TIGHT ROPE WALK ATTATA STEEL:

BALANCING PROFITS AND CSR

Team Members09IB-027: Baiju Hindocha 09IB-028: Jasjit Singh Banga 09IB-029: Joseph Thomas 09IB-030: Manik Bhalla 09IB-031: Manmohan Sharma 09IB-032: Neeraj Agrawal

Profile of Tata Steel

‘Flagship’ company of the Tata group, founded in 1907

Outbid CSN of Brazil to acquire Corus—an Anglo-Dutch steel-maker which is several times its own size

Currently the fifth largest steel company in the world

How to answer IMPM candidate's question?Question 1

Tata Steel’s CSR Activities

Administration of Jamshedpur (Under JUSCO) CSR activities in other areas:

Health care (20%) Education (15%) Rural development (10%) Relief operations after natural calamities (10%) Sports and adventure (10%) Civic and community services (10%) Vocational training (10%) Environment (10%) Art and culture (5%)

Tata Steel’s CSR Activities

CSR managed by Social Services Division through it’s 5 key departments and other departments: Community Development and Social Welfare (CDSW) Tata Steel Rural Development Society (TSRDS) Tata Steel Family Initiatives Foundation Tribal Cultural Society (TCS)

Expenditure on these 4 departments: Rs. 14.70 Cr Sports and Adventure (Rs. 5.30 Cr) Medical Care (Rs. 34.70 Cr) Environment Management (Rs. 125 Cr) Philanthropy (Rs. 6 Cr)

Tata Steel’s CSR Activities

Portfolio of programs: Income generation programs Healthcare and hygiene Education Relief operations Sports and adventure Tribal welfare Philanthropy Civic administration Environment management % of profit spent on CSR activities: Approximately

6%

“But, why are you wasting so much of shareholders’ money on activities that clearly fall within the purview of

local or state governments?Why don't you stick to your main

business?”

Importance of CSR

Core Values: Reason for existence: Purpose of business is to

improve quality of life of people Concentrate on nation-building activities Plow back wealth generated in the

communities where it was earned Treat employees as producers of wealth and

members of Tata ‘joint family’ Treat all stakeholders with due respect and

fairness

Importance of CSR

Need for literacy, healthcare, infrastructure, employee welfare for the benefit of the company

Community goodwill important for avoiding unrest at plant

Reduction in number of employees, spinning off of Jamshedpur administration show company focus

No dearth of funds for expansion Fame because of Tata Football Academy

CSR in Competitive Environment

% of profit invested back in CSR activities has dropped from 12% to 6% (Absolute figure has not reduced)

Need to make CSR activities more professionally managed and leaner to reduce costs

Measure effectiveness of each CSR department for appraisal

Outsource CSR activities to NGOs

The decision to divert shareholder’s wealth towards self-assumed social responsibilities …Was it justified?Question 2

SWOT Analysis

• Better image• Influence investors’

decision to hold its shares

• Consumers’ and suppliers’ willingness to buy or sell

• Potential recruits’ eagerness to join it and existing employees’ motivation to stay

• Loss in business due to cost ineffectiveness

• Increase in expectations

• Loss in focus on core competencies

• Higher employee costs

• Better work environment for employees

• Neutralizes the negative impact of business on society

• Accountability and transparency in business operation

• Long-term cost savings

S W

OT

Different Viewpoints

• Justified and commendable on ethical grounds

CSR Advocates’ View

• Great reputation, long-lasting commitment from talented individuals, very good labour-management relations and decades without striking

Savvy View

• Ultimately the array of non-core activities began negatively to affect the core steel business

Cynical View

Negative Effects of CSR on Tata Steel

Company’s growth was hindered by the enormous social philanthropy

Had to cut its workforce Redesigned its Social welfare programs Lost focus on its corporate strategy

CSR agenda and strategy: Outdated?Question3

Current Situation

Misalignment between the business and CSR strategies

Fixed budget to encourage wide range of community-based charities, which allows the corporate contributions pie to be cut into more pieces

Corporate cash resources are allocated to social projects without seeking their viability

Activities are concentrated in areas where resources are available for investment and resource poor areas are neglected

Lack of Centralized Consulting

Support for All Business Units

Opaque Functioning

Financial Dependency

Absence of Management Development

Problems in Fundraising and non-scalability

Strategic GapIn-consistency of

Business Practices

ISSUES

Agenda and Strategy for future?Question 4

Tata Steel to disengage from CSR activities or become even more active? Question5

Value Gained on Tata Brand Equity Due to CSR ($US BN)

Value of Tata brand $9.92

2008 Tata CSR contributions $0.60

Cost of CSR contribution in perpetuity $6.03

Value of Tata brand over CSR investment $3.89

Value of Brand equity due to CSR $1.94

% return on CSR for Brand Equity 32%

Annualized value of Tata brand $0.99 Annualized value of Tata brand over CSR investment $0.39 Annualized value gained on brand equity due to CSR $0.19

% Return on CSR for Brand Equity 32%*Source http://www.indianmba.com/Faculty_Column/FC955/fc955.html

Why not Disengage? CSR: Brand of TATA Helped in Economical Downturn Employee cost Saving• Less Salary• Least Employee Iteration rate• Effective labor force

Various Social & Political benefits Why not engage more Actively?

More CSR: Compared to Industry Standards Cost: Already matter of concern Cut Throat Competition

Neither

“CSR initiatives must not be viewed as costs, but as investments, which

serve as the foundation of its competitive advantage and long-term

profitability”

“A concept whereby companiesintegrate social and environmental

concerns in their business operations and in

their interaction with their stakeholders on a voluntary basis”

The Three Pillars

Striking a BalanceTwo Approaches

Outward looking , concentrating on expectations of stakeholders

Social ContributionEcological Contribution

Inward looking, focusing on internal issues and aligning CSR activities with core competencies

Economical ContributionResource Enhancement

Agenda - Ideal Approach

Benefits in both directions Society - Give back to get more Business - Gain more to give more

Managed from the top level & thought about strategically

Should be treated as a part of core business rather than a tangential project

Stakeholder and market expectations should be kept in mind

The benefits to society should be well communicated

 Pillars of Sustainability

Adapting to New Markets Aligning Internal and External CSR policies New Markets CSR Committee

Stepping it up a Notch: Evaluating Product Lifecycle Impact on Society Tata’s not in India anymore Product Lifecycle Impact Metrics to alleviate

this negative impact through collaboration with other Tata companies

Product life-cycle Matrix

Pillars of Sustainability Aligning Purpose with Profit: Internal

CSR Market Intense pressure to prove that focusing

on the community can continue to generate profits

Way Ahead

Step 1

• Create Local Taskforce • Revise Internal Sustainability System to be

More Flexible and subsequent rollout

Step 2

• Increase Coordination with All Stakeholders

• Rollout New Lifecycle based index

Step 3

• Commence rollout of CSR credits trading market

• Implement and Revise CSR Trading Market as Necessary

Thank you