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Why Ratan Tata considered failure a gold mine
Summary
After the miserable defeat with Corus Steel, Tata made an incredible comeback with the high-risk acquisition of JLRAgainst the backdrop of the Great Recession, the acquisition of Corus Steel was almost universally regarded as a failure and a defeat. Ratan [Tata] faced the reality of the disappointment, and he certainly accepted responsibility for the failure of the acquisition to produce the quick fruits of rapid growth he and others had anticipated. Yet he did not see it as a defeat because he did not regard failure as synonymous with defeat.
Since the early 1960s, when he was a student at Cornell, Ratan counted John F. Kennedy among his idols. He is fond of quoting the thirty-fifth American president: ‘Those who dare to fail miserably can achieve greatly.’ Ratan believes that, far from signalling defeat, failure is a key to long-term innovation, growth and success. He has even called ‘failure . . . a gold mine’, and in 2006 championed the introduction of the Tata InnoVista programme to ‘celebrate the successes and struggles of innovation’. The purpose of the programme, which awards prizes for innovation, is to ‘capture innovations of Tata companies and to instil self-confidence among Tata managers’. It is also to ‘recognise innovators and encourage innovations in companies’, to ‘share and learn the levers used by companies to identify and execute innovation projects’, and to ‘build a culture of appropriate risk-taking’.
Also read: 7 books to understand Ratan Tata and his work
As conceived in 2006, Tata InnoVista emphasized promising and successful innovations; however, the very next year, 2007, a new category was added to the programme. It is called Dare to Try— but might just as well have been called Dare to Fail. It ‘recognises sincere and audacious attempts to create a major innovation that failed to get the desired results. The idea is to encourage the culture of ‘risk taking’, perseverance and sharing openly. This award is a celebration of the spirit that propels individuals and teams to try and innovate and is a reward for the risk-taking capability that is necessary for path-breaking innovation.
The setbacks suffered as a result of the Corus acquisition did not discourage Ratan from leading the charge to acquire JLR from Ford Motor Company for $2.3 billion in June 2008. But it took nerves of steel when that acquisition nearly died aborning. Ratan related how Tata had ‘bought Jaguar Land Rover with our money from Tata Motors, and then the downturn came in Europe’—the great global meltdown that had begun in the US during 2007–08.
‘The banks,’ Ratan recalled, ‘most of them, were taken over by the British government. The Royal Bank of Scotland was our largest banker in JLR. It and every other bank we went to was under the control of the British government, and all our sources of working capital suddenly disappeared. All these banks said, “Sorry, we have to cancel our commitment to you." So, I went to Prime Minister Gordon Brown, who put me on to Peter Mandelson, Britain’s Secretary of State. Basically, he went around the bend, up and down the street, and into the alleys and out, but finally did nothing except say to me, “You are an Indian company. You should go to the banks in India." But the jobs are British! I reminded him. “Well," he politely responded, “I’m very sorry. But we think you’re an Indian company. You need to go to an Indian bank!"
‘So, I went to an Indian bank,’ Ratan continued, ‘the State Bank of India. But I was afraid that the Indian banking system would not be so willing to stand the risk of supporting a company in the UK, not in such rough economic times. To my surprise and relief, thanks to its chairman, the State Bank of India decided to stand with us. They provided the working capital, and we made it through.’
Despite being a risky loan, Tata persevered.
‘We didn’t default,’ says Ratan. ‘We paid back everything we owed. Our relationship with the bank has been very good, and, in hindsight, I believe that, had the decision gone another way, Tata Motors would have been in jeopardy—and the State Bank of India would have lost much more than it gained.’
Since then, the JLR profit picture has been a huge success. From a loss of £376 million in FY 2009, JLR has shown a profit in every year, reaching £2614 million in FY 2015….
Earlier, many pundits ‘speculated that . . . Ratan Tata . . . had become too enamoured of buying global brands’, but the fact was that Ratan understood two key features of the acquisition. First, he saw the great value of the JLR brands—and, consequently, did not impose the Tata brand on them. Instead, he adopted a ‘hands-off’ attitude, leaving the day-to-day management of the company to executives headquartered in England. Second, he recognized that what Tata brought to promotion of the JLR brands was Tata’s own financial reserves and (to use a word an anonymous executive from a rival car company applied) its ‘staying power’.
Edited excerpt fromThe Story of Tata: 1868 to 2021 by Peter Casey with permission from Penguin Random House India.
