Term Paper of Organization

Change & Development

Topic: Major Change occurred in Tata Tea

Submitted To: Submitted By:

Miss. Malika Rani Sheetal Tandon

Lecturer RR1709B53

LSB Reg No: 3020070152

Lovely Professional University, Punjab.

Tata group

The Tata Group is a multinational conglomerate company headquartered in Mumbai, India. In

terms of market capitalization and revenues, Tata Group is the largest private corporate group in

India and has been recognized as one of the most respected companies in the world. It has

interests in steel, automobiles, information technology, communication, power, tea and

hospitality. The Tata Group has operations in more than 85 countries across six continents and its

companies export products and services to 80 nations. The Tata Group comprises 114 companies

and subsidiaries in seven business sectors, 27 of which are publicly listed. 65.8% of the

ownership of Tata Group is held in charitable trusts.

Tata companies operate in seven business sectors: communications and information technology,

engineering, materials, services, energy, consumer products and chemicals. Every Tata company

or enterprise operates independently. Each of these companies has its own board of directors and

shareholders, to whom it is answerable. There are 28 publicly listed Tata enterprises and they

have a combined market capitalization of some $60 billion, and a shareholder base of 3.5

million. The major Tata companies are Tata Steel, Tata Motors, Tata Consultancy Services

(TCS), Tata Power, Tata Chemicals, Tata Tea, Indian Hotels and Tata Communications.

About Tetley

Tetley, a fully-owned subsidiary of Tata Tea Limited, is the world's second largest manufacturer

and distributor of tea. Owned by India's Tata Group, Tetley's manufacturing and distribution

business is spread across 40 countries and sells over 60 branded tea bags. It is the largest tea

company in the United Kingdom and Canada and the second largest in the United States by

volume.

After Tetley was purchased by the Tata Group in 2000, most of its business in Asia has been

integrated with Tata Tea and the company plans to completely integrate its worldwide business

with Tata Tea by 2006. The new merged group, Tata Tea Group, is the second largest tea brand

in the world after Unilever.

Changes that have occurred in Tata

Overall changes 1980s

In the early 1980s, the tea industry in India was experiencing rising input and labor costs and

dwindling margins as well as high taxes. India was facing competition on the world market not

just from China, but also from other countries entering the business.

In 1983, Tata Tea bought the stake belonging to the James Finlay group to form the individual

entity Tata Tea. In the same year, the company decided to move from the commodities business

to consumer branding. The first brand Tata Tea was introduced. This was followed by other

brands like Kannan Devan, Agni, Gemini and Chakra Gold. In spite of being the largest market

in the world, the concept of branded tea took time to be accepted.

In 1987, Tata Tea set up a fully owned subsidiary, Tata Tea Inc., in the USA.

1990s

In the 1990s, Tata Tea decided to take its brands into the global markets. It formed an export

joint venture with Britain's Tetley Tea in 1992. Other new enterprises included a majority

interest in Consolidated Coffee Ltd. (Tata Coffee Ltd.) and a joint venture to manage agricultural

estates in Sri Lanka. Tata Tea Inc. in the United States processed and marketed instant tea from

its facility in Florida, based on sourcing of instant tea products out of Munnar and Kerala. In

1993, they entered into a joint venture with Allied Lyons PLC in the UK to form Estate Tata

Tetley.

In the mid-1990s, Tata Tea attempted to buy Tetley and the Lankan JVC acquired 51%

shareholding in Watawala Plantations Ltd.

In 1997 the company was embroiled in a major scandal known as the "Tata Tapes controversy"

which related to funds the company provided to the outlawed United Liberation Front of Asom

(ULFA), an armed-struggle group operating in Assam.

By 1999, Tata Tea’s brands had a combined market share of 25% in India. The company had 74

tea gardens and was producing 62 million kilograms of tea a year, two-thirds of it packaged and

branded. Towards the end of the year, the tea business was hit by a drought in much of India. In

addition, Russia, once the largest buyer of Indian tea, temporarily withdrew from the market.

Changes in the Operational Structure of TATA TEA as the tried to operate worldwide and

entered into JV with the Britain’s Tetley and even started TATA COFFEE Ltd. Moreover, had

a JV to manage the agricultural estates in Sri Lanka.

2000s

An important step for Tata Tea was the acquisition of the Tetley Group (based in the United

Kingdom) in 2000. It was a £271 million ($432 million) leveraged buyout. Tata Tea reportedly

outbid the American conglomerate Sara Lee in what was described as the largest takeover of a

foreign company by an Indian one to date. At the time, Tetley was the world's second largest tea

company after Unilever's Brooke Bond-Lipton and had an annual turnover of £300 million. It

was the market leader in Britain and Canada and a popular brand in the United States, Australia

and the Middle East.

