Tata Steel’s Journey Part 1: Workforce Dilemma

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Greetings from Yadnya!

Today, we bring to you the story of one more Tata Group company’s journey – Tata Steel.

Started as TISCO (Tata Iron and Steel Company Limited), Tata Steel Limited is now a multinational & diversified Indian steel manufacturer with operations spanning over 26 countries and a commercial presence in excess of 50 nations. To put things in perspective, in India, almost every fourth stainless steel utensil is made out of Tata Steel chrome ore and half of the country’s cooking gas LPG cylinders are made from Tata Steel Hot-Rolled coil.

Tata Steel Limited (TSL) features in the top echelons of steel-producing companies across the globe with an approximate annual crude steel capacity of 33-34 MTPA. TSL competes with behemoths like Arcelor Mittal, Jindal Steel and Power, JSW Steel, and SAIL. Very few companies have their core operations fully integrated from mining to manufacturing to the marketing of finished products.

A brief look at TSL’s Timeline

Employee Layoffs or their Wellbeing – An Interesting Perspective

From 1907 to the last 1980s, Tata Steel grew 20x from 1-lakh tonne to 20-lakh tonnes per annum production capacity. Jamshed Jiji Irani (then Managing Director) once said that the company was restricted to 2 MTPA production and discouraged modernization as PSU steel plants were being set up at Bhilai, Bokaro, Durgapur, and Rourkela. In contrast, steel plants in Japan that produced about 10 MTPA in 1958, had risen to 100 MTPA by the 1980s. Irani once jokingly commented that the Tata Steel plant could soon become a steel museum.

TSL had the distinction of being the country’s biggest private-sector enterprise, however, it also was one of the most expensive steel producers around the globe. It used to produce 100 tonnes of steel per man in a year, compared to 1,000 tonnes per man-year by some of the other super-efficient producers in the USA. This industry was tagged as the sunset industry and TSL as an inefficient operator. Back then, several global consulting heads advised Ratan Tata (then Chairman of Tata Sons), that Tatas should sell Tata Steel and exit the steel sector as the competition was looming large post-liberalization news.

Having said that, Ratan Tata was determined to turn the company around. He paid no heed to the consulting companies' advice and started the process of transforming TSL from being a laggard of the 20th century to becoming a trailblazer in the next century. In the next two decades, this vision was actually achieved. Tata Steel becomes the first Fortune 500 company in India along with becoming the least-cost producer of steel around the world. It won the Deming Prize (2008) and the Deming Grand Prize (2012) in TQM (Total Quality Management), and created history by becoming the first and the only integrated steel company in the world to achieve this feat.

Beginning of the Workforce Crisis

In its journey to become a world-class organization, the right labour force was crucial for modernization and profitability. Ratan Tata (after taking over as Chairman of Tata Sons) enquired about the workforce size and was shocked on hearing 80,000 as the number. Since Tatas have always been employee-centric, in the 60s and 70s, labour was inexpensive in India and thus, the company willingly gave a lot of jobs. This was the primary reason for the huge workforce at TSL. Till the time salaries and wages were less, that wasn’t a concern. However, in the early-1980s, the salary bill increased to a whopping ₹200 cr.

 Wages were actually linked to the PSU sector. Since only two companies were in operation back then, wages were deciding jointly by SAIL and TSL. True to Tata culture, TSL actually employed more people than it required. There were about 3000 office boys and secretaries. These factors led to the increased salary costs for Tata steel.

Tata traditions such as the nomination of their child upon completion of service of any employee (essentially to take up their position), led to an inter-generational employment situation. Terminating employees was not an option as it had socio-economic repercussions to it especially in a small city like Jamshedpur, where primarily salaries were not from agricultural produce but from steel. Thus, voluntary separation and that too an attractive one was the only option available with the HR team of TSL.



Management - Union Conversations

Irani (Managing Director, TSL) explained the struggle of TSL to stay afloat to the unions and the idea that the generation employment is something they need to get away with. Unions gave a strong rebuttal that the management is taking away the jobs of their children. Irani confronted them and said that if they don’t agree, forget about the next generations, even this generation's employability would be at stake. The management was honest, in their meetings with the unions they used to share the per-employee costs and their future plans to keep the company afloat and transform it into an efficient steel producer. They also showed them the international benchmarks and asked for possible alternatives. Workers were muted and had nothing to counter.

So, ultimately, how did Irani and Ratan Tata solved this labor wage problem at TSL – a problem which was more than just wages and employment. Do check Part 2 & Part 3

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