Operations strategy and the key operational performance objectives

Tata Advanced Materials limited (www.tamlindia.com)

Table of Contents

Introduction. 1

Organisational problems. 2

Overall strategy of Tata advance materials Ltd. 3

Human resource strategy. 3

Marketing strategy. 4

Operations strategy. 4

Key operational performance objectives. 5

Conclusion. 6

References and Bibliography. 6

 

Introduction

The present report is an evaluation of the operational strategy and performance objectives of Tata Advanced Materials limited (www.tamlindia.com) located in Bangalore in India. Tata Advanced Materials Ltd is an organisation under the Tata group (www.tata.com) of companies concentrating on the defence and Aerospace markets in India and overseas. When considering the history of the company and the background, Tata Advanced Materials Ltd started as a defence oriented company producing various components for the Indian military, mainly based on high-technology products from advanced materials (composites). The company started manufacturing components and products from composite materials such as carbon fibre reinforced plastic. The initial products were bullet-proof vests and jackets for the military as well as products and components made from carbon fibre reinforced plastics for offensive weapons such as gun barrels, rocket launchers and armoured vehicles. In the late 1980s the company started its expansion by targeting overseas markets and product orders from military and law enforcement agencies from Southeast Asian countries and from African countries. With the opening up of the Aerospace segment to private companies, Tata advance materials Ltd expanded into the aerospace market catering to the two main Indian aerospace companies such as Hindustan Aeronautics Ltd (HAL) (www.hal-india.com)  and Indian Space Research Organisation (ISRO, www.isro.org). Hindustan Aeronautics Ltd manufactures small planes, fighter jets etc in collaboration with foreign manufacturers mainly for the Indian air force and for the private segment. Indian space research Organisation is a pioneer in the field of satellite and satellite launching systems (Rockets).

With the advent of composite technology which is lightweight and high-strength, many of the components of aircraft and satellite launch vehicles which are manufactured from conventional aluminium and metal-based started to be manufactured from composite materials, but the technology of developing components from composite materials is still at its nascent stage. It is not only in the Aerospace segment but also in the automobile industry, where a change is being seen in the production of components which were traditionally metal-based, now moving on to composite materials. It was in the early 2000 that the company started its foray into aerospace business, and has developed capacity in terms of human resources and technology, manufacturing and marketing setup.

Organisational problems

There were inherent problems for Tata advanced materials limited due to the drawbacks and complications such as the lack of availability of skilled manpower knowledgeable in composite technology and the relative inexperience of employees in the manufacturing process, the lack of availability of sufficient raw materials and the machinery required in manufacturing, Tata advanced materials have witnessed a slow progress in the last 10 years even though with a focus on Aerospace segment of the business. The company started receiving many orders from Indian space research Organisation and Hindustan Aeronautics Ltd which are the only two aerospace companies in India and is the only two customers for the company in India. Apart from these orders, based on the brand strength of the company under Tata group, Tata advance materials Ltd also got orders from several foreign aerospace companies such as Pratt & Whitney, Rolls-Royce, Honeywell, Bombardier etc. But the lack of internal resources in terms of skilled manpower, technology and machinery meant that the company was unable to execute many of the orders in the reasonable timeframe with several delays and consequent customer dissatisfaction. There was much pressure on the employees of the company to fulfil their customer requirements and the consequent work pressure increased the dissatisfaction of the employees and reduced the motivation levels. According to Mathis and Jackson, (2010) increased work pressure contributes to lower morale and increased turnover of employees. In the later parts of 2005 onwards the company witnessed a large exodus of its employees to other organisations which further reduced the competitiveness and capability of the organisation. As a technology company Tata advanced materials has to rely on the human resources potential and according to Bernardin, (2002) many companies are now realising the necessity of considering the human resources as an asset equal to that of the material resources and assets of the company. In order to remain competitive and improve the growth prospects, Tata advance materials Ltd started a restructuring of the organisation, with a concentrated strategy in operations and improving the performance from the start of 2008 with their main focus on improving employee satisfaction.

The report is evaluating the operational strategy of restructuring of Tata advance materials Ltd after 2008, mainly from information collected from primary sources from individuals with whom the author is connected with. Moreover the author has close relationship with a few of the employees who are working in the company.