Major Change

occurred:

Globalization of Tata tea

The company Tata went globalized when the two companies Tata and Tetley got

merged. Tata acquired Tetley in February 2000 and the company thus become

“Tata Tetley Limited”

Comparison of Tata Tea & Tetley

(3/31/00) – (3/31/01) Tata Tea Tetley

Turn Over $207 million $417 million

Operating Profit $36.0 million $42.6 million

Employees 59,740 1,100

Tea Estates 54 0

Key Markets India Britain, Canada, Australia,

United States

Tata’s Acquisition of Tetley

Rationale for the Tetley Acquisition

TATA TEA: Developing Market

TETLEY: Developed Markets

No 2

Global

Player in tea,

Stretching

across

entire

value chain

CHANGE: Tata had the all the plantations and the good tea crops and it had customers all

over India but with the joining of hands of Tetley it brought with the technical expertise

and significant experience making tea bags, the preferred method for making tea in

the West

Purchasing: Tetley bought about 8,000,000 kgs of Indian teas annually from fragmented

sources. It was envisaged that Tata Tea could help in sourcing or supplying Tetley’s

equirements of Indian teas

Brands: Markets where one or the other company had worked singly could be developed

jointly, leveraging the internationally known Tetley brand name. Tata Tea could help

launch the Tetley brand in India, the Middle East, and Russia, traditional bastions of Tata

Tea.

Technology: Tetley would give Tata Tea access to specialty products such as: flavored

teas, herbal teas, organic teas, and decaffeinated teas. These introductions could be useful

additions at the top end of the Indian market.

Cost synergies: Both companies could jointly relocate manufacturing of teas, both

packets and bags, and utilize a global supply chain approach and common platforms fo

the infotech, MIS, and finance functions. While the geographic spread of operations was

information technology, could work together without physically moving across country

boundaries.

Infotech: The acquisition was seen as an opportunity to improve the infotech

infrastructure of Tata Tea, improving connectivity to remote plantations and adopting an

enterprise resource planning (ERP) system to create a global supply chain based on

Tetley’s SAP-based ERP solution.

The merger was also important for Tata Tea, because its main competitor in India, Hindustan

Levers Limited (HLL), a Unilever subsidiary, was gaining market share and also because overall

growth of the tea market in India had slowed. Tata Tea acquired the Tetley Group for £271

million. Tata Tea used a leveraged buyout structure to acquire Tetley, with the hopes that the

cash flows from Tetley would repay the leverage over time.

Major Change occurred- “Globalization”

Type of Change- Transformational change, as with globalization there with more employees

from different countries which ultimately lead to change in cross- culture management and due

to which there was a resultant change in the system and structure of the organization.

Organizations have entered a new era characterized by rapid, dramatic and turbulent changes.

The accelerated pace of change has transformed how work is performed by employees in diverse

organizations. Change has truly become an inherent and integral part of organizational life.

Organizations operate in a global economy that is characterized by greater and more intense

competition, and at the same time, greater economic interdependence and collaboration. More

products and services are being consumed outside of their country of origin than ever before as

globalization brings about greater convergence in terms of consumer tastes and preferences. Yet

at the same time, in the midst of greater convergence, there is the opposite force of divergence at

work where companies have to adapt corporate and business strategies, marketing plans, and

production efforts to local domestic markets.

The combined Tata Tea-Tetley business, with a combined market share of 4 per cent, ranks

second in the global stakes, well behind Unilever, which has lorded it over the No 1 position for

many years. Understanding that challengers have to work that much harder, Tata Tea is now

girding its muscles to narrow the gap with Unilever.

In terms of products Tata Tea entered new geographies. It expanded its thinking

to take in beyond the local market; the growth canvas became global, as did the

priorities

Tata Tea’s contribution in making ‘Made in India’ global

Tata Tea, as part of its stated strategy to globalize, has charted out its vision to be the market

leader in the country and increase reach in the global market. For this the company has followed

a strategy of forming subsidiaries or entering into alliances in countries that have a significant

presence in the tea market, both from the producer as well as consumer side.

The first move towards globalization was the formation of its 100 per cent subsidiary in the USA

in 1987.This was followed by its presence in the plantation industry in Sri Lanka. Over time the

company realized that in order to go global, acquiring an international brand would be preferable

to building one afresh the world over. Hence in 1995, the company bid for Tetley, a wellknown

innovator in tea packaging, buying, blending and logistics management and the second largest

seller of tea in the world after Unilever, but filed. This however did not deter the company from

reaching out again when the opportunity arose in the year 2000. It was a major landmark in the

history of the company in that year when it acquired Tetley.

Tetley was a company that had a turnover of GBP 280 million, three times the turnover of Tata

Tea Ltd. The acquisition took place through a special purpose vehicle (SPV) Tata Tea (GB)

Limited at a cost of GBP 272 million, funded through a mix of debt and equity. It was the

biggest ever cross-border acquisition by an Indian company at that time and was also the first

leveraged buyout by an Indian firm. The acquisition was the perfect blend - Tata Tea the leader

in India in the packaged tea segment with a presence in developing countries through exports and

Tetley the second largest tea brand in the world, with a presence in developed economies of US,

Canada, Europe and Australia. The integrated vista offered access to new markets and products

to both companies, as well as synergies in tea buying and blending.

