Public sector steel giant SAIL needs to shed its historical baggage to remain competitive. And it has got a tough boss determined to do just that
It was not something that a new chairman and managing director at India’s largest steel firm, the Rs. 42,000-crore Steel Authority of India Ltd. (SAIL), would have had the audacity to do. But this September, barely three months into his tenure, Chandra Shekhar Verma refused to sign off on the daily and monthly production targets for the public sector company’s eight plants.
Regional heads pleaded with him to get this routine matter done with, but Verma insisted he would accept targets of no less than 100 percent. Officials maintained it was impossible.
For years, SAIL’s plants had got used to working at 97 percent of their capacity or less. After much debate, Verma struck a compromise with the factory heads: Daily targets at 100 percent and monthly targets at 98 percent.
The message spread across the company like lightning: The new chief was tough, demanding and determined to change the way SAIL had functioned for a long time. The doddering, overstaffed behemoth was due for some fundamental change.
Verma has so far lived up to that expectation. He has replaced the old performance appraisal system with a balanced score card system that demands accountability. He has done away with the practice of promoting people on the basis of the greyness of their hair or their rapport with top management. Now career progression will depend on a set of objective data.
Verma has kickstarted a plan to rationalise the workforce to industry standards. Most retirees will not be replaced. He is also pushing his staff to be result-oriented and not take refuge in red tape.
Despite an ambitious plan to quadruple steel-making capacity to 60 million tonnes by 2020, SAIL had been lax in its ongoing expansion and modernisation plan.
The Rs. 70,000-crore project had been delayed by at least three years. Verma has now come in and speeded up the rate at which work orders go out from the company. The new deadline has been set for 2013.
But all this gives only a hint of the bigger change Verma want to bring to SAIL. The company has been losing is pre-eminence in the market over the years. Its share has shrunk to 20 percent. “I want SAIL to regain the 30 percent market share it had earlier,” Verma says in an interview to Forbes India.
Robust rivals such as Tata and JSW have rapidly reduced the capacity gap. They have added fresh capacity quickly to cash in on surging domestic demand even as SAIL was caught in its own bureaucracy. SAIL needs more agility to stay one step ahead.
It has also lost its status as the price setter. “Earlier, SAIL would set the steel prices for the month and others would follow,” says a trader. But in many markets now... they no longer wait for SAIL’s signal.”
So, when the government began its hunt for a new CMD for SAIL earlier this year, the mandate was to find one who would push through the hard decisions needed to put SAIL back in the game. And the board of directors — which includes former Maruti managing director Jagdish Khattar and economics professor Deepak Nayyar — asked for someone young who could pump in fresh ideas.
In June, the government chose Verma, then the finance head of Bharat Heavy Electricals Ltd. (BHEL), for the job from a candidate list of 23. The 51-year-old became the youngest CMD in SAIL’s history. And the steel ministry threw its weight behind him. “He has come with an open mind and is pro-active. We are supporting him,” says P.K. Misra, secretary in the steel ministry.
The proverbial die had been cast.
Man of the Moment
It is not clear whether Verma is an insider or outsider to the steel industry. He had spent 29 years in organisations like BHEL, Indian Railways Finance Corporation, ITI and Delhi Stock Exchange. But as someone who started his career at a small steel firm, Verma had always studied the sector closely. It helped that a tenth of all orders at BHEL came from the steel industry.
At the very first board meeting after taking charge, Verma made an impressive presentation to the directors. “He surprised all of us with his knowledge of the industry. He had a good local and global perspective, especially coming from a non-steel background,” a board member says on the condition of anonymity.
His track record at BHEL was impeccable. “BHEL’s financial health improved under Verma as its finance director. Its turnover has tripled and profits have quadrupled in the last five years,” says an analyst tracking the company. Verma’s initiatives saw the engineering company bag multi-billion dollar orders for seven super critical thermal power plants in the country. He also helped sew up technology alliances with multinationals like GE, Siemens and Alstom.
However, Verma concedes the game is different at SAIL. “BHEL has a 70 percent market share and has a record order book. There is hardly any competition. On the other hand, SAIL has a lot more variables to face — competition, product price fluctuation, raw materials shortage and technological limitation.”
Verma’s first few steps at SAIL have also found support from where it really matters — the steel ministry. His success will depend to a great extent on secretary Misra’s decisions. “In the past, bureaucrats have come and gone and so have ministers,” says a former director. “Unless the bureaucrats also have a long-enough tenure, the continuity in planning and execution is not there.” In fact, Misra is the third bureaucrat at this post within the last one year.
(This story appears in the 17 December, 2010 issue of Forbes India. To visit our Archives, click here.)