Tisco - The EVA Journey

            
 
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Case Details:

Case Code : FINC035
Case Length : 9 Pages
Period : 1996-2006
Pub. Date : 2004
Teaching Note :Not Available
Organization : TISCO
Industry : Iron and Steel
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"Every third sentence spoken by the Muthuraman (MD of TISCO) seems to have 'EVA' in it. Muthuraman breathes, sleeps and eats the word, and is trying to get the rest of the company to do so as well. Every sign, placard and memo in Jamshedpur has it."

- Businessworld, June 23, 2003.

Introduction

The retirement of JJ Irani (Irani), former managing director of Tata Iron and Steel Company (TISCO)1 in August 2001, marked the end of his long, challenging and eventful career in TISCO.

He was credited for bringing about a major transformation in the oldest and the largest private sector steel plant in India. On his retirement, Irani, who had numerous achievements under his belt, was asked, "Is there anything that you wished to accomplish but could not?" He honestly replied, "The shareholder value for Tata Steel should have been higher than what it is today. I feel sorry that the share today is only priced at Rs. 100. I think it should be at least double that figure."2

Irani's successor, B Muthuraman (Muthuraman) also held the same opinion. Muthuraman was well aware of the fact that TISCO had not generated enough returns to increase the shareholders' value.

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The company's share price had been hovering in the range of Rs. 70 to Rs 180 since 1998. In an interview, he confessed, "We have inadvertently ignored the shareholder. It's time to fix that."3 In order to improve shareholders' value, Muthuraman decided to introduce the Economic Value Added (EVA) concept (Refer Exhibit I) in TISCO. He made every effort to ensure that the concept of EVA sank in at each hierarchical level of the organization.

This meant putting the concept across effectively to 43,000 employees in the company. Bimalendra Jha, the chief of the improvement program in TISCO said, "There's a finance manager in every individual. We tried to tap into him."4 TISCO's officials were determined to achieve a positive EVA figure by 2007. However, analysts felt that this was a big challenge for TISCO's management because for a highly capital intensive and cyclical industry like steel, a positive EVA would be difficult to achieve. TISCO was however, able to declare a positive EVA of Rs 3.31 bn5 for the financial year 2002-03. Industry analysts were surprised at TISCO's pulling off the feat four years ahead of schedule. Now expectations were high, and they wondered whether TISCO would be able to do it again in 2003-04.

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1] In 2001, TISCO wad a leading manufacturer of a wide range of steel products including HR/CR coils and sheets, rails, fishplates, bars, structural, strips and bearings, material handling equipment, wheels and many other related products in India.

2] In an interview to Financial Express on August 03, 2001.

3] Busting the Business Cycle, Businessworld, June 2003.

4] Busting the Business Cycle, Businessworld, June 2003.

5] Earlier, the company had estimated EVA of Rs. 2.38 bn but it was revised to Rs 3.31 bn.

 

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