The Tetley Group now contributes around two-thirds of the total turnover of Tata Tea Ltd and

its brand Tetley is the second largest tea bag brand in the world. Its manufacturing facility based

at Eaglescliffe, in the north east of England, is believed to be the largest tea bag factory in the

world. The combined portfolios of branded offerings cater specifically to the US, Canada,

Western Europe, Australia, Middle East, West Asia, Africa, Poland, Russia and Kazakhstan

markets in addition to the manufacturing and supply operations of Tetley’s subsidiary

companies. More than 70 per cent of the consolidated sales of the company now come from

outside India. Tetley has a customized portfolio of offerings for each country, ranging from

black, green, fruit and herbal teas, iced ready-to-drink teas and an extensive range of exotic

specialty tea. Leveraging the Tetley acquisition further, in mid- 2003, Tata Tea launched Tetley

in Pakistan. This was followed by a joint venture with ACI in Bangladesh in the same year, to

introduce Tetley in the country. In step with its stated global expansion plan, Tata Tea acquired

Good Earth, a specialty tea brand in the US, for US$ 32 million

Tata Tea Is Moving To London

Global businesses account for more than 70% of Tata Tea’s revenues. Moving to London will

help manage them better.

The first step towards this is a complete overhaul of the company’s organisational structure. Five

regional focus brands are being operationally integrated to create one global beverages group.

These include Eight O’Clock Coffee in the US, Vitax and Flosana in Poland, Joekels in South

Africa and Indian brands such as Chakra and Kanan Devan.

Himalayan, Good Earth, Tata Tea and Tetley are being positioned as global brands and will sit

on top of the regional ones. The brands will be framed by a six-region organisational structure—

Great Britain and Africa, Europe and Middle East, Canada and South America, USA, South

Asia, Asia Pacific.

The integrated structure that Tata Tea is putting in place and the focus on ‘good for you’

beverages brings it into direct competition with the likes of Coca-Cola, Pepsico and Unilever, all

established players in the global beverages market. If the gambit fails, Unsworth and team will

find it tough to play catch-up.

Why London???

As the businesses are evenly spread across the globe, positioning the management team in

London gives us more geographical balance. In a way, that makes sense—more than 70% of the

company’s consolidated revenues come from international businesses, which would primarily

imply Tetley’s businesses.

Another reason for the shift to London probably lies somewhere between Tata Tea’s constantly

evolving outlook on tea—its traditional mainstay—and Tetley’s growing stature as the flag-

bearer of the company’s second innings.

Need for “Globalization”

Because of Globalization the regional economies, societies, and cultures become integrated

through a globe-spanning network of communication and trade. Along with thses basic factors

there are some other factors also which are responsible for the globalization to happen in Tata

Tea.

Factors fuelling Tata Tea’s global initiatives

Though the Tetley acquisition was perceived negatively by the market for the next three years,

the company carefully chose an approach to integrate the processes and explore synergies

between the two companies with absence of any time pressures, while maintaining operational

independence. The emphasis throughout was on revenue and growth and not on cost reduction. A

common Mission-Vision-Values statement and strategy for both the companies was formulated

after a debate in a joint managerial group of the two companies. A structure that facilitated joint

working in several areas was implemented. A well-thought through process was adopted for the

integration of the two companies with some of the highlights being:

Identification of common beliefs: An international consulting firm was commissioned

to identify the common beliefs between the two companies and suggest ways to bring the

two closer together.

Creation of a structure: A structure was put into place to create a steering committee

with several task forces reporting to it and comprising managers of both companies.

Some teams were given time-bound tasks while others worked on unification of some

processes. This structure was then folded into the operations of both companies.

Refinement of structure: The Steering Committee became a Supervisory Board

reporting to the Board of Tata Tea, which started taking decisions on matters concerning

both companies. Four integration teams supported this Board, one, a growth team having

an agenda to drive geographical and product category growth and improve operational

performance and the other three to drive common business processes. These include the

Commercial and Business Processes Team to streamline and standardise marketing, the

Global Supply Chain Team to handle raw materials, finished products, delivery and

distribution, and the Support Team to look at finance, research, communications,

Information Technology and Human Resources.

The need for globalization can be seen from this chart also.

Relevance of Change

For studying the relevance of change I will study the two models namely-

Kurt Lewin change model

Burke Litwin model of change

Kurt Litwin model

In the Kurt Lewin change model there are three steps.

Unfreeze- This is the first phase of change process and it involves overcoming inertia

and dismantling the existing "mind set". The employees at Tata tea they are made aware

of the facts and advantages of globalization. Moreover the changes in the performance

appraisal are being made and hence the employees mind set is changed.

