The crash of Air India flight AI-171 in Ahmedabad on the 12th of June is one of the worst air accidents in recent history. It is best to leave the investigation team to come to conclusions on these matters. The bigger question that this tragedy highlights is the relevance, or even the wisdom, of a corporate group or a conglomerate running diverse and highly specialized companies in this day and age.
It was understandable in the license-raj era, when getting a license was an art that families rooted in business had mastered. The license-raj was dismantled more than 30 years ago and the world has been only getting increasingly specialized. The conviction of conglomerates like the Tata Group is that the holy grail of building, growing and operating world class companies is ‘general management’. It is therefore not surprising that the Tata Group had from a very early stage chosen to imitate the government civil services cadre, in terms of structure, selection, and career planning, with an administrative cadre of their own.
An outcome of this thinking is the belief that a professional who has probably excelled at government liaison or corporate services in the group's steel company would automatically do a great job of running a highly specialized training academy of the group's airline company.
Here are some interesting headlines from recent weeks:
# "Top priority right now: Amidst Air India crisis, Tata Group chairman N Chandrasekaran takes charge of day-to-day airline operations"
# "Following the tragic Ahmedabad plane crash, Tata Group Chairman N Chandrasekaran has assumed direct oversight of Air India's operations, focusing on safety, government relations, and staff welfare"
# "Air India's CEO Campbell Wilson is collaborating with N Chandrasekaran on strategic planning and regulatory matters"
This idea sounds lofty on the surface because it fulfils one of the central precepts of good leadership, namely of 'leading from the front', but fails the more important test of whether the person leading has the expertise and context that comes with years, if not decades, of grind in the trenches. We know what happened when Boeing placed a bean counter in the top job.
In an era of increasingly specialization, old world conglomerates face many problems:
# Jack of all trades, Master of none: It's incredibly challenging for a group to possess deep industry-specific knowledge and expertise across a wide range of specialized businesses (e.g., a manufacturing firm, a retail chain, a quick commerce firm and an airline). This can lead to suboptimal strategic decisions for individual companies making it difficult for them to fight with competitors that have chosen to specialise.
# Brand Dilution/Confusion: Attempting to leverage a single corporate brand across widely diverse products and services can dilute its meaning and confuse customers. Each specialized business often needs its own strong, clear brand identity.
# Regulatory Scrutiny: Operating in multiple, often heavily regulated, specialized industries increases the burden of compliance and the risk of regulatory penalties or legal issues.
# Reputational Contagion: A significant failure, scandal, or negative event in one specialized business unit, even if unrelated to others, can negatively impact the reputation and market perception of the entire corporate group.
# Attracting and Retaining Specialized Talent: Top talent in a highly specialized field might prefer to work for a focused company within their industry rather than a large conglomerate where their business might not be the core focus. Career paths might seem less clear or promotions slower. If employees perceive a lack of strategic direction or inefficient management due to the diverse portfolio, it can lead to higher turnover rates for skilled personnel.
# Increased Bureaucracy: Diverse operations often lead to more layers of management, complex reporting structures, and slower decision-making processes, hindering agility and responsiveness to market changes in specialized industries.
# Diluted Vision: A corporate group's overall strategic vision can become fragmented and diluted when it attempts to serve many different markets and industries. This can make it difficult to establish a clear competitive advantage in any single sector.
# Missed Opportunities: Management's attention being spread thin can lead to missed opportunities for innovation or growth within individual specialized businesses that require focused strategic development.
In Summary:
While diversification in an investment portfolio is a sensible strategy, diversification in operating entities is a strategy derived from an eminently forgettable era of India's political and business history, which in today's world exacerbates risks associated with lack of depth, focus, and expertise that can erode value rather than create it.
It is time for Tata to seriously evaluate whether the group structure has lost relevance and has, over the years, become an impediment and driver of mediocrity. And whether shifting to a structure where the group lets go of control and acts like a financial investor, with the individual companies being board-run without the Tata brand name, is a much better option.
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