Tata Motors was losing $108 million annually in its commercial vehicle business unit in 2001 due to market shrinkage. It implemented a new corporate strategy to turn this around. The strategy involved forming a corporate team to design a balanced scorecard approach and coordinate resources across business units. It centralized sourcing to reduce costs and communized parts. This allowed economies of scope where combined production of passenger and commercial vehicles exceeded the total if produced separately, improving profits by over $106 million within two years.

1. Group14|Section 4
Corporate Strategy –TATA Motors

2. Defining Corporate Strategy
Corporate Strategy is the way a company creates value through
the configuration and coordination of its multi-market activities
The definition has three important aspects:
Value Creation - the generation of superior financial
performance (rents) from multi-market activities that create
corporate advantages
Configuration - the multi-market scope of the corporation
(product/market diversification, geographic focus, and vertical
boundaries)
Coordination - the management of activities and businesses
that lie within the corporate hierarchy

3. Goal of Corporate Strategy: Corporate
Advantage
The goal of corporate strategy is to build corporate advantage
so as to earn above normal returns
• analogous to a competitive advantage in a business unit
Corporate-Level Strategy (companywide strategy)
Corporate (or Company-wide) Strategy is the overall plan for a multi-
business unit company.
Corporate strategy is what makes the corporate whole add up to more than
the sum of its business unit parts

4. TATA MOTORS-SBUs
TATA
Motors
PCBU CVBU
Corporate
Team

5. TATA Motors-Scenario in 2001
Tata Motors was making a loss of $108.6 Million alone
on CVBU during 2001. Mainly due to Market shrinkage.
During 2001, there was an aggressive investment in
passenger car business unit.
How TATA motors made it turn around by aligning
corporate strategy with the 2 SBUs????

6. Corporate strategy
TML built Balanced scored card approach .
TML forms a corporate team of 5 members across various functions to design
strategic approach . The people are cross functional expertise from SBUs.
Main Objective was to prioritize Vital Objectives of SBUs and initiatives &
coordinate across SBUs for resources
TML started central resourcing through e-sourcing to minimize the cost of shared
inventory.
TML made most of the parts communized.
All the SBU leaders given autonomy in designing approaches inline with
corporate strategic goals.
The performance measured based on the performance of various parameters
such as product quality, process quality, safety, cost measures etc.( Behavioral
control).

7. Product Transformation curves
After Corporate strategy
Before corporate Strategy
Commercial
Vehicles(C)
Passenger cars (P)
The straight line - No gains or Losses of Joint production.
The Curve – Economies of scope for both prodcuts.

8. Factors for Transformation
Both products use joint capital (to an extent)- Machinery
and Factories & labor.
Shared management resources-Transfers of Tacit
knowledge.
Common utilization of inventory through communization.
Corporate e-sourcing
Cost Minimization across SBU unit processes and
products.
Over all The BSC way.

9. How Economies of scope helped?
Approximation of Curve : P2+C2=a2
Line- P+C=a
where “a” indicates The all factors mentioned in the previous
slide. Let us assume a=6.
Then,
P+C=6 P2+C2= 36,
If P=1, C=5 if P=1, C=5.9 Total=7
if P=2, C=4 if P=2, C=5.6 Total >7
If P =3, C=4 if P=3, C=5.2 Total>8 and so on
If P=4, C=2, etc

10. Corporate Advantage
The effective profit of aligning corporate strategy
with SBUs with in 2 years of implementation is
$106Million from a Loss of over $108 Million.
Economies of scope was just one of the reasons
for increase of profits.

11. Thank you
References:
Mckinsey Quarterly & BSR