Wednesday, August 22, 2007

Dr Anji Reddy--A Profile

Business India, December 10-23, 2001

Size Does Not Matter

Anji Reddy has demonstrated that a highly focused small pharma company can also play in the big league of drug discoverers

Shivanand Kanavi

“Looking at the patents regime that has been accepted by 90 per cent of the nations of the world and the rapidly changing world scenario, the issue before us is not whether to accept the patent regime — it’s a question of when, say 10 years, as suggested by the Dunkel draft. Basic research is an arduous task and is said to be expensive. The statistical data from Western countries are frightening. It is estimated to cost anywhere between $100 and 200 million, but it is my considered opinion that in the Indian context such an endeavour may be accomplished within Rs100 crore or so.Expenditure of this magnitude is within the reach of some companies in India.”
Dr K. ANJI REDDY in his presidential address to the Indian Pharmaceutical Congress

Interestingly, the year K. Anji Reddy delivered the address was 1992. It is a classic example of the much-touted word “vision”. Dr Reddy’s Laboratories had just crossed Rs100 crore in sales that year and here was its chairman saying he could invest Rs100 crore in the next 10 years and discover new drugs! It was not an empty boast, but contained a clear-cut roadmap of process development, lead molecule discovery, and co-development and co-marketing with global majors. Obviously not many in the audience believed this bluster. Even fewer had similar plans.

But Anji Reddy went about doggedly implementing his own recipe step by step and took the risks. As a result his company, Dr Reddy’s Laboratories, stands tall in the Indian pharma sector in less than 10 years. Although no drug has yet come out in the market from Reddy’s stable, many are in advanced trials all over the world and major pharma companies like Novartis and Novo Nordisk are co-developing the drugs with him. If the molecules pass muster in the trials then they might even become sizable revenue earners. There’s a chance that one of them might even be a blockbuster.

Reddy started with two companies in his group Dr Reddy’s Labs and Cheminor. Recently they were merged. The group has grown from a sales of Rs 103 crore in1991–92 to over 10 times that figure in less than 10 years. In fact this years’ performance is amazing — over 150 per cent growth in the first half. Profits too have grown from Rs10 crore in 1991–92 to over Rs300 crore in the first half this year! Reddy calls them “indecent” profits and one of the main contributors is his exclusive marketing rights to sell the blockbuster Prozac, an antidepressant, for six months in the US market. But don’t let the self-deprecation deceive you; after all, when Reddy listed his company on NYSE in April 2001, it became the first pharmaceutical concern from Asia–Pacific to do so. And amidst crashing markets it has been declared the best-performing IPO on NYSE and Nasdaq this year. According to Naina Lal of Morgan Stanley, one of the main reasons for this performance is the high level of disclosure norms Reddy has adopted. It may be a family-owned business with himself, his son, and son-in-law controlling the management, but it is setting high professional standards.

One of the reasons for Reddy’s spectacular performance is his agility. “He knows when to get into a bulk drug or formulation and when to get out and move on to new ones,” says M.M. Sharma, FRS, former director of UDCT Mumbai and a doyen of Indian chemical engineers. From high-purity bulk drugs Reddy has moved into branded formulations and quickly made his mark. Nise, an anti-inflammatory formulation, has quickly become one of the largest-selling brands in the Indian market. He was a pioneer in exports and has maintained a strong position and increased value by filing Advanced New Drug Applications in the US market, as in the case of Prozac mentioned earlier. To top it all are his molecules for diabetes, which are in advanced trials. Reddy is very much a man on the move now with a $100-million war chest from his ADR issue on NYSE. He has earmarked $30 million for drug discovery and $75 million for acquisitions.

No wonder that when Anji Reddy addressed the recent Ficci CEO conference on ‘Building a research-based pharmaceutical company’, his theme was: “Size does not matter”. This time every one in the audience took this diminutive and feisty technocrat seriously.

“There has been a tradition of innovation in Reddy and other Indian companies even in process chemistry,” says R.A. Mashelkar, a champion for intellectual property rights in India. “That is why they can easily become a high-quality source of off patent generics for the rest of the world. This achievement itself is non-trivial and the oft-used statement ‘Indian companies used the Indian Patent Act 1971 and its non-recognition of product patents and prospered’ does not tell the full story,” he adds.

Clearly if it were so easy and trivial, then why are others not doing it with generics? Secondly, Reddy’s process for Ibuprofen, a popular anti-inflammatory drug, was so advanced that Ethyl Corporation, US, had to accept its superiority in front of the US Trade Representative and ask for tariffs to be put against Reddy to achieve a level playing field! Later Ranbaxy’s process for Cefeclor, an anti-infective, made Eli Lily, the discoverer of the molecule, take India seriously. Similarly, with Cipla’s anti-Aids, anti-asthma and anti-cancer drugs or Lupin’s anti-TB drugs. Naturally, when the anthrax fear psychosis took root in the American psyche, everyone looked at Indian companies to source Ciprofloxacin. One letter by a senator in this regard was enough for Bayer to drop the price per dose from over $4 to less than a dollar overnight.

Executives at Dr Reddy’s Laboratories (DRL) proudly recount an anecdote from the past about Reddy’s drive towards quality and innovation even in the early days. At one time DRL was making Ibuprofen of a higher quality than Boots, the original discoverer of the molecule. When a foreign buyer came and asked if DRL could supply “Boots-quality stuff”, Reddy is supposed to have replied that it would take a little time since it would need to introduce some impurities to achieve that!

