Running head: TISCO Case Study 1

Abstract

Tata Iron and Steel Company (TISCO), was established in 1907 in India. TISCO is the

largest stainless steel enterprise equipped with modern technical and process installations,

complete set of specifications, with ten million tons of steel produced annually. TISCO devotes

itself to the research and development, production and processing of stainless steel, special steel,

high carbon steel and has a dedicated robust research and development team and product quality

guarantee capability. The company insists on green development leaning towards technical

creation and innovation and technical progress, and the company is environment cautious.

(TISCO Website)

This study's objective is to investigate the world’s most cost-effective steel plant by

pinpointing the principles of management in TISCO, the process used by TISCO to reduce costs

and finally, the study will show how effective the low-cost strategy will sustain TISCO in the

long run.

Question A

The principles of management in this case follow from Fayol’s (1954) propositions that

include:-

1. Division of labor

Division of work is a production process in which a workers or group of employees are

assigned a specialized task to increase efficiency. Work was allocated to employees according to

their area of expertise. For instance, at TISCO, workers were assigned to iron production, steel

production, material handling equipment manufacturer, cargo handling and software

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development. Each employee was also provided with a clearly defined job profile. This was to

avoid duplication of efforts and overlapping duties, therefore, reducing wastage.

2. Principle of one boss

This principle implies that an employee should be answerable to only one boss. During

the implementation of TOP (Total Operational Performance), the whole organization was

divided into manageable units to make the process easier. Each unit had a leader who was

responsible for the performance of that group. Having one leader helped to create a harmonious

relationship between the supervisors and the subordinates.

3. Unity of direction

The principle of Unity of direction recommends that there should be only one leader and

one plan for a series of activities that are aimed at completing the same objective. As seen in

TISCO, all the members of the organization were joined towards accomplishing a common goal.

Members of the organization directed their efforts towards the achievement of the goal. This

results in lower costs hence efficiency.

4. Initiative

The principle of initiative states that managers should purpose to encourage employee

initiative, which is defined as new or additional duties undertaken through self-direction. When

TOP was being implemented, all the units were encouraged to examine the production process

and come up with ideas that would increase the current level of performance. These ideas were

then explored further and later on implemented. This resulted in the organization reducing the

production costs and at the same time improving consumer satisfaction.

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5. Fair Remuneration

Fayol (1954) recommends that employees' compensation should be reasonable and

sufficiently motivational. TISCO implemented Performance Ethics Program (PEP), which was

aimed at promoting young hardworking people to higher positions based on their performance

rather than the convention of seniority. Employees were also rewarded according to their

performance. This led to a situation that some youngsters were earning more than their seniors

and the average age of managers dropping by about ten years.

6. Centralization and Decentralization

Too much decentralization or centralization results in ineffectiveness, hence recommends

a balance between centralization and decentralization. The organization re-organized its structure

by adopting more decision-making flexibility and teamwork amongst the unit members. On top

of this, the hierarchy levels were also reduced from 13 to 5. This was aimed at fostering faster

business growth and improving customer satisfaction.

7. Esprit de Corps

Fayol (1954) alludes that team spirit and togetherness is necessary in order to carry out

work in an organization. Esprit de corps is feeling of oneness and of uniform interests and

responsibilities, as developed by a team of employees closely associated in a task, cause or

enterprise.In the new organization structure, teamwork was highly encouraged among managers

and the workforce.

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Fig 1: The efficiency model

Question B

TISCO used the measures from the efficiency model espoused by George and Jones

(2012) to reduce costs. The measures include: -

1. Enterprise-wide emphasis

The management made it clear to every employee that the goal was to reduce operating

expenses in the whole enterprise. This provided the various stakeholders with unity of direction

and a common goal. Thus, they were able to concentrate their efforts towards achieving this goal.