Change- This is the second phase of the change process. This is typically a period of

confusion and transition because a clear picture as to what we are replacing is not clear.

At Tata tea to enforce change the various leaders come. Some of the leaders are

transformations and the other are transactional. Rattan Tata is the transformational

leaders and the other leaders like Ishaat Hussain , Kishor A Chaukar, Arunkumar and R

Gopalakrishnan are transactional leader. These leaders are responsible for making the

changes and motivating the employees to accept and continue with the change.

Refreeze- This is the last and final stage of change process. In this the efforts are made

by the company to and the leaders to continue which the change that has been

implemented. Tata tea follows it by giving the incentives to the employees to follow the

change, the reward system is changed.

Burke Litwin model of change

With the globalization there has been resultant transaction change and transformational change.

Transactional chances which comprises of mission, leadership style, policies and procedures and

structure all have changed. The mission and vision statement of Tata tea has been after being it is

globalized. Now the company is more using the participative style of leadership. All the policies

and procedures are framed so as to serve globally. Taking on the transformational changes, that

also have been tremendously changed taking in view point the motivation styles, individuals

skills and needs and values. Now the company uses the different performance system and reward

management system in order to get the work done by employees. Goals of all the employees are

integrated despite of so cultural diversifications.

Changes in culture and work force

Globalization of Tata Tea has lead to both the structural and the operational changes and they are

given as follows:

Structural changes

Two major structural changes that Tata Tea made in its organizational structure in the last

quarter of 2002-03 began to pay off in 2003-04.

1. First, the separation of the company's branded and plantation operations into independent

economic value added centers have driven greater value into operations in both activities.

2. Second, the integration by Tata Tea of its sales and marketing operations has produced

much-needed marketplace synergy.

Business Process Changes

In terms of business processes, the integration of Tata Tea and Tetley gives both companies the

opportunity to put together a totally new global company that combines the best of both

organisations, and draws on best practices and best processes from around the world in doing so.

In India the top priorities are implementing the Tata Business Excellence Model becoming

positive on the economic-value-added (EVA) scale. Migration to a SAP-based enterprise

resource planning system common to both companies is the next step.

Tata Tea’s vision is strongly focused on tea, which means that new business ventures will be in

this domain. It is commitment of this nature that has seen the company outperforming its Indian

peers in one of the most difficult business environments the industry has ever seen. The Tetley

acquisition gives Tata Teas worldwide business the insulation it needs from low commodity

prices in India, and a significant presence in the higher-priced and more evolved global tea

market.

The key challenge for the worldwide tea industry is to drive consumption of tea upwards. With

production growth outstripping the growth in consumption, and a depressed commodity scenario

that shows few signs of disappearing, tea businesses will have to climb to the higher end of the

value chain. The combined Tata Tea-Tetley business, with a combined market share of 4 per

cent, ranks second in the global stakes, well behind Unilever, which has lorded it over the No 1

position for many years. Understanding that challengers have to work that much harder, Tata Tea

is now girding its muscles to narrow the gap with Unilever.

In India the goal is to grow the top and bottom line significantly, improve market share by at

least 1 per cent over 2004-05, make the company EVA positive and transform its plantation

operations so that the haemorrhaging of the past three years stops. The other, overarching, goal is

to now move as quickly as possible to being a fully integrated global business.

The entire manufacturing operations of Tetley, Australia, located at Yara, were shut down and transferred to the export oriented unit (EOU) in Kochi with the idea that the factory would source tea from across regions, add value and then market the product. Tata Tetley became a subsidiary of Tata Tea as a consequence of the acquisition of Tetley in 2000. The company was incorporated during 1992 and after the formation of the joint venture between Tata Tea and The Tetley Group, UK, the business of the Tetley division of Tata Tea was transferred to the joint venture company in 1994. 

Post-acquisition, the company eased out the Tata Tetley brand from the domestic market so that Tata Tetley could focus on exports. The company's role in the domestic market is now restricted to that of a tea-bag convertor for Tata Tea, which launched the "Tetley" brand tea-bags under a brand license agreement with The Tetley Group.

Operational changes

1. ‘Aaj Se Khilana Bandh, Pilana Shuru’ Campaign- After being global, Tata

Tea has launched this Jaago Re campaign – ‘Aaj Se Khilana Bandh, Pilana Shuru’. This

new campaign takes up yet another relevant social issue – Corruption - and urges the

citizens of the country to awaken and fight against it. This campaign was initiated in the

year 2007. The objective of this campaign was to transform tea from a medium of mere

physical and mental rejuvenation to a medium of social awakening.This campaign has

resulted in the operational change of Tata Tea reason being that by doing so Tata Tea

is modifying its operational plans as it is reaching its customers with a positive message

and thus building a good reputation among its customers. Thus, this is an initiative by

Tata tea in respect of its domestic operations

2. Tata Tea enters branded cold drink market with `TiON'   - Tata Tea has entered

the branded cold drink market with launch of its cold beverage `TiON'.The beverage is

available in three flavors - Mango Rush, Peach Punch and Apple Buzz.Tata Tea, with

operations in over 40 countries, has steadily been transforming itself from a company

with primary focus on tea to a beverages company focusing on the wellness and health

platform.

