasise services over products is gaining ground. How do you plan to address this trend?
RK: That’s the way the world is unfolding. When we build rooms today, we do so after an analysis of what the customer wants, what they say, what they need, what should be in the rooms and so forth. There is a tremendous amount of building a service around the product. We’re in the peace-of-mind business, you see.