Presentation on theme: "The Tata Way A Mutually Reinforcing Cycle of Profitability and Sustainability Jose Ochoa, Rajiv Rammohan, Ram Sangireddy, Christopher Shields."— Presentation transcript:
The Tata Way A Mutually Reinforcing Cycle of Profitability and Sustainability Jose Ochoa, Rajiv Rammohan, Ram Sangireddy, Christopher Shields
Executive Summary Our strategy will propel Tata to the top of global CSR leadership by: Maximizing its initiatives by localizing them Allowing realistic CSR comparisons across all of Tata’s companies Considering the lifecycle impact of its products and services Developing a groundbreaking buy-in and incentive tool Creating measurable value for Tata and for society Adapting to new markets New Markets Multiplier Factor Stepping it up a notch Product Lifecycle Impact Metric Aligning purpose with profit Internal CSR credit market The strategy relies on our Three Pillars of Sustainability:
CSR investments have realized a 32% return to Tata’s brand equity, creating value for each Tata Group company.
Tata’s CSR initiatives align the interests of each of its stakeholders and strengthen its overall competitive advantage StakeholdersInterestsLeverage over Tata WorkersSafety, fair wages, etc… Strikes, decreased productivity Local communities Investments in local needs Oppose and hinder expansion plans InvestorsFinancial returnAccess to capital markets Benefits of CSR Initiatives A firm ‘people want to work for’ Low interference, overall support More stable financial returns
With global expansion, Tata must adapt its CSR efforts to match the diverse needs of local communities. Source: CIA World Fact Book New Markets23 Localize One-size-fits-all CSR strategy is neither efficient nor sustainable
New Tata Index NMMF enables the Tata Group to fairly compare the CSR performance of each of its companies NMMF Use to compare Tata Group companies’ CSR performance Original Tata Index New Markets23 New Markets Multiplier Factor (NMMF) normalizes sustainability initiatives of different Tata Group companies to facilitate comparison of CSR performance Normalize
Profit Synergies Profit Synergies Incorporating PLIM in the Tata Index will put the group at the forefront of CSR 1PLIM3 Product Lifecycle Impact Metric (PLIM) measures the lifecycle impact of Tata Group companies’ products Measure Product Impact CSR Synergies PLIM
The modified Tata Index will be tied to performance against annual CSR targets. Original Index Score Original Index Score Modified Index Score PLIM Score 1PLIM3 Target Target Index Score
Firm meet profit target? NO YES NO TATA Group Internal CSR Market Not eligible for incentives Not allowed CSR trading Allowed to trade CSR credits YES Sell CSR credits? Buy CSR credits? Eligible for incentives Maximize profitability NO Not eligible for incentives YES Eligible for incentives Internal CSR market will align each company’s financial incentives with the double bottom line of responsibility and profitability Firm meet CSR target? 12CSR Market
Phased in rollout will enable flexible and scalable implementation of a strategy sustainable in the long term Task2011201220132014201520162017201820192020 Create Local Task Force Revise Internal Sustainability System Increase Coordination with all Stakeholders Rollout PLIM Commence CSR internal trading Implement and Revise CSR internal market Early : Anticipated leadership change Year Three: Group wide rollout Year Six: CSR market is fully operational
An annual investment in CSR Trading Market bonus pool will generate an additional profit margin of 0.829%. Corporate Social Responsibility Performance Intangible resources* Innovation Human Capital Reputation Culture Corporate Financial Performance Figure adapted from Surroca, Jordi, Josep Tribo, and Sandra Waddock. "Corporate Responsibility and Financial Performance: The Role of Intangible Resources." Strategic Management Journal, 2010: 463-490. Intangible resources* Innovation Human Capital Reputation Culture PV of Perpetual Investment = $1B PV of Perpetual Profit Generated = $8.29M CSR Profit Margin = 0.829%
But Economic Value Added is only a portion of the Global Value Added by CSR………. Global Value Added* = Social Value Added + Economic Value Added Where: Social Value Added = Economic Value of Social Saving + Tax Revenues + Non-Economic Benefits Adapted from Hughes, Greg, Sonali Rammohan, and Linda Emanuel. "Corporate Citizenship: Managing Relationships with Professionals and Government." Aids & Public Policy Journal, 2003: 61-76.