3. Changes in Workforce- Due to globalization there have been ample changes in the

workforce. Because of globalization the operations are changed which further has

resulted operations of Tata Tea. The employees are given with the cross cultural

trainingso that they can with easily with the employees and due to which they have now

understood about how to work with the employees of different cultures. Secondly the

mission, values, technology of Tata Tea has been changes which have lead to the change

in the operations of the company.

Role of Leaders

At Tata group in order to increase the talented skills and decision making power of the leaders

different seminars are conducted. The various seminars conducted are

Tata Leadership Seminars

Tata Group Strategic Leadership Seminar -A six-day intensive programme, this

seminar is anchored around case studies, developed and conducted in collaboration with

three faculty members, Professors Krishna Palepu, Nitin Nohria and Das Narayandas, of

the Harvard Business School.

Tata Group Executive Leadership Seminar -This is an intensive programme

revolving around conceptual frameworks, case studies and group exercises developed and

delivered in collaboration with The Ross School of Management, University of

Michigan.

Tata Group Emerging Leaders Seminar -Using a combination of conceptual

sessions, case studies and feedback intensive workshops to address the three focus areas,

this seminar is aimed at young managers expected to assume future leadership roles in the

Tata Group. The key areas of focus are:

•Delivering customer value through integrated marketing and operations

•Role of strategy and finance in creating and sustaining competitive advantage

• Business leadership in changing times.

Tata Group Executive Leadership Seminar : Globalization Imperatives

(TGELS)- The Tata Group Executive Leadership Seminar is a high-level strategic

management course designed to assist managers with responsibilities for global strategy.

The program provides an intensive focus on global corporate strategy to guide

participants in formulating a conceptual framework for building organizational

capabilities.

Tata group has two types of leaders; transactional leaders and transformational leaders.

Transformational Leaders: Rattan Tata is the transformational leader at Tata group. He is

known as the “global leader”. He is the mind of the Leader. There are many facets to Rattan

Tata’s global game plan- his thought leadership in identifying the need to go global very early

on; his wisdom in waiting to make the group more competitive before going in for the

international push; his skill as a leader in making this theme resonate all over the group; the

aggression with which he has won some of these cross-border deals; and his unshakable resolve

never to compromise on the ethics and values that the group has cherished for over 100 years

now.

He has made many changes in the organization as per the need of the hour. He gave the concept

of internalization and globalization to the company. He employs a very consultative style in

seeding these ideas or themes into group companies. He encourages people to open their eyes to

look at an opportunity and gets them to think differently about issues. He has never diluted the

value system of Tata Tea.

Transactional Leaders: Leaders like R Gopalakrishnan , Arunkumar Gandhi, Kishor A

Caukar, Isaat Hussain and Arun Kumar Ghandhi are the transactional Leaders of Tata group.

R Gopalakrishnan has worked for 12 years in India’s most multinational Indian

company i.e. Tata. Currently, he is the executive director of Tata Sons. He is also the

chairman of Tata AutoComp Systems, Rallis India and Advinus Therapeutics, vice

chairman of Tata Chemicals, and a director of companies like Tata Motors and Tata

Power. He also serves as an independent director on the boards of the Indian subsidiaries

of Akzo Nobel and BP Castrol.

Arunkumar Ramanlal Gandhi is a director of Tata Sons and a member of the Group

Corporate Centre. Mr Gandhi has been assisting Tata companies in acquiring diverse

assets and companies across the globe. This has enabled Tata companies to acquire

critical assets and resources, and gain access to world-class R&D facilities.

Mr Kishor A Chaukar, whose responsibilities as mentor and strategist are enhanced by

his membership of the Tata Group Corporate Centre, was previously the managing

director of the ICICI Securities and Finance Company, as well as a member of the board

of directors of ICICI.

Ishaat Hussain took over as finance director of Tata Sons in July 2000. Earlier, he joined

the board of Tata Sons as executive director in July 1999. He is also a director of several

Tata companies, including Tata Industries, Tata Steel and Voltas.

 

Barrires to Change

There were many problems in integrating the two companies and these are as follows:

1. How to Integrate : The Tata’s decided that the best way to integrate was not to

integrate initially but to maintain a “joint-venture “type of arrangement. Furthermore, the

integration process was not rushed in order to protect Tata Tea from the risk of Tetley’s

debt. Tata Tea did not want to change that structure until the debt level was manageable.

The arms-length relationship required that Tata Tea retain existing management at Tetley.