That is quintessential Reddy; aggression and pride in the quality of his products. When he started making Methyldopa, a drug for hypertension, for the first time for exports in the 1980s, his goal was to at least achieve Merck’s quality. Today, when his molecular hunt is yielding results, he has provided a new international profile to the Indian pharmaceutical industry, notes Kiran Mazumdar, a biotech pioneer herself.

Reddy himself travels tirelessly. At a recent medical conference in Atlanta at which he was present, his vice-president for research was asked a highly technical question. Before the V-P could compose an answer he had a Reddy cue “tell him about the JAMA article”, referring to a complex medical article published in the Journal of the American Medical Association six months earlier. “He astonished others present by the speed at which he retrieved this highly technical information, considering that his expertise is in chemistry,” says Uday Saxena, who heads Reddy’s biotech research lab in the US.

Reddy is a man obsessed with his research. He looks very laid-back about everything else. “He never asks us about operations. Even when we are hard on ourselves for not achieving some target, he brushes it aside and gives the big picture, but as for research he drives them relentlessly,” says G. Prasad, COO of DRL. “It’s common to receive calls from him at 3 in the morning,” says R. Rajgopal, who should know, since he is president of Dr Reddy’s Research Foundation (DRF). Satish Reddy, MDand CEO of DRL, concurs. “He is extremely focused on research and delegates everything else to others,” he says.

Satish is Reddy’s son and Prasad is his son-in -law. Both joined the firm when it was in trouble in the early 1990s after an exodus of key personnel, but Reddy was planning his magnificent obsession the molecular hunt – right back then and hence sent an SOS to both of them to come and take over operations. The temporary setback bothered him little. His ploy worked. The Reddy group grew at a record 30 per cent year-over-year for the next three years.

Whenever we at Business India have met him in the last seven years there has always been talk about a new molecule. He just assumes that you know the difference between DRF 2725 and DRF 2593. “His excitement about research is childlike. He spends hours with his grandchildren explaining to them what he is doing in the labs,” says daughter Anuradha.

Sweet pain
Dr Reddy’s Research Foundation today is abuzz with research on diabetes. Though it has developed other molecules which have shown anticancer properties, what has brought it fame and confidence, and a few million dollars besides, is diabetes.

Diabetes has been known since 1500 BC (Eber’s papyrus of Egypt). Aretaeus gave it the name ‘diabetes’ in the second century AD. Interestingly, the main symptom of diabetes, namely a high level of sugar in urine, was described by an Indian physician of the 6th century AD who called it honeyed urine (madhu meh). The medical name Diabetes mellitus–meaning honeyed – comes from that.
There are two kinds of diabetes. Type I affects about 5 –10 per cent of diabetics and is characterised by a lack of insulin production in the pancreas (a small organ behind the stomach). This condition is created by the body destroying its own beta cells in the pancreas which produce insulin. People suffering from this disease take human insulin injections. Insulin is a hormone which helps in the absorption of glucose by liver, fat, and muscle cells. The lack of insulin leads to excess glucose in the blood, which is then passed into the urine through the kidneys. There are several dangerous effects of a high level of glucose in the blood. It can lead to deterioration of the kidney, retinal damage, early formation of cataract, and even coma. It has appropriately been called a silent killer.

Type II diabetes is a condition where there is enough insulin produced by the pancreas but the body is able to absorb only a part of that. This affects 90 per cent of diabetics. So one therapy available is to increase the production of insulin in the body. However, if we can make the cells absorb insulin, then glucose oxidation or burning in these cells will increase. It has been discovered that there are some Peroxisone Proliferator Activator Receptors (PPARs) and those molecules that bind to PPAR gamma sensitise the body for insulin absorption. Those that bind to PPAR alpha help in reducing the triglycerides – unwanted fat in the blood –and increase the level of HDL the so-called good cholesterol.

A Japanese company Sankyo discovered a class of compounds called troglitazones that sensitise the body for insulin. However, the molecule was withdrawn after it was found have side-effects on liver enzymes. Dr Reddy, who himself suffers from type II diabetes, was interested when he saw the activity of troglitazones and pushed his team to come up with better molecules. He had a hunch that activity could be increased with some clever substitutions within the molecule.

The result was a new molecule DRF 2593, which was at least 40 times more potent than the existent insulin sensitisers, but it too had a side-effect on liver enzymes. This molecule was licensed to Novo Nordisk, a leading player in diabetes. However, when better drugs by other companies with hardly any effect on the liver came into the market, Novo put DRF 2593 on the backburner.

When Novo representatives came to DRF, again, before making his presentation, Rajgopal asked them to write down a wishlist. The Novo people said, “We would love to have a insulin sensitiser which does not have side effects on the liver and which lowers lipids in the blood.” Rajgopal said “We’ve got it” and presented data about a new compound codenamed DRF 2725!

This new molecule not only sensitized the body to insulin absorption but also reduced the triglycerides in blood, thus hitting two targets with one arrow. It caused a stir and Novo
Nordisk double-checked the data in its labs and signed a licensing agreement forthwith. Today it has passed the first two phases and is in a global Phase-III trials in which nearly 4,000 patients are involved in about 35 centres. If all goes well, this molecule can come out as a drug for diabetes and cholesterol patients by 2003. It has been estimated that this class of dual-active drugs can increase the life expectancy of diabetics by 10–15 years.

Having tasted success once, the DRF team is charged up and has come out with another molecule DRF 4158, which is even more potent than DRF 2725 and is dual-active. This molecule has been licensed to Novartis and is undergoing Phase I trials.