Overall strategy of Tata advance materials Ltd

When considering the overall strategy of Tata advance materials, the company is planning to expand in the aerospace market mainly in the European and North American markets thus having a focus strategy (Aswathappa, 2010). The company has two divisions which were set up after 2008 in the form of business units which will be reviewed in the further sections of the report, but the setting up of these business units was done in order to provide a focus to the business operations of the Aerospace segment. When considering the defence segment of the business, it is seen that there is not much growth opportunities for Tata advance materials as most of the equipment’s, components, products etc are manufactured for the Indian Army and there are restrictions in exporting its products to foreign countries which are the main barriers to trade and according to (Wittmer and Muller, 2011) trade barriers in defence sector is a potential draw back for companies engaged in such operations. There are also restrictions from foreign countries in importing some of the products which are manufactured by Tata advanced materials mainly because of their defence orientation. Accordingly Tata Advanced Materials is planning to stress on the Aerospace segment of the market and with the opening up of the aerospace industry for foreign players and the predicted huge requirement of aircraft in both military and civilian markets, the Indian aerospace market is poised to grow in the coming years. From a theoretical perspective even though the company is having a diversified approach (Armstrong, 2006) with defence and aerospace business, the setting up of the two individual business units concentrating on these segments is providing a focus to the company. Each business segment has its own head and reports directly to the chief executive officer of the company. The company has budgeted more resources for the Aerospace segment of the business and all the future expansion plans are focusing on the creation of capabilities in terms of human resources along with capacity addition in the manufacture of aerospace components.

Human resource strategy

As mentioned in the introduction stage, Tata advance materials Ltd were facing a problem of employee dissatisfaction and lower motivation, consequently increasing the employee turnover rate. One of the primary objectives of Tata Advanced Materials was to stem the employee turnover and increase their satisfaction levels of the employees and also to recruit and select both skilled and capable employees for the Aerospace segment. In order to increase employee turnover the company has adopted a dual strategy of providing rewards and recognition to the employees. According to Davison and Fitz-Enz, (2002) reward based techniques are one of the most basic motivational techniques employed by business organisations. Several motivational theories have underlined the case of providing adequate rewards based on performance to employees in order to motivate them (Daft, 2009). The employee compensation schemes, mainly salary and bonuses where hiked in 2008 after an employee survey and many people are promoted. Several new posts were added in order to provide the recognition to the employees for the past work. The company has adopted a serious retention strategy of offering increased compensation levels to those employees who are wishing to leave the company and according to Johnson, (2008) a retention strategy of offering increased compensation levels and better work prospects to the employee who wishes to leave the company is a basic ploy in retention of employees. Moreover from the human resources angle, the company is providing adequate training and development opportunities for employees and also the managers are trained on aligning the operations with the human resources strategy. And on this basis Tata Advanced Materials Ltd has adopted a strategic human resource concept, whereby almost all the operational decisions are evaluated based on their influence on human resources management.

Marketing strategy

From a marketing perspective, since there are two business units for the company there are two marketing divisions also. The defence business segment is only concentrating on orders from the Indian military and other similar organisations which require the products made by the company. The company is also marketing the products and services to other countries in the Southeast Asian region with which India has a free trade agreement and is allowed to export products and components which can be used for defence purposes. Other than this the major marketing strategy of the overall organisation is based on branding the company as an aerospace organisation. This is very much evident from the company website where it is labelled as an aerospace company, as well as several other marketing communications of the company. In fact the company is stressing all its marketing capabilities on the foreign clients as the product requirements of the Indian companies such as Indian space research Organisation and Hindustan Aeronautics Ltd are limited. One of the advantages for Tata advance materials Ltd in the aerospace sector is that many foreign aerospace companies are offloading their non-critical, low value items to low-cost countries. The manufacturing process of composite products is labour-intensive, even though the technology is complex. The labour cost of manufacturing of composite products is also very high in developed countries and as a result many companies in the developed countries such as Europe and North America are outsourcing at least a part of their production to low-cost developing nations.

Operations strategy

Prior to the restructuring of the company before 2005, Tata advance materials Ltd were concentrating on a volume approach in operations. The manufacturing process of composite materials requires that some of the machines cannot be operated at their maximum efficiency levels all the time. The lead time required in manufacturing of some of the components was very high which required step-by-step quality checks and stringent clearance procedures from the end product manufacturers. Even in some cases Tata advance materials Ltd faced a problem in sourcing the raw materials for the manufacturing of the components. At the end of 2008 the company decided to move on to a value-based approach rather than a volume-based approach. The volume-based approach meant that the company was taking almost all the orders which were coming its way from all the customers. This was done mainly because the company was approaching too many customers in order to get orders and scouting for too many orders meant that they were getting only small value orders from different customers and in order to maximise their efficiency the company started batching the orders which had similar manufacturing process. The complexity associated with different products from different customers meant that several project teams had to be put into action in order to satisfy the different types of requirements of the clients. Even with these high volume operations the company was only operating at 40 to 50% of its efficiency levels and was incurring a loss in the operation of its machinery.

In order to alleviate these operational efficiencies and to improve the processes and the manufacturing, Tata advance materials Ltd opted for a value-based approach where the company started marketing to specific customers in order to get orders of specific components which were adding value. Instead of taking all the orders from many customers the company concentrated on taking orders of similar components from a small number of customers but in large quantities. In this way the company was able to improve the operational efficiency of its machinery and the production by 50%. In the year of 2009 and 2010 and Tata advance materials Ltd where operating at 70% and 85% efficiency levels respectively.