Ken Pringle remained as the Tetley Group CEO, and Tata management took new

positions on the Tetley board of directors.

2. Size Difference : Tata Tea was half the size of Tetley in terms of revenues and number

of upper management. Tata Tea feared a domination of Tetley’s corporate culture.

3. Financial Constraints : There were three financial constraints restricting integration.

The first constraint was that legal and capital controls in India made the listing of Tetley

shares in India unattractive. The second constraint was that Tata Tea did not want to carry

the heavy debt burden held by the SPV, particularly as Tata Tea was an AAArated Indian

company. The third constraint was the restrictive covenants at Tetley as a consequence of

the LBO, which meant that changes in Tetley’s structure needed to be pre-approved by

bankers.

4. Regional Players : Soon after the merger, the highly fractionated regional tea makers

in India grew faster, putting pressure on Tata Tea’s market share and profitability at

home. Regional players gained 6 percent market share in 2001.

5. Operational challenges : The merger posed a variety of operational questions, such

as:

a. Growth issues: How could the combined corporate vision of “Challenging for

leadership in tea around the world” be achieved? The merger required vertical

integration between a tea production company and a global marketing company,

and the question was what growth targets needed to be defined for the individual

companies?

b. Supply chain: How should they set up processes to harness the synergies on tea

sourcing and blending, purchasing, packing, logistics, and supply to allied

functions to the mutual advantage of both companies?

c. Support processes: How should they integrate various support processes

covering Finance & Legal, IT, R&D, HR, and Communications so that the

objectives of both companies were in sync? The back-office integration was

complicated by the fact that Tetley reported in UK GAAP, while Tata Tea

adhered to Indian GAAP.

d. Commercial processes: How should they put in place benchmarked processes,

which would be adopted uniformly by the two organizations?

6. Cultural/Racial: There was a great deal of concern that British employees would

resent having Indian managers. These concerns were largely the result of the fact that

India was a former British colony. Anecdotally, Tetley employees were given substantial

retention packages to avoid exodus, which may have created negative feelings among

Tata Tea employees.

7. Corporate Philosophy : The two companies had different opinions on how the

business should be run. Tata Tea was a collection of estates that just happened to sell

package tea and focused on Asia (excluding China), Middle East, and Eastern Europe.

Tetley was a marketing and packaging company that had relationships with tea estates

and focused on North America, Australia, and Western Europe. Due to the significant

differences in customer base, the two companies had dissimilar products. In Tata Tea’s

markets, tea was usually brewed in pots, so Tata Tea was an expert in bulk and loose teas,

while Tetley was an expert in tea bags and instant tea. This gave rise to three types of

differences:

a. Objectives of the company: Tata Tea was an integrated tea company, with its

dual emphasis on plantation as well as domestic marketing, whereas Tetley was

primarily a global marketing company. Whose approach was correct?

b. Geographical spread: Tata Tea’s international presence was limited to bulk tea

sales, whereas Tetley was into brand marketing with sizable international

presence. Which customers should the organization focus on?

c. Differences in skill-sets: Tata Tea was a plantation company whose major

strengths were managing the estates, dealing with a huge work force, and making

teas. There was a drive since the mid-80s to create domestic brands and export

bulk teas. In contrast, Tetley’s strength lay in its ability to buy quality teas

worldwide, perfect its blending skills, bring about innovation in packaging, and

combine good logistics with management skills. How were people to be cross-

trained?

8. Kenya vs. India : It was initially believed that huge synergies would be achieved

because Tetley could source teas substantially from Tata Tea’s estates. Unfortunately, the

majority of Tetley’s teas were of a different flavor, quality, and cost from teas found in

Tata’s estates. Therefore, the integration process had to focus more on new products than

on substitution.

9. Branding : Both companies had very strong brand names in their respective regions.

There was debate as to the surviving name of the new entity. The Tata name was not

strong in Western markets, while Tetley was relatively unknown in Tata Tea’s markets.

There were also talks about pensioning off the lovable—but old fashioned—Teafolks in

favor of promoting tea as a modern lifestyle choice.

10. Conglomerate : Tata Tea was ultimately part of a huge conglomerate. The impact of

the conglomerate on the operations of a related foreign entity and the strength of Tata Tea

within the conglomerate was unknown to Tetley employees. The Tata organization

required group companies to pay fees for the use of the Tata name and adhere to

standards of financial and social responsibility. The ramification of these standards on

Tetley was still a mystery.

11. Auctions/Commodity Price : The acquisition of Tetley by Tata Tea came at a time

when the prices of raw materials for making Tea were increasing. There were also rumors

in the market about Hindustan Lever Limited and Tata Tea controlling the price of Tea.

12. Demand for Tea: The general demand for tea in many of Tetley’s core markets was

slowing or decreasing. This was partly because tea was viewed as a boring or

sophisticated drink. Sodas, coffee, and juices were gaining significant ground. There

were a number of questions about how to revitalize tea as a drink of choice.

