Mapping, Measurement and Alignment of Strategy using the Balanced Scorecard: The Tata Steel Case

Abstract

This management accounting case provides insights into the emergence of global firms from emerging economies that have effectively adapted modern management accounting tools in strategy implementation. It is based on real-life situations and was developed using information from interviews and access to the firm's internal processes, journal articles, and other publicly available information. It is suitable for use in second level courses in management accounting or on MBA programs. It provides insight into the use of the balanced scorecard, in particular the strategy map and measurement.

Keywords:

• Case study
• management accounting
• balanced scorecard

Notes

Most recently, the Arcelor and Mittal Steel merger created the world's largest steel company with 110 million tonnes capacity, setting the stage for more mergers.

Some names have been changed to protect the identity of individuals concerned.

A Parsi philanthropist and pioneer, Jamshedji Tata was involved in the nationalist movement during British colonial rule in the 1800s. He was one of the first to see the need for self-sufficiency through a thriving manufacturing sector.

The firm was third in management after S. Korea's Posco and China's Bao Steel, based on such criteria as management, technology and cost of production. Some details of the transformations during this phase are outlined in Seshadri and Tripathy (2006), which includes projects such as revamping the blast furnace and turning around the rolling mills. See also, Meredith (2005).

Recent world capacity was about 1113 million tonnes, with production of 962 million tonnes. China contributed about 31% of the total, followed by the EU and the USA. India totaled about 40 million tonnes, with Tata Steel production capacity equaling about 5 million tonnes; currently, the top 10 producers produce about 30% of the total world production. Information on the steel industry can be accessed from a variety of sources listed in the references, including speeches by Mr Mittal of Mittal Arcelor available at http://www.mittalsteel.com/News + and + Press/Speeches + and + Presentations.htm (accessed 31 March 2007) and presentations by TS's MD Mr Muthuraman available at http://www.tatasteel.com/investorrelations/investorevents.asp (accessed 31 March 2007).

Dhawan and Roy (2004).

Corus was about five times the size of Tata Steel. However, Tata Steel had the backing of the vast resources and access of the Tata Business House, which included a stable of companies such as Tata Motors and Tata Consultancy Services (the largest information systems firm in India).

See Elankumaran, Seal, and Hashmi. (2005).

Bribes are often commonly accepted as a means of accessing licenses and circumventing a circuitous system, but the firm's reputation helped to overcome many of the problems that plagued the system.

Economic value added (EVA) an extension of Residual Income, was trademarked by Stern Stewart and Co. TS used the measure to target returns (RONA) that was greater than the cost of the capital invested. EVA = (RONA – WACC) times invested capital, where: EVA is economic value added, RONA is return on net assets (=net operating profit after tax/net assets), and WACC is weighted average cost of capital.

While the firm identifies shareholders, financial community, customers, media, employees, regulators, suppliers and partners as stakeholders, the key stakeholders are customers, employees, shareholders and suppliers.

Recent awards included ‘Best Localization Award’ from Hyundai and ‘Approval for Global Supplies’ from Caterpillar, demonstrating ‘customer delight’.

Specifically, Tata Steel identified 12 key enterprise processes (KEP) through a framework detailed by APQC. APQC (initially called American Productivity and Quality Center) became internationally-renowned after the creation of the Baldridge Awards and later work in setting up the International Benchmarking Clearinghouse and the Open Market Benchmarking Collaborative that helps identify current benchmarking measures and best practices (see http://www.apqc.org/portal/apqc/site for more details).

EBITDA stands for earnings before tax, interest, depreciation, and amortization and is useful to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. April 2005 to March 2006 comparisons of steel companies from news briefs on Tata Steel website showed: Tata Steel: 40%, Nippon: 19%; Arcelor: 16%; POSCO: 30%; JFE: 22% and Mittal: 16%.