One of the other operational objectives adopted by the company was to focus on specific areas within aerospace such as engine components and fuselage components. The company divided the aerospace business segment into two areas with stress on manufacturing of engine components and fuselage components mainly because the raw materials and the production process were different. In fact the two segments within the business unit where based on two large project teams under which smaller project teams were working. In order to provide direction to the two separate unit’s different marketing teams were also formed. But the main operational strategy adopted by the company was changing the production of engine components and fuselage components into two separate facilities but within the same compound. The separation of production of these two segments within the aerospace industry meant that two marketing divisions were also needed in order to cater to the different requirements of different clients. Tata advance materials Ltd in 2010 adopted segmentation within the aerospace business unit and a general manager was put in charge of the two units within the aerospace business unit.

Key operational performance objectives

When considering the operational objectives of Tata advance materials Ltd, the main parameters which the company is stressing upon is improving the efficiency levels in production. As mentioned before Tata advance materials Ltd has adopted a value-based approach in taking orders and improving the operations in order to achieve efficiency levels of up to 90%. The company wants to improve the operational efficiency levels but has a limitation mainly because of the production characteristics of composite components and the dissimilarities in the type of products which the company is manufacturing for different customers. In the long-term company is planning to concentrate on a specific area that is either of engine components or fuselage components. With the present capacity of Tata advance materials Ltd the company is not able to stress fully on one single area of business as the present business scenario is such that the company will not be able to get orders to fully utilise the capacity from any single area. But with the addition of new customers in specific area either of engine components or fuselage components the company is planning to develop a focused strategy and to improve the operational performance up to 95%.

Of the other operational strategies which Tata advance materials Ltd is planning to adopt is the establishment of project teams based on matrix structure (Oswald and Flouris, 2006). Currently the organisational structure is based on line and functionaries and the need for establishing specific project teams which will look into all the requirements of the customers from marketing to end product delivery. A matrix structure will draw the members of the project team from different departments such as marketing, production, quality control, materials, Finance, accounting etc which will have a project leader and will be reporting to the general manager of the specific business unit. Adoption of the matrix structure has been studied by Tata advance materials Ltd in detail and one of the key objectives for the year 2012 is to establish matrix style project teams for all the customers. Such a dedicated project team which grows resources from all the departments is expected to deliver better results for the company in terms of marketing for the products as well as timely delivery of products.

When considering the financial parameters, the company was operating under loss for several years up to 2010. One of the main reasons for operational loss was because of the impact of huge capital expenditure done in the early part of 2000. It is expected that the company will be able to turn around and increase their revenues and create a profit in 2012. The company has adopted an amortisation policy of the capital expenditure over a period of years and is the main reason for the loss in the operations even though the reduced operational performance was also a factor. With the increase in operational performance up to 95% and the increase in the value of the products which it manufactures, Tata advance materials Ltd is expected to make profit from the year 2012 onwards.

Conclusion

Tata advanced materials Limited has restructured its organisation focusing on the aerospace segment of the market and has adopted a branding strategy based on the strength of the parent brand of Tata group as well as individualising little based on the capabilities of developing and manufacturing composite components for the aerospace industry. But the company is yet to develop a clear focus on the specific area of aerospace, or rather whether to concentrate on designing, developing and manufacturing of engine components or fuselage components. Both the areas have similar potential and top management is evaluating the pros and cons of entering into each segment. But the recommendation from the report is for the company to develop its focus on both the areas as the huge manufacturing capacity of Tata advance materials will not be fully utilised in the near-term with a specific focus on any of the areas. Another area of development for Tata advance materials Ltd is the employee retention program which needs to be stressed and developed in order to motivate the employees and to retain the human resources tension within the company.

References and Bibliography

  1. Armstrong, M., (2006), A hand book of human resources management and practice, 10th edition, Kogan Page publications Ltd
  2. Aswathappa, R., (2010), International business,4th edition, Tata McGraw-Hill publications Ltd
  3. Bernardin, J. H., (2002), Human resource management; and experiential approach, 3rd edition, McGraw-Hill publications Ltd
  4. Daft, R. L., (2009), Organisational theory and design, 10th edition, Cengage learning publications Ltd
  5. Davison, B. and Fitz-Enz, A., (2002), How to measure human resources management, 3rd edition, McGraw-Hill publications Ltd
  6. Johnson, G., (2008), Exploring corporate strategy; text and cases, 7th edition, Pearson education India publications Ltd
  7. Mathis, R. L. and Jackson, J. H., (2010), Human resources management, 13th edition, Cengage learning publications
  8. Oswald, S. L. and Flouris, T. G., (2006), Designing and executing strategy in aviation management, Ashgate publishing Ltd
  9. Wittmer, A. and Muller, R., (2011), Aviation systems; management of the integrated aviation value chain, Springer publications Ltd

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