Strategic Human Resource ManagementSuccession Planning

9/17/2013TATA GroupDeepika Agrawal

Q1) critically examine the importance of leadership development & succession planning at TATA and explain how it is undertaken at the company.ANS: Tata Power, India’s largest private power producer has developed a new succession plan to groom “in-house talent” to take over critical leadership positions when these fall vacant. Their focus of recruitment has been more on entry-level as most of the leadership positions are taken from talent within the company.“Tata's leadership development programmes and training processes aim at grooming the managers of today into the leaders of tomorrow”How it happens at TATA.

The Tata group's commitment to enhancing the knowledge and leadership quotient of its people has resulted in the establishment of institutions such as the Tata Management Training Centre and the running of programmes such as TAS

This managerial development programme was conceived by JRD Tata, the late chairman of the Tata group, in the 1950s. The idea was to select and groom young managers, provide them opportunities for professional growth, and make them part of a talent pool that could be tapped by companies across the Tata organisation

A sizeable number of the workforce has 25-30 years of experience. Tata Power started this initiative by preparing a list of critical positions, reviewed regularly.

It then picked employees to prepare them for senior roles, without mentioning the specific positions they were being groomed for.

There are few deliberate talent development tools as a means of creating robust pipeline of talent which is looked at as a motivation and retention mechanism than saving on cost. Lateral hires are time-consuming and come with an additional cost.

The company’s first category of talent being developed is for positions known as ‘drop down’. These require immediate succession. The innovation in the succession plan is for positions that will be vacant in the next two and the next five years, internally known as ‘ready in one to two years’ and ‘ready in five years’.

These talents are rotated through periodic development programmes. It is not one concentrated dose, but given through a process, so that they have the opportunity to apply their mind. Even the lateral hires have to blend with the leadership pipeline, so they are brought early to learn the organization’s culture.

But the company will still face challenges. Of the 26,000 Mw planned capacity, about 12,500 Mw is to be built abroad in the next seven years. It has already divided its business development team into different regions — Africa, Middle East, India and South Asian countries, Southeast

Asia (Indonesia, Burma, Vietnam) and Americas. In all these regions, the company has created teams and leads.

Rigorously assessing annually the leadership performance of all executives, managers and Supervisors against key competencies essential for the attainment of the Department's new vision. For each group, the assessment will be performed by a board selected from leaders at the next higher level.

All the leads are entitled to run and whosoever gets the clearances the fastest gets the investment. The company has done so to de-risk itself from domestic project delays. Currently, the Africa region is leading the race, ahead of India. Its South African joint venture, Cennergi, formed six months earlier, is already executing projects.

The model would not be successful across the board, as the company will require foreign talent when it expands overseas, partner and head of India at Wellesley Partners, an executive search firm with presence across the Asia-Pacific. The company will need fresh talent for finance and other experts as technology changes.

Tata Power is considered to be one of the low paymasters in the industry. At a time when the power industry is seeking rapid growth, the company can become a poaching ground in the absence of a strong retention plan.

Q2) why do you think that the involvement of the top leadership is important in succession planning?ANS: Securing senior management and board support for a succession planning process gives employees and staff an understanding of how important succession planning is to the organization.

When the decision is taken by the top leadership management the intensity of it is understood by the employees in the organization and helps in successful implementation.

The roles top leadership play at all levels are important for driving successful succession management practices – but the most critical differentiator between the “best” and the “rest” is the level of commitment and engagement displayed by top executives and next-level senior executives.

Executives are also more optimistic than HR leaders regarding the effectiveness of succession management in meeting business and strategic challenges.

For a company to reach Level 4 Maturity, it must include all key positions in its succession management strategy, some of which are highly technical, individual contributor roles.

The entire Board must be part of the process The CEO and the Board must engage in open and ongoing dialogue on succession planning,

which should include a formal annual discussion of at least half a day The CEO and the Board must have a common understanding on the company’s strategic needs,

and accordingly develop the criteria for CEO selection The Board should employ formal assessment processes to judge candidates Board members

should interact with internal candidates in various setting is better to develop internal candidates than to opt for external recruitment

The outgoing CEO should either leave the Board immediately, or continue as Chairman for a period of 6 to 18 months.An emergency plan should be put in place and reviewed at least annually.

Because the board of directors has responsibility for governance, the development and execution of a thoughtful succession-planning process must receive its full consideration.

The succession planning program must have the support and backing of the company's senior level management

Q3) Study and comment on the CEO, succession planning process undertake by RATAN TATAANS: India’s Tata Group has demonstrated, independent of Western management thought and practice, for several decades that Indian entrepreneurs and professionals of the Group can create a world-class conglomerate as an inspired national endeavor and with an unflinching social purpose.

Ratan Tata’s growth model based on change with continuity is an eminently commendable model for effective succession management.

Under the overarching umbrella of Tata vision with values, the ten self-balanced components of refining core with divesting non-core, leadership consolidation with professionalization, business growth with ownership security, globalization with acquisitions, and innovation with competitiveness, a uniquely Indian, and a characteristically Tata-stamped succession model has been brought to the fore.