Local application of Tata Index, PLIM, and CSR Credit Trading Market are key to Tata’s corporate strategy. This CSR Strategy is Key to Corporate Strategy: Aligns profitability with sustainability Enhances brand equity Erects barriers to entry for competitors Anticipates future regulatory changes Further enables a smooth leadership transfer Further institutionalizes Tata’s culture for future generations Next Steps: Create leadership task force composed of Group Corporate Sustainability VP, Group CFO, Group COF, CMO, and other relevant executives to solidify strategy Commence the creation of local task forces Work with governments, NGO’s, the UN, and local residents to identify CSR needs within each target market Further investigate how to maximize both profits and social performance* Move forward with this strategy! * Husted, Bryan, and Jose de Jesus Salazar. "Taking Friedman Seriously: Maximizing Profits and Social Performance." Journal of Management Studies, 2006: 75-91. We suggest this merely as a starting point, the Tata group must optimize profits and social performance according to the needs of all Tata stakeholders.
Appendix A Value Gained on Tata Brand Equity Due to CSR ($US BN) Value of Tata brand$9.92 2008 Tata CSR contributions*$0.603 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 Equity32% * Tata Steel contributed $31.58M to CSR in 2008. Given that Tata Steel comprises 20.95% of the Tata group's public market cap of $60B, we estimate the total CSR contributions of Tata's 24 public companies to be $151M. Given that the Tata group consists of 96 companies, we then multiply this value by 4 and obtain a Tata Group grand total contribution of $603M. ; Source: Prasad,Dr V.V.S.K, Professor in MBA, The Hindu College, February 2009, http://www.indianmba.com/Faculty_Column/FC955/fc955.html, accessed April 11, 2010 ** Given lack of financial data and our understanding of Tata's operations, we estimate Tata's discount rate to be 10%. ***Though much of Tata's brand equity is due to its CSR policies, we recognize that a large portion of its brand equity is also due to factors such as product quality & reliability, operational effectiveness, internal sustainability investments, and other intangibles. We therefore estimate that only 50% of Tata's brand equity over CSR investment is due to the Group's CSR strategy. ***We recognize that 32% is a conservative estimate, as given the relative size of the varous Tata companies, we believe the Tata Group's total CSR 2008 contributions to be less than $603M.
Appendix B CSR Investment Profit Margin ($US M) Initial CSR Investment$100 Discount rate10% Value of CSR Investment in Perpetuity$1,000 Δ in innovation due to CFP 860.00 Δ in Human capital due to CFP 530.00 Δ in Repuation due to CFP 640.00 Δ in Culture due to CFP 89.00 Δ in CSR rating in perpetuity 423.55 Δ in innovation due to CSR 59.30 Δ in Human captial due to CSR 127.07 Δ in Reputation due to CSR 160.95 Δ in Culture due to CSR 173.66 Additional Profit due to CSR in perpetuity$8.29 Annual Additional Profits due to CSR$0.83 Profit margin0.829%
Appendix C Relationship between CSR and Financial Performance Effects of CSR on Intangible Resources β Innovation0.140 β Human Capital0.300 β Reputation0.380 β Culture0.410 Effects of Intangible Resources on CFP β Innovation0.031 β Human Capital0.021 β Reputation0.008 β Culture0.014 Effects of CFP on Intangible Resources β Innovation0.860 β Human Capital0.530 β Reputation0.640 β Culture0.089 Effects of Intangible Resources on CSR β Innovation0.220 β Human Capital0.318 β Reputation0.087 β Culture0.121 Obtained from Surroca, Jordi, Josep Tribo, and Sandra Waddock. "Corporate Responsibility and Financial Performance: The Role of Intangible Resources." Strategic Management Journal, 2010: 463-490.
NMMF enables the Tata Group to fairly compare the CSR performance of each of its companies NMMF Compare Tata Group companies’ CSR performance Tata Index NMMF Tata Index Vietnam Germany 123
Incorporating the Product Lifecycle Impact Metric (PLIM) in the Tata Index will put the group at the forefront of CSR Positive Externalities : Benefits rural farmers Reduces malnutrition by increasing crop yields Negative Externalities: Leads to soil and water pollution Product Impact Synergies PLIM Tata Chemicals Gains exposure to working with low income farmers Tata Kissan Sansar Can utilize this knowledge in selling XXX in similar markets 123