2. Engaged, motivated workforce

The employees were earnestly involved in the implementation of TOP. The fact that they

were asked for input and that their ideas were actually implemented into the production process

was a source of motivation. In addition to this, the employees were well organized, and there was
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unity of direction towards one goal. Coupled with fair remuneration and incentives, the

workforce concentrated their efforts towards the achievement of the organization goal.

3. Effective, efficient execution

The TOP program was implemented in phases, and manageable goals were also set. The

teams were asked to come up with strategies through which the organization could improve

efficiency and effectiveness. The organization made efforts to reduce its product delivery time

from 3-4 weeks to two weeks and eventually to one week. Efficiency was also adopted on the

shop floors. These efforts greatly improved customer satisfaction.

4. Optimize assets and resources

The Company had to make optimal use of the resources available to maximize profits.

Some of the steps taken to achieve this included reducing the cost of fuel at the blast furnaces.

The organization was able to put measures that saved around Rs. 87 million. The organization

also made changes in sourcing for raw materials, cost of conversion and in coal mining. The

organization also stopped using manganese, an expensive metal to improve flexibility and

strength of steel. The company reduced its workforce from 78,000 to 40,000 employees.

5. Better leverage technology

TISCO was advised to adopt the latest technology if it was to stay afloat. The

organization adopted the use of SAP R/3 in its operation. The package was integrated into the

existing information system. The aim was to redesign how two of the core processes, order

generation, and market development were done. SAP improved the efficiency of various

processes. There was also improved customer service and productivity. The software reduced

manpower costs significantly (from 200 $ per ton in 1998 to 140$ per ton in 2000). Finally, there
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was a reduction in inventory costs. Embracing technology helped the organization to effectively

manage resources, thus reducing production costs.

Other steps taken by the company to cut costs include operating in Australia because of

the low power costs. The cost of power in Australia is about a fifth of the tariffs in India. The

organization also has the plan to exit from some of its non-core activities.

Question C

The low cost will help TISCO in the long run. The planned project in Australia is visible

since TISCO will get power at a tariff of 1.8 cent for about 15 years, which is about one-fifths of

the tariffs in India. This will reduce the costs of production while at the increasingly the firm’s

profits as well.Due to the low costs, the company is strong enough to venture into new markets

such as Jordan, Iran, and Southeast Asian countries.

The integration of SAP into the existing information system and make it compatible with

future ASAP implementation. The SAP will help the firm in the long run since it improves

customer service and productivity, and the reduced manpower costs are significant cost savings

through efficient management of resources. The performance ethics program is meant to ensure

the firm’s to have a lean and young workforce.

TISCO has plans to enter into new areas including setting up 0.1 million ton ferrochrome

export oriented project. This project is planned in Australia because of the lower power cost.

TISCO was to get power at a tariff of 1.8 cents for about 15 years. Power accounted for 60% of

cost of ferrochrome manufacturing. This reduces the operational costs which in turn reduce the
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cost of production; hence the company will perform well in the long-run due to he low costs of

production and operations.

TISCO is also planning to enter titanium mining through alliances with major global

companies in this regard it also planned to exit from some of its non-core activities. With the

plan to exit from non-core activities this will lead to TISCO concentrating on its core activities

and improve the operations by looking into ways of reducing cost of production hence low cost.

The low cost would help the company in the long run, since critics feel that TISCO might

face problems due to a decrease in demand for steel in the local and global markets and the ever

increasing competition from cheaper imports, and anti-dumping duties imposed on the steel

manufacturers. Since TISCO's strategy is to export to Jordan, Iraq and Southeast Asia countries,

it will reduce dependency in US markets thus helping the company in the long run with the low-

cost strategy.
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References

Fayol, H. General and industrial management. London: Pitman (1954).

George, J., & Jones, G. Organizational Design and Structure. New York:

Pearson Education. (2012).

Tata Iron and Steel Co., Ltd. [TISCO]. (n.d.).Retrieved from http://www.tatasteel.com/