Just a few weeks ago DRF announced a new molecule DRF 4832 at the American Heart Association’s conference and caused quite a flutter since this new molecule is in fact triple-active — that is, it also increases HDL (good cholesterol)! Clearly, world pharma majors are looking at DRF as a possible source of novel molecules and exciting drug candidates. Today the Camelot the DRF team is chasing is a triple-active molecule effective in type II diabetes which elevates good cholesterol and also lowers the bad cholesterol effectively like the statins.

Paradigm shift
The paradigm of secretive pharma research under one roof at a giant company has changed considerably as pharma majors go shopping to shore up their drug pipelines. They want to have several drugs under trial and be sure of the sustainability of revenue growth. The old “not invented here” syndrome is very much in the decline. They are scouring labs, universities, and research-based companies worldwide for new and interesting molecules. One of the reasons for a spate of mergers in global big pharma is this hunt for pipelines and synergies in R&D. Meanwhile, some companies like Sankyo and DRF are showing that small companies can come up with very interesting molecules.

Many molecules of DRF may be ‘me-too’ molecules — that is, they may not have extended the boundaries of medical research and might have followed somebody else’s pioneering work. But that hardly matters. If a me-too is more effective or less toxic or has other beneficial effects, it may turn out to be a bigger hit than the original. For example ranitidine – brand name Zantac – by Glaxo was a me-too after the original cemetidine by another company. But it contributed over $2 billion to Glaxo’s bottom line for several years. Similarly, Enalapril, an ACE inhibitor, and Atenolol, a beta-blocker, were also me-toos that became blockbusters.

Me-too molecules may not get you the Nobel Prize, but the research involved in finding them successfully is non-trivial. Once a molecule is found to be effective, all its analogues – look a likes (siblings and cousins) – are also investigated and patents filed to cover all the flanks and to see that the potential of the whole family of compounds is exhausted. Thus an original discoverer would have already covered all his flanks when another hopeful like DRF starts looking at it.

The good news for 40 million Indian diabetics is that Reddy’s molecules may be available in India at an affordable price when they come into the market despite being the latest patented drugs, since Reddy holds the marketing rights for India.

Today DRF has applied for over 65 patents and is making presentations to several drug majors. Dr Janardhan Reddy, a professor at Northwestern University and one of the leading experts in PPAR, says: “Anji Reddy has a childlike curiosity which is reflected in a twinkle in his eye and a twitch of mischief in his smile. He is a maverick and an iconoclast.” It is this curiosity and iconoclasm that have taken Reddy where he is.

What does a “visionary” mean? Is it that others around him are blind? No, most people can only see what is around them. They cannot see what is not there or what is in the distant future. A visionary can. “My father took me to their farmhouse on the outskirts of Hyderabad one day and said, ‘Here will be a modern research lab for drug discovery’. It was barren land. I also knew as a medicinal chemist at Purdue University, how complex the process of drug discovery is since I myself was involved in some projects. I was sceptical to say the least,” recalls Satish Reddy. Satish was not alone; many in the pharma industry too weren’t willing to believe. But today all he receives is accolades for his vision and drive. A proud M.M.Sharma beams about his distinguished alumnus: “He has made the impossible possible through his R&D.”

His peers in the pharma industry acknowledge his leap. “He has successfully turned his company into a research-based pharma company, says Habil Khorakiwala of Wockhardt.
“Dr Anji Reddy has been a path breaker for the Indian pharma industry in this millennium. He has demonstrated that the Indian pharma industry is capable of holding its own in global markets with high quality revenue streams that can be reinvested for research. I also admire his fortitude in quietly handling risk and uncertainty; and for ably guiding his company in an increasingly exacting international marketplace,” says Dalip Shanghvi of Sun Pharma.

Praise from peers in other sectors too is plentiful. “Dr Reddy’s Laboratories is one of the few companies in India with a strong focus on drug discovery, and a track record of success in global markets,” says Mukesh Ambani of Reliance Industries. “He is passionate about whatever he does and pursues a clear vision,” says Ramalinga Raju of Satyam Computers.

For Andhra Pradesh Chief Minister Chandra babu Naidu, Reddy is a showpiece to promote Hyderabad as a new centre for knowledge-based industries. “It’s a matter of pride for us that Dr Reddy’s Laboratories was the first non-Japanese Asian/Pacific pharma company to be listed on the New York Stock Exchange. Dr Anji Reddy belongs to that rare breed of people who dare to dream and make their dreams come true,” says Naidu.

Reddy showed promise in research long ago. According to his elder sister Rajamma, he used to open up germinating beans when he was four to see how the seedling was coming out. Reddy spent his childhood in a small village across the Krishna river near Vijayawada, where his father was a prosperous farmer growing turmeric. His early education took place in Hindu College and Andhra Christian College, Guntur. He has really fond memories of his days there. When we accompanied him to these places he was distressed to find that his chemistry lab had been shifted from its old premises at Andhra Christian College. A sentimental Reddy told the principal and head of the department there, “I will give you all the modern equipment to build a modern analytical lab. My only request is that you restore my old lab to the same premises.”

After his BSc in Guntur, Reddy joined UDCT in Mumbai to study pharmacy.
He was greatly influenced by the atmosphere at UDCT. “The academia there was very close to industry. I liked it,” recalls the entrepreneur in him. However, he then went to National Chemical Laboratory, Pune, to study for a doctoral degree. This time he decided to switch his field from pharmacy to chemical engineering, since bulk drug manufacture was mostly chemical engineering. Not an easy switch. “In fact I was very hesitant to take him on as a student,” recalls L.K. Doraiswamy, a distinguished chemical engineer who later became the director of NCL and is currently Anson Marston Distinguished Professor in Engineering Emeritus at Iowa State University.