The Tata way of succession planning is exemplary

 

Five-member panel was set to decide on the successor for Ratan Tata, who has been leading the group since 1991 and retires in December 2012.

The panel looked at suitable candidates from within the group and professionals from India and overseas to find a replacement for Ratan Tata, who retired at the end of 2012.

This was definitely a tough & a time consuming process for selection committee to find a “successor” of the caliber who can manage business group which comprises over 100 operating companies in seven business sectors with 413000 employees, in this challenging time.

The selection committee took 18 months’ time to identify the successor for Ratan TATA. The first committee guided by Satish pradhan (HR Head) with other Senior Leaders had given some light on possible successors. Subsequent to this, Ratan Tata had constituted a 5 member selection committee with members from TATA trust and TATA sons.

Looking at diverse data points, it appears that selection committee would have had the following guidelines while identifying the successor for Ratan TATA.

1. Long run way –Leadership Continuity for next 25 yrs2. TATA Group Ethos ( similar to level 5 leadership -personal humility and professional will)3. Experienced in handling Similar size, scale, scope, complexity (Diversified portfolio mgt)4. Shareholders / Stake holders acceptance5. Commitment to philanthropy

1. Selection Criteria : Greater importance given in Core values (TATA ‘s Etho’s, Commitment to Philanthropy) & Long run way for successor (environment to take bigger risks /time to turnaround bigger bets)2. Selection Process : Initial search / constitution of selection committee /duration of the process /talent attention on this position/preparing shareholders with regular update3. Creating eco system for right successor identification - Before installing new generation leader , the operating companies has been installed with new gen leaders..4. Talent review committee to identify hipots : Talent review committee to review hipots on regular basis. Though it appears to be role based succession planning (chairman role) now, this was preceded by individual & pool based succession planning in earlier operating companies..5. Way of inducting Successor into new role: Cyrus will be Dy. Chairman for one year shadowing Ratan Tata.At the end of all speculations, the final news was out on Nov’11.The Selection committee anonymously selected Cyrus Mistry as the Successor for Ratan Tata, who was initially been part of selection committee.

Q4 Comment on TATA’s performance under current Leader.ANS: Current CEO: Cyrus Mistry

Mr Mistry was earlier the managing director, Shapoorji Pallonji Group. Under his tenure Shapoorji Pallonji’s construction business grew from a turnover of US$20 million to approximately US$1.5 billion.

Cyrus Mistry has re-created the Group Executive Council (GEC) as the highest decision-making body, a decade after it lost its prominence as the sole body for strategic decisions for the $100-billion (Rs 5.4 lakh crore) Tata Group.

The impact on TATA Group of the steps taken by Cyrus Mistry Under Mr Mistry’s stewardship, the companies executed many landmark projects in India –

construction of the tallest residential towers, the longest rail bridge, the largest dry dock and the largest affordable housing project. The group’s international construction business is now present in over 10 countries.

Mr. Mistry was responsible for building the infrastructure development vertical in the Shapoorji Pallonji Group with a 106MW power project in Tamil Nadu followed by the development of India’s largest biotech park near Hyderabad in partnership with the Andhra Pradesh government. The infrastructure vertical has also developed two large road projects totaling an investment of US$550 million.

With Cyrus Mistry as full-time Executive Chairman, an executive body seems like the right thing to do, as Mistry has the freedom to create his young team.

FAST GROWTH

Group's capital market performance Shares of the Tata group companies have been among the star performers on the Indian stock

market over the last three years The total market capitalisation of the group's 28 listed companies crossed the Rs100,000 crore

mark and the group acquired the distinction of having the highest market capitalisation among all business houses in the country, both in the public and private sector.

Tata group accounts for 9.3 per cent of the total market capitalisation of BSE. Tata group companies have contributed significantly to the spread of equity cult in the country.

They enjoy the trust of over 3.9 million investors. Figures within the bracket are in US $ billion. The group spent billions more on overseas assets like engineering firms, luxury hotels and coffee

brands. Tata Chemicals alone bought, invested in or merged with eight companies between 2004 and 2011.Mistry's job was to consolidate, three directors said, an effort focused on getting more from existing businesses, as opposed to shedding assets.

In his first five months on the job, Mistry had ordered his CEOs to tighten spending, and replaced oversight structures to give him greater influence over the running of the more than 100 group companies.

The very first month Tata Steel announced a $1.6 billion write-down, an acknowledgement that it overpaid for Corus. Eariler month, its mobile phone unit, which ranks sixth in India by users, said it will surrender part of its CDMA mobile airwaves in most of its zones after the government asked carriers to pay surcharges.

Besides Tata Chemicals, Mistry's to-fix list included underperformers such as the domestic arm of Tata Motors, Tata Steel, and Tata Power, people familiar with the plans.

Ubiquitous in India, the Tata group makes the buses that transport millions of commuters to work each morning, the steel that built their offices and the salt that flavours their lunch.

Mistry rarely speaks in public. He gave brief remarks at the January "Vibrant Gujarat" event organised by Narendra Modi, chief minister of the state where Tata's low-cost Nano car is made and a potential candidate for prime minister, but his other appearances have mainly been at company functions.

Mistry, who has chosen not to move into the former chairman's empty office, is yet to sit for a media interview or address a press conference, but is known to attend company events unannounced and without fanfare. At a Jaguar Land Rover party last year, he mingled with guests in an open-collared shirt.

Tata companies are in the midst of reporting the first full quarterly results of Mistry's tenure, and many shareholders will get their first glimpse of him as chairman during the summer annual meetings season.

Q5. Examine the need of succession planning in companies and identify various problems a company might have to face due to lack of succession planning.The Importance of Succession Planning

Succession planning is an on-going dynamic process that identifies, assesses,and develops talent to insure that an organization can keep up with changes inthe workplace and marketplace. Succession planning focuses on the key areas:

Succession planning addresses the needs of the organization as senior management gets older. Many leaders of organizations spent countless hours and years developing key components of the organization. Unfortunately, the organization frequently fails to fully develop individuals that are prepared to move into leadership roles. This is especially thecase within small companies, which often times struggle to keep the doors openafter a CEO or founder leaves the organization. Family businesses arealways at risk, and very few of them make it into the next generation. Early planning removes that obstacle.

Succession planning prepares an organization for an unexpected, undesired event. Key members of the leadership team are not immune to the sudden events that life sends their way. They struggle with car accidents, diseases, relationship issues and by other events that take them away from their roles within the organization. These events cannot be predicted, but it is entirely possible to have a plan that highlights who is capable to take over if a key person is lost.

Succession planning ensures an organization has the right people in place today, as well as into the future. While many organizations look at succession planning as a means to define who will take over the role of CEO or President, the reality is that all organizations should use this planning process to determine who has developed the capabilities and competencies to take over for a manager or supervisor within the organization. It helps organizations measure the strength of their pool of talent and also understand where there are gaps in that talent.

Succession planning is a means to support the current culture. Culture is so important to the stability and success of an organization. An organization cannot afford to leave positions open when they lose key leaders. It is not uncommon for it too take several months to even a year to fill key roles within an organization. Employees need to feel comfortable and secure, but that can quickly change if a key position is not filled.

Succession planning ultimately helps define business strategy in to business and organizational goals. Companies regularly commit time and talent to developing their yearly strategic plans. Unfortunately ,these plans are too often focused on how the company can meet its financial goals through more production of products of services. Rarely do these plans take a look at how people impact the strategic goals of the company. Succession planning is an important part of the overall plan because it helps to define the types of high level skills that will be needed by the organization.

The consequences of not having a strategic succession plan can be dire. They include: a requirement for outside talent, which costs the company search and training fees, reflects

poorly on the company’s ability to develop talent, and gobbles up resources that should be used for competing priorities

a lack of career development and personnel assessment tools a lack of funding for leadership development an inability to identify future talent needs in the organization a lack of input from senior executives lost consumer, employee, stakeholder, and industry confidence lost shareholder value top talent departures potential exposure to hostile, low-value takeover bids outside talent avoids work opportunities with the firm unfavourable credit and financing

terms lost key partner and customer relationships. the ongoing confidence of customers, employees, shareholders, and other stakeholders continuous evaluation and development of management staff to ensure key positions can

be filled loyalty and emotional investment among staff share price stability

Q6)Many companies appoint CEO’s from outside rather than from within the company. Do you support this practice? Justify your answer citing the reasons.Ans: No I don’t support this practice of hiring a successor from outside the organization.

We don’t need to look outside : some companies automatically view external candidates as more attractive. But others remain myopically focused on their own people. Having a viable internal candidate doesn’t ever excuse the succession planning process from looking outside to ensure that the best candidates for the job are considered.

Boards increasingly run inside and outside searches concurrently. It is simply good governance, and shareholders should mandate it.

The tricky part of it all is communication, particularly with the internal candidates. Not being transparent about opening up the search for a successor to both outside and inside parties can do damage internally; people need to be informed upfront of how the process will run.

Active management and communication of the whole effort is critical, and when done well it can leave the internal, if selected, feeling they were the very best candidate, period.

What the best companies do is first conduct an external market scan that identifies the key candidates within the industry, then find the adjacent and best athletes across industries, and

finally roughly compare all those candidates to their internal ones, using the same forward-looking skills and experience criteria.

Most often we see selection committees narrow the list to two or three external candidates that they engage and interview.

If the external candidates are not dramatically better than the internal ones, companies take into account a certain transition risk, the external process is stopped, and the selection is completed internally.

There is a paradox in succession planning: Internal successors are in many ways lower risk than outsiders, yet surprisingly few promotions are awarded internally. Also, some find it difficult to imagine someone at the top after seeing him operate in a lesser role for years. Meanwhile internal candidates hear over and over that they are still just a year or two away from being ready.