13. Exchange Rate: The rupee was strengthening relative to the pound, which caused the

acquisition of teas from India to be more expensive for Tetley and made the transfer of

money back to the Tata organization less remunerative.

OD Interventions

1. Goal Alignment & Balanced Scorecard:

In the interest of better alignment and globalization to be successful, a need was felt to re-look at

a few organizational processes and systems, as for instance, the performance management and

appraisal system at Tata Tea. A Teach-Train-Transfer workshop on Goal alignment was

conducted, with help from expert OD consultants to build the context, to think through goal

setting at Tata tea with a systems perspective to goal alignment & to explore means of

institutionalizing goal-oriented performance management within the organization. The workshop

further introduced the concept of the Personal Score Card, and clearly outlined what would

define goals, outputs, performance management, Economic Value ads & the ways and means for

facilitating goal alignment. This will improve the commitment of the employees.

The Balanced Scorecard approach was proposed, introducing corporate goals, which touched

upon the following:

Voice of the Shareholder - Financial Goals e.g. Wealth creation

Vector of Technology – Technology Goals e.g. Quality, Cost, Delivery dimensions

Voice of the Customer – Customer/ Market Goals e.g. Customer Satisfaction

Voice of the Employee – Learning & Development e.g. Employee Satisfaction.

Further the relevance of the corporate goal template at the relationship level was explored and

the subsequent cascading to individual level. Goal specification frameworks, derived from the

key performance parameters of the unit were chalked out. The linkage with incentives and value

add drivers, was also thought through to determine the reward framework, based on published

results as against goals. Identification of talent for higher responsibility was also seen as a key

focus area, highlighting the need to have a focused Career Planning and Mentoring process.

Towards employee satisfaction and towards ensuring sustained availability of sufficient

managerial and leadership talent, the need to create succession plans at all levels and to track and

reward high fliers was brought out. Employees are getting proper feedback to employees, so the

employees are more committed towards the work, which result in the increase of the

productivity further leading to overall development of the company.

2. Total Quality Management:

The entire chain from growing the beans to the finished product is controlled by Tata. Stringent

quality standards are enforced at every stage of processing. Excellent washed Arabica and

Robusta are the hallmark of Tata Coffee. The whole process from growing and picking of the

fruits, fermentation, pulping, washing, drying and milling is handled by Tata. Tata has the best of

infrastructure in terms of irrigation tanks, Mckinnon pulpers and fermentation tanks.

All these contribute to Tata's unmistakable flavour and taste. Tata's coffee farms have been

consistently rewarded at The Flavour of India Fine Cup Awards held annually. Tata recently

bagged the gold for 'the best Robusta in the world' at The Grand Cruz De Café, Paris in 2004. It

also comes as no surprise that six of the 10 best Indian coffees selected by the renowned US

based specialty coffee taster and writer - Kenneth Davids, were coffees from Tata farms.

At the estate level 

Coffee is entirely shade grown and sun dried. Multiple rounds of picking are carried to ensure

that only fully ripe coffee beans are picked. Picking is carried out from end November to

February for Arabica and from January to March for Robusta. Meticulous care is taken during

pulping and fermentation process. Based on altitude and temperature, the number of hours of

soaking varies from estate to estate. This is prescribed by the R&D laboratory after thorough

research.

At the curing works level 

Samples drawn from every load of coffee dispatched by the estate, is checked for moisture

content and assessed for visual and cup quality characteristics. Coffee is stored and milled

separately for each estate, thus maintaining the estate identity for the coffee and ensuring

traceability of the estate. The dry mill at Kushalnagar is equipped with state-of-the-art machinery

which includes Elexso Colour Sorters, Pinhalense Gravity Separators and Container Bulk

Loading Machinery.

Based on visual and cup quality characteristics, the coffee lots are classified as follows:

Good to fine

Good

Above average

Average

Below average

poor

The coffee lots are further categorised for warehousing estate-wise and processing based on

buyer requirements as Specialty, Premium, Commodity etc. Quality feedback report is sent to the

estate managers for implementing necessary corrective measure during processing. Samples are

prepared from selected lots of coffee from different estates to meet the requirements of specialty

coffee buyers.

The lots approved by the buyers are processed separately at the curing works to conform to the

grading and garbling standards of the Coffee Board or buyers specifications.

At the roasting and grinding unit.

Visual and cup quality characteristics of green coffee lots for different blends, and the degree of

roast for different grades of coffee are evaluated and monitored. Cup quality of batch samples of

pure coffee, coffee chicory blends, roasted bean samples and all finished products evaluated for

aroma, body and flavour against benchmark samples for different brands. Chemical analysis and

cup quality characteristics of chicory powder, roasted bean blend, pure roast and ground coffee

and coffee chicory blends are evaluated to ensure conformity to PFA standards.

3. Six Sigma:

Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of

defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of

quality management methods, including statistical methods, and creates a special infrastructure of people

within the organization ("Black Belts", "Green Belts", etc.) who are experts in these methods.

Method of Six Sigma followed at Tata Tea: DMAIC

At Tata tea the first methods of six sigma used is DMIAC i.e. define, measure, analyze, improve

and control, The DMAIC project methodology has five phases followed in Tata Tea is like:

They firstly define the Problem by asking the customers to voice against the wrongs

and the project goals, specifically.

Secondly the measure key aspects of the current process and collect relevant data.

Further they analyze the data to investigate and verify cause-and-effect

relationships. They also determine what the relationships are and they make an

attempt to ensure all factors have been considered. Then at Tata tea they seek out root

cause of the defect under investigation.

After analyzing they make the improvement or optimize the current process based

upon data analysis using techniques such as design of experiments, poka yoke or

mistake proofing, and standard work to create a new, future state process. Set up

pilot runs to establish process capability.

The last step followed is controlling. They Control the future state process to ensure

that any deviations from target are corrected before they result in defects. Control

systems are implemented such as statistical process control, production boards, and

visual workplaces and the process is continuously monitored.

After effect of the entire change process

Since the opening of the Indian economy in 1991, Tata has been subject to global competition,

making it imperative for the group to become competitive in India against the new entrants. To

gain scale, reduce their exposure to the cyclicality of India‘s economy survive and achieve a

sustainable competitive position in industries that are globalizing, most Tata companies then

looked overseas.

Strategic Benefits and Synergies of globalization of Tata Tea

Strategic measures and acquisitions have led the growth over years-

111222

496

692

1097

30402968

3151

32 40135 140

314 281434

590

26 25105 115

265141 179

411

0

500

1000

1500

2000

2500

3000

3500

1983 1989 1993 1996 1999 2000 2003 2006

Turnover

EBITDA

PBT

Strategic Benefits for Tata Tea

Change in business mix

Tata Tea’s business mix to include significant sales from high growth new age

drinks – a more balanced portfolio of brands from different beverage segments

Reduced impact of cyclicity of tea and coffee businesses

Stronger brand presence

Global focus on beverage brands

Opportunity to achieve greater globalisation

Taking the Glaceau brands to new geographies within developed markets outside

the US

Developing opportunities in emerging markets (including India) with new or

adjusted formats

Operational Synergies

Pooling of global talent within Tata Tea’s beverage businesses to develop and execute an

integrated business plan

Cross-utilisation of distribution channels for tea, coffee and enhanced water sales

Coordination of a US beverage growth agenda for Tetley, Good Earth and Eight

O’Clock Coffee and Glaceau

New Product Development: integrated NPD and applications across Tata's beverage

businesses

Financial Synergies/Benefits

Tax shield on interest paid on debt to finance the acquisition

Avoidance of double taxation of any dividends or capital gains repatriated from the US

Savings in distribution and marketing costs in the US

Tata Tea GB will be able to consolidate the earnings of Glaceau to the extent of its 30%

ownership

Conclusion

The world retail packaged tea market is worth US$ 20.3 billion and the world ready-to-drink tea

market is US$ 24.5 billion. Currently Tata Tea Ltd and Tetley operate in countries accounting

for 53% of the world packaged tea volume. Thus a significant canvass is yet to be tarred by its

global brush. The complexion of mature markets such as the UK and Canada is changing.

Consumer demand for traditional black tea products is declining, while sectors such as specialty,

green, fruit and herbal infusions are growing rapidly. To take advantage of this trend, Tata Tea

has been building its business in these high value sectors during the past year by supporting key

products, anticipating and responding to consumer needs with a range of new product

developments, and making acquisitions.

The fragmented nature of the global tea market makes it ripe for consolidation and many tea

markets have strong, established brands whose presence makes organic growth slow and costly.

In this environment, acquisition is, and will remain, a vital element of our Tata Tea’s growth

strategy.The Good Earth and Jemca brands have improved Tata Tea’s US portfolio and made it

the brand leader in the Czech market.

Given the brand leadership role in its key markets and the current upturn in domestic demand in

most countries,Tata Tea continues to invest in new product launches and explore geographic

expansion.The out-of-home is a big opportunity that the company is looking to address. Out-

ofhome is becoming a significant feature of the tea market in India and elsewhere in the

world.The company has made progress in this direction through Real Brew iced tea concentrate

in the US and Comic vending machine, a real breakthrough.

The acquisition of 8 O’Clock has transformed Tata Coffee from being a regional plantation

layer to a significant branded player globally.The company would be looking to build a coffee

play by moving up the value chain and extending existing brands into new geographies.With the

foray into the mineral water through Glaceau acquisition the company has signalled its intentions

of looking at an integrated beverage company where it leverages cross synergies for both

branding and distribution.

Bibliography

Books Consulted

An experiential approach to organization development

By: Donald R. Brown &Don Harvey

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