But Reddy did not disappoint him. “Indeed, I have rarely taken a better decision in recruiting students, and even scientists. He not only produced a very fine thesis, but also worked on a side problem to produce a paper in a matter of weeks, which to this day is quoted in practically all books and reviews on Properties Estimation. The Reddy–Doraiswamy equation developed by him (with little assistance from me) for predicting liquid diffusivities has lost none of its original flavour,” he declares.

However Reddy was a very focused man: his eyes were set on industry and not academe. He joined IDPL, the newly established bulk drug manufacturing unit in the public sector in Hyderabad. After a few years there he could not stand the non-entrepreneurial culture and quit to form a company with little seed money called Uniloyds. It made a successful foray into pharma, but his partner wanted control though he had no idea about the business. Reddy quickly cashed his share and joined an old classmate C.R. Reddy to found Standard Organics (SOL). SOL under Reddy’s leadership soon became the largest producer of sulfamethaxazole and even won an R&D award from the Indian Chemical Manufacturers Association. But his partner had other plans on diversification and Reddy came out of it to establish Dr Reddy’s Lab and Cheminor for bulk drug manufacture in the mid-1980s.

The early 1990s, however, saw an upheaval in both DRL and Cheminor. “Probably he is too trusting [in delegating responsibility] for his own good,” says Prasad, who was asked to take over leadership at Cheminor. “It was tough. Leading people had left to start another company and there was a legal battle with Ethyl Corporation. I wish I had some handholding,” recalls Prasad. But Prasad soon brought things under control and the rest is history. “He is a forest man and I am a trees man,” he comments. “Now I see that one needs to see both the forest and the trees.”

Looks like Reddy too knew his weaknesses and that’s why brought in two excellent operational people, Prasad and Satish. Though they happen to be his son-in-law and son, they have built a genuinely professional team around him and there is none of the family business syndrome. Reddy is free to pursue his obsession with research and proving all the Cassandras, who were saying that only big pharma companies with research budgets of a billion dollars could do drug discovery, dead wrong. He’s well on his way to doing it.

Anji is a short form for Anjaneya or Hanuman, who was the village deity of Tadapalle and every family had an Anji in it. According to the epic Ramayan, Anjaneya carried the mountain of gandhamadan to cure the battle- wounded Laxman, since he did not know the taxonomy of the herb sanjeevini that was needed. Anji Reddy, however, does very focused research into molecules and does not bring a mountain. When we visited his village he showed us the railway bridge he used to cross over the Krishna in spate to reach Vijayawada on the other side. The old bridge has vanished and modern bridges are in place. As we walked with him across the bridge he was able to recall many an old story with brief intermissions for conversation with his research teams in Hyderabad and Atlanta on his mobile phone. His executive assistant meanwhile informed him about his appearance in a cover story in Forbes Global, the first Indian businessman to be spotlighted by that magazine.

“The word ‘visionary’ is overused, but if it applies to anyone applies to Dr Reddy. I have little doubt that he will, step by step, build one of the most important international pharmaceutical companies in the world,” says Bruce Carter, formerly of Novo Nordisk and now at Zymo Genetics.

As we walked with him we realized that Reddy is truly crossing a bridge in his career. From a generics manufacturer, to a research - based company, from an Indian footprint to a global one.

Tuesday, August 21, 2007

TIFR-A Tribute

Business India, September 1-14, 2003
Reinventing a jewel

Can we fix something that isn’t broken? Director Shobo Bhattacharya and his colleagues are setting an ambitious agenda for TIFR in the 21st century

Shivanand Kanavi


Can we build a world-class scientific research institution in India? The question was posed nearly 60 years ago by Homi Bhabha in 1943, in a letter to J.R.D. Tata. He himself answered it in the affirmative and demonstrated it by building Tata Institute of Fundamental Research.

Today we have several world-class institutions: Indian Institute of Science, Bangalore; National Chemical Laboratory, Pune; Central Leather Research Institute, Chennai; National Aerospace Laboratories, Bangalore; Central Food Technology Research Institute, Mysore; Centre for Cellular and Molecular Biology, Hyderabad; Inter-University Centre for Astronomy and Astrophysics, Pune; Physical Research Laboratory, Ahmedabad; National Geophysical Research Institute, Hyderabad; Indian Agricultural Research Institute, Pusa; National Institute of Immunology, Delhi; Bhabha Atomic Research Centre, Mumbai; and a few others. As for undergraduate education, in engineering and science the IITs and the University Institute of Chemical Technology, Mumbai, are among a dozen élite institutions renowned the world over.

And where does TIFR stand today, we asked R.A. Mashelkar, directorgeneral of CSIR and India’s most eloquent scientist- manager. “TIFR is already the best centre of excellence in scientific research that we have in the country. I monitor average impact factor per research paper as an indicator of quality within CSIR and the data show (see table below) sustained quality as well as leadership from TIFR,” he said.

The ‘impact factor’ is calculated based on number of times a particular paper is referred to by peers.

Mashelkar adds, “But our expectations from TIFR are higher. We would expect Nobel Prizewinners, FRSs and Foreign Associates of US National Academy of Sciences to emerge from TIFR”

What needs to be done for this? “Ambience and ambition are two essential ingredients for excellence of an institution. TIFR has the ambience, like no other institute in India has. Raising the ambition to a much higher level is what is required,” he adds.

Clearly the situation has changed a lot in the 1990s. Ambition and confidence are not lacking in the new generation of scientists that TIFR continues to attract. This correspondent spoke to several young scientists at TIFR like neurobiologist Vidita Vaidya, optoelectronics expert Arnab Bhattacharya, laser physicist Ravindra Kumar, and mathematician Arvind Nair, and found a confident ‘can-do’ attitude.

“The success of Indian IT and the changes in the Indian and global economy seem to have impacted us too. There is definitely impatience and a new spring in the step of youngsters here”, says Ravindra Kumar.

“In a sense we are thrown in at the deep end of the pool quite early in the day — we must get external funding for our research proposals. Today more than 50 per cent of biology funding comes from external agencies. This naturally makes us highly competitive in framing our proposals and delivering results,” says Vaidya.

Is TIFR well funded or does it face the same lack of equipment that most Indian universities and institutions find? “Of course money is never ‘enough’. But frankly speaking we have one of the best-equipped laboratories in several areas of investigation,” says Shobo Bhattacharya, the new director.

“We want TIFR to be a major centre for optoelectronics in India. We have an aggressive purchasing policy for equipment. In a few months we are getting state-of-the-art vapour deposition equipment costing almost a million dollars which will allow us to produce materials for researchers elsewhere in India, as well as work in cutting-edge areas like nitrides,” says Arnab Bhattacharya.

Stargazers
TIFR attracted first-rate astronomers and astrophysicists in the 1960s. Govind Swarup, now a Fellow of the Royal Society and retired, was invited by Bhabha to come from Stanford University and establish a group in radio astronomy in the early ’60s. Swarup and his team built an equatorial radio telescope near Ooty using a highly innovative design that used the local geography of hills and valleys. Their crowning triumph has been the very powerful Giant Metrewave Radio Telescope (GMRT) at Narayangaon near Pune. The facility is now fully functional and has also become available for international experiments.

TIFR has also done experiments in Xray astronomy and is today designing experiments to be sent up a special astronomical satellite by Isro in 2006 called Astrosat.

A strong theoretical astrophysics group is also active, though it was depleted when Jayant Narlikar left TIFR to establish the Inter-University Centre for Astronomy and Astrophysics at Pune.

Shobo Bhattacharya, a condensed matter physicist, has extensive experience in the US, having spent almost 30 years in R & D with Exxon and NEC. “In fact, being under the umbrella of DAE, we don’t have to struggle for funds as at the top US universities. Today senior scientists in the world are scrambling for funds and spend most of their time with funding agencies. Our scientists don’t have to face that,” says Bhattacharya. Having come from a different environment, Bhattacharya brings a fresh perspective.

“At times it is our impatience with some procedures that leads to complaints, but once you get to know the system you find that it runs slowly, but smoothly. Of course if one thinks of an experiment in the middle of the night and wants to do it the next day, there is a problem. In such cases our competitors elsewhere have an edge. We need to plan things much more in advance,” says Vaidya.

Ternary convergence: Bhabha, JRD and Nehru
On his return from Cambridge in 1943 Homi Bhabha, who had done first-rate work in theoretical physics and had become a Fellow of the Royal Society at an astonishingly young age of 32, had a vision he systematically set forth to realise. He sounded J.R.D. Tata out for financial support from the Tata Trusts to execute his plans. JRD needed very little convincing and he advised him, “If you and some of your colleagues in the scientific world will put up a concrete proposal backed by a sound case, I think there is a very good chance that the Sir Dorabji Tata Trust and perhaps also the Sir Ratan Tata Trust will respond. After all, the advancement of science is one of the fundamental objects with which most of the Tata Trusts were founded, and they have already rendered useful service in that field.”
Thus Bhabha wrote a four-page letter on 12 March 1944 to Sir Sorab Saklatvala, a trustee of Dorab Tata Trust. It began, “I have for some time past nurtured the idea of founding a first-class school of research in the most advanced branches of physics in Bombay.”

The letter cogently put forward his vision and ended with, “I have come more and more to the view that provided proper appreciation and financial support are forthcoming, (emphasis his) it is one’s duty to stay in one’s own country and build up schools comparable with those that other countries are fortunate in possessing. If Tatas would decide to sponsor an institute such as I propose through their Trusts, I am sure that they would be taking the initiative in a move which will be supported soon from many directions and be of lasting benefit to India.”

The Government of Bombay also came forward to back the proposal and thus, with modest support from Dorab Tata Trust and a total budget of Rs80,000 for the year 1945–46, the Tata Institute of Fundamental Research came into being at Kenilworth, a bungalow on Pedder Road in Mumbai, where Bhabha was in fact born. CSIR, then headed by S.S. Bhatnagar, gave a generous grant of Rs75,000 as it was interested in fostering research in nuclear physics. In 1948 Jawaharlal Nehru was convinced of Bhabha’s vision of the strategic importance of atomic energy to newly independent India and the Atomic Energy Commission was set up. Soon, with growing collaboration between AEC and TIFR, the needs of the institute grew and in 1949 it was shifted from Kenilworth to the Old Yacht Club near the Gateway of India. In 1956, with the growing importance of T I F R in the atomic energy programme, the Government of
India entered into a tripartite agreement with Dorab Tata Trust and the Government
of Bombay (now Maharashtra) and slowly took it entirely under the wings of the Department of Atomic Energy. However, the institute is still run by a management council with representatives from all three parties and with considerable autonomy, unlike any government body.

Till 1961, when the institute’s tastefully designed Colaba campus was built, T I F R was housed in the Yacht Club. The land at Colaba belonged to the defence ministry and was still littered with old barracks, and it was in those barracks that the controls for Apsara, the first nuclear reactor in entire Asia, and TIFRAC, the first digital computer, were designed and built. Bhabha was of the firm view that great institutes are built around people, not buildings.

Bhattacharya has a tough job. He has to lead his team in reinventing TIFR to suit the environment in the 21st century. There is a popular American saying: “Don’t fix something that isn’t broken” — and we need to keep that in mind. TIFR continues to be a great place to work. But it also needs to reinvent itself. The changes needed might seem incremental, but when added up they might look formidable.

Bhattacharya is aware of the complexity of his task and is proceeding cautiously. Being an ‘outsider’, he suffers from the fact that he does not know the micro details of problems or their history, but he also enjoys the advantage that he does not carry the baggage of history and brings a fresh point of view. His experience in corporate research must have also impressed the search committee.

What is the agenda that he has set himself? “My immediate agenda is simple: recruit the best faculty and students. Here we need to adopt active search by targeting individuals,” he says. He does not call it poaching, but having worked in corporate environments at Exxon and NEC he clearly is familiar with the expression. As for attracting the best students, he faces a tough problem. TIFR has started an undergraduate internship programme, which is hugely popular and entry is highly competitive. But most of those students want TIFR on their CVs and want to go abroad for PhDs. The only consolation is that many of them might want to come back as young faculty. “We need to develop an overall outreach strategy that will enhance our profile among the public, which in turn will attract the best young students to us,” he says. In fact the recent public lectures by visiting scientists Stephen Hawking and Roger Penrose were part of that outreach.
While on ‘marketing’ TIFR, Bhattacharya is embarrassed by TIFR’s Website. The institute might have been the cradle of Indian computer science, but it still sports a totally obsolete Website. The institute, despite a budget of close to Rs150 crore, also does not use much of IT in its procurement or administration or HR, something the new director is keen to change soon.

The fruit fly community
“We are known as the fruit fly group,” said Vidita Vaidya, a young neurobiologist at TIFR. When we want to study the nervous system we would like to tinker with it and see the effects not only on the creature but also on the future generations of that creature. Thus we need systems that multiply fast and show the effects on future generations quickly. The small fruit flies are ideal, since they multiply rapidly. More than a quarter-century of work on fruit flies, much of that here in TIFR, has led to tremendous depth in understanding the system thoroughly. So when one of us comes up with a bright new hypothesis, we naturally turn to fruit flies to prove it,” adds Vidita. Pioneering work done in the 1960s and ’70s by Obaid Siddiqui, which earned him accolades and a fellowship of the Royal Society, and his students like Veronica Rodrigues, on Drosophila, the common fruit fly, has created the scientific infrastructure for the same.

The T I F R biology group, strong in neurobiology, is now split into a large group in Mumbai and an even bigger group at the National Centre for Biological Sciences at
Bangalore. The two work in tandem. There is intense activity at both and both have achieved international acclaim for their work. The areas studied include: how are signals transmitted between neurons (brain cells); the secret of smell and taste; why proteins fold the way they do (the way a protein folds determines to a large extent the function of each protein); how muscles develop; the immune system; learning and memory; emotional coding of stress and fear; whether stress leads to changes inside the brain; and so on.

A whole bunch of interesting questions no doubt. Naturally the world is following their work closely. In a recent public lecture Siddiqui recounted that when he joined TIFR in the 1960s “you were limited by your own capabilities”. Many of the younger lot would agree with that despite the highly competitive world of global research they live in today.

Bhattacharya is also carefully reviewing all existing programmes along with the senior faculty so that nothing is taken for granted and every project is justified competitively. If necessary some projects might get closed down.

Even though most Indian scientists like Mashelkar would be envious of the environment, and lack of bureaucratic procedures, in TIFR, Bhattacharya would like to simplify them further. He would also like to delegate authority. Today the director has to get involved even in leave applications and so on. “We would also like to get out of governmental accounting procedures and establish alternative acceptable ones.”

Nation - building
It is improper to talk about spin-offs from TIFR. After all the founding of TIFR was part of a nation-building exercise. Bhabha clearly looked at it as a mother institution. Hence, when India embarked on its nuclear programme, TIFR provided the initial manpower and expertise. The very first reactor Apsara’s controls were designed and built at TIFR.
Over 46 scientists were loaned to the Atomic Energy Establishment at Trombay. Today’s highly profitable Nuclear Power Corporation, whose net profits crossed Rs1,000 crore two years ago, by generating electricity using nuclear reactors, can be considered as a grandchild of TIFR.

The expertise in building digital computers at TIFR later helped the Electronic Corporation of India build the TDC (Trombay Digital Computers) series for real-time computing. Similarly, the radio astronomy group helped in building the first satellite earth station at Arvi for Overseas Communication Service (now V S N L). This was later commercialized by ECIL into a healthy microwave antenna business. The defence electronics work at TIFR led to the formation of SAMEER (Society for the Advancement of Microwave Engineering and Electronics Research). It is also not so well known that the experiments in digital switching at TIFR formed the core of C-DOT’s technology, which revolutionized telecom in India with its inexpensive and robust digital switches.


A major complaint heard in the corridors of TIFR is of course the lack of travel facilities. After all, scientists grow with international exposure and the current finances are structured in such a way that travel to conferences becomes very difficult. In fact many scientists do believe that here the new chairman of the management council, Ratan Tata, would be able to help them out with his perspective. “We need to collect endowments so that we get flexibility, especially in travel. We are well supported by government, but need some flexibility. We plan to reach out to the community and friends of TIFR” Efforts in this direction, which started before Bhattacharya took over as director, have already yielded some results. Kanwal and Ann Rekhi, S.D. Shibulal, Sudha and Narayan Murthy, Harish Chandra’s family, Sasken Technologies, and others have come forward with contributions.

However, as Mashelkar points out, the difficulty with science is often not with the new ideas, but in escaping the old ones. A certain amount of irreverence is essential for creative pursuit in science. “I believe that if we promote that irreverence in Indian science, by change of personal attitudes, change of funding patterns, creating new organisational values, creating that extra space for risk-taking, respecting the occasional mavericks, and rewarding the risk-takers, then not only will the fun and joy of doing science increase, but Indian science will also make that much awaited difference,” he adds.

A new development that might bring that irreverence to TIFR is the deemed university status it has newly acquired. This might eventually lead to TIFR getting involved in undergraduate education. This will be welcomed by all Indian students and TIFR is sure to benefit by having bright young minds around. Bhattacharya is thrilled by the opportunity he has in being part of reinventing TIFR.

Parallel worlds
As biologists and physicists dirty their hands with fruit flies, semiconductors, zapping lasers, and high-energy accelerators, the mathematicians at T I F R form a different breed. They live in a parallel world of extreme abstraction, which even most natural scientists do not understand. It is the world of strange shapes of algebraic geometry that do not look or sound like anything that we learnt in geometry — remember those cones, cylinders, spheres, and the rest? Or number theory, which doesn’t sound like the arithmetic we all learnt, or Lie (pronounced ‘lee’) groups, which even quantum physicists who use similar names do not understand.

But higher mathematicians the world over highly respect the group at TIFR. The International Congress of Mathematicians, which meets once in four years, is the very élite of global mathematics. According to M.S. Raghunathan, a Fellow of the Royal Society renowned for his work in Lie groups, invited talks are given at the congress by a select group of about 150 mathematicians from all over the world. It is remarkable that in almost every congress since 1970 there has been an invited talk by at least one TIFR mathematician .

Though Bhabha was a practical scientist who wanted to build capability in nuclear physics in India, he also saw the need for building a strong group of abstract mathematicians.
Similar culture at the Institute of Advanced Studies, Princeton, must have influenced him and appropriately he persuaded K. Chandrasekharan to come from Princeton to work at TIFR. Chandrasekharan, a high-profile mathematician himself, is credited with building a first-rate mathematics group here. He brought top-notch mathematicians from all over the world to visit the then unknown TIFR and lecture there. TIFR’s lecture notes of those days are sought after all over the world even today.

TIFR over the last five decades has been one of the top places to do research in abstract mathematics.

In a parallel track, TIFR is also involved in organising science Olympiads in Physics, Chemistry, Biology and Mathematics. Indian students are regularly winning Gold and Silver medals in these fiercely competitive Olympiads. These competitions are playing a highly motivational role in drawing bright young minds to science. M.S. Raghunathan who is also involved in organising the Maths Olympiad was recently pleasantly surprised when he sent a congratulatory message to Manindra Agarwal, and his students Neeraj Kayal and Nitin Saxena of IIT Kanpur. The trio had hit international headlines by cracking a three hundred year old problem in number theory. In turn Kayal and Saxena thanked Raghunathan for encouraging them as school students in the Maths Olympiad!

Nehru believed that science and technology were tools to pull India into modernity. Increasingly weighed down by the vagaries of national and international politics, he found refuge in the company of scientists. Inaugurating the campus on 15 January1962, he said, “It has been a great pleasure to me, and something like an exhilarating experience, to come here from time to time and to see the growth in our scientific work, whether on the other side at Trombay or here. This takes me out of the normal rut in which I live, which is often depressing.”

It is a testimony to the vitality of this institution that 40 years after Nehru’s observation TIFR still has the same exhilarating effect on its visitors.

Art of the matter
Bhabha’s love was quantum physics. He encouraged investigations into the structure of matter, both from the experimental angle as well as the theoretical one. As a result TIFR built up one of the finest groups in the study of cosmic rays. Cosmic rays are naturally available high-energy particles entering our atmosphere from far corners of the universe. In the absence of large particle accelerators, cosmic rays provided a natural source of investigations into particle physics. Today scientists at TIFR participate in experiments with other international scientists at the European Centre for Nuclear Research (CERN),
Geneva, and Fermi National Accelerator Laboratory, Chicago. In the mad, mad world of high-energy physics, large multinational and multidisciplinary groups have become a must for conducting and analysing experiments. Today it is not uncommon to see a two-page paper written in the Physical Review Letters authored by over a hundred scientists (a few of them from TIFR)!

Theoretical physicists too had remarkable successes in the 1960s and early ’70s.
Today TIFR has a very strong group in String Theory, which walks the thin line between mathematics and physics.

In the case of materials TIFR had early success with semiconductors and microelectronics with the group led by K. Ramanathan. The group did cuttingedge work in microelectronics in those days. Unfortunately this early expertise could not be capitalised later. However, in the 1980s, TIFR shot into the limelight again when L.C. Gupta and R. Nagarajan gave the world a new class of materials called boro-carbides, which exhibited high-temperature superconductivity —the holy grail of electrical engineering, where materials conduct electricity with practically zero loss during transmission.

Pioneering computer science in India
Modern digital computers came into being at the end of World War II. The first one built was E N I A C at the University of Pennsylvania in 1946. John von Neumann played a leading role in conceptualising it and a more refined version of the same at Princeton later. In fact, von Neumann’s report on the Princeton computer EDVAC can be considered as the beginning of computer science. It is interesting to find that computer science did not take very long to come to India. R. Narasimhan was probably the first Indian to study computer science in the US back in the late 1940s and early ’50s.
After his PhD in mathematics he returned in 1954 and joined Tata Institute of Fundamental Research, being built by Homi Bhabha.

In the early 1950s it was audacious, to say the least. Comparing these efforts with those of contemporaries, Narasimhan says, “Looking at the Princeton computer, IBM 701, and the two T I F R machines, it emerges that except for its size, the TIFR pilot machine was quite in pace with the state of the art in 1954. TIFRA too was not very much behind the attempts elsewhere in 1957.”

The pioneering work at T I F R in the 1950s and ’60s is being now extended to new limits. Narendra Karmarkar, who won the prestigious Fulkerson Prize for the work he did in efficient algorithms at Bell Labs in the ’80s, is trying to build a group of young computational mathematicians under the aegis of T I F R at Pune to test the frontiers of the science of algorithms.

Shinsei Bank

Business India, Januray 19-February 1, 2004
Karma in Japan

Indian executives of Shinsei Bank and Indian software companies have played a significant role in a great turnaround story in Japan

Shivanand Kanavi

Dhananjaya Dvivedi, corporate executive officer (banking infrastructure group) of Shinsei, is a driven man. He was recruited from Citibank, where he had headed many an IT innovation globally. “When we took over LTCB the challenge was dealing with the unknown. The bank was not visible to anybody. Internal workings, business, people’s capability, products that were sold and were part of the warehouse, everything was an unknown. Meanwhile, Yashiro-san (‘san’ in Japanese is a respectful address like ‘ji’ in Hindi) had a very sharp definition of what he wanted. He wanted the company to be profitable, and he did not want a short-term solution that involved social trauma to customers, depositors, or employees. Moreover, we had a timeline of only one year. We also had revenue targets defined in the very first year. These became our engineering design criteria and we had to work backwards, says Dvivedi.”

Today Shinsei’s IT infrastructure, built by Indian software companies like Nucleus, i-flex, and Polaris under Dvivedi’s direction, has become the standardsetter in Japan. The bank has turned around and is now the most profitable bank in Japan. Wall Street is eagerly awaiting its $2 billion IPO expected in the next few weeks.

However, to understand the change wrought by Yashiro and his team one needs to understand the bank’s previous Karma.

Birth of LTCB
To understand the change wrought by Yashiro and his team in Shinsei Bank one needs to understand its history. Long Term Credit Bank is what we in India would call a development finance institution. As the Americans handed over power to the Japanese in 1952, the new Japanese administration decided to discuss the nature of the financial system needed to fund Japan’s revival. “Will it be stocks, bonds, or banks?” asked the then finance minister Ikeda. The answer he gave later, with America’s tacit support, was: “Banks, not capital markets.” The Tokyo Stock Exchange was reopened, but it only played the role of tying up industrial families, the keiretsu, through crossholdings.

LTCB was started to fund the industry by issuing debentures, which were like bearer bonds. It was directed to lend to core sectors and later to automotive, etc. In fact a young car manufacturer with global ambitions called Toyota came up owing to support from LTCB. However, soon lending was not based on cashflow projections but on the fact that only companies with a web of social contacts would survive, while those without allies would naturally die. The interest rates did not reflect risk, since the government set the price of money. Money was not an end but a means to an end — and the end was the revival of Japan.
Over three decades LTCB funded a large number of companies like Kawasaki Steel, Bridgestone, Toshiba, Tokyo Electric Power, and so on. It was highly successful in its mission. But that created a problem. The successful manufacturing companies in the 1970s and ’80s with strong cashflows no longer needed loans from LTCB; if need be they could directly access global finance. This led to some experiments in learning merchant banking skills from foreign markets, but these activities were marginal. Then came the real estate and stock market bubble of the ’80s. LTCB, like others, grabbed this opportunity for high profits immediately. However, the collateral for these loans was suspect. But the LTCB culture did not allow for serious financial appraisal.


Death
And then the stock and real estate bubble burst in 1991–92. Since then the economy has stagnated. The financial system is burdened with bad loans that have been estimated to be as high as $1 trillion! The government, however, has continued to muddle along without taking hard decisions, riding on the still very high domestic savings of over $14 trillion.

After meandering along for six long years, with over $40 billion as bad loans and its capital base totally eroded, and carrying a capital deficit of $3 billion, LTCB declared bankruptcy on 23 October 1998 and the government nationalised it. R.I.P.

Rebirth as Shinsei
Then came a group of US investors led by Tim Collins of Ripplewood Ventures.
Collins, along with Chris Flowers, a former Goldman Sachs dealmaker, put together a consortium of investors including Citigroup, AIG, GE Capital, Mellon, Paine Webber, and David Rockefeller personally. It was as high-powered a slice of Wall Street as you could get. Moreover, Collins took on board powerful individuals like Vernon Jordan (close to Bill Clinton), Paul Volcker (former chief of the US Federal Reserve), and John Reed (former Citibank chief and currently chairman of NYSE) as advisors, while co-opting Mitsubishi and Nippon Steel bigwigs on the governing board.

This group eventually won the bid. They bought the bank for a total capital of about $1.2 billion. Since the quality of the loan portfolio was opaque to the new investors, the Japanese government allowed a put option for any ‘bad loan’ discovered later.

It was path breaking and not smooth, to say the least. It was the first ever foreign entry into mainstream Japanese banking and was perceived by many in Japan as another invasion of the gaijin (aliens) and that too by a detestable ‘vulture fund’ from Wall Street. For the protagonists, however, the deal became the proverbial pudding to test Japanese commitment for globalisation and deregulation and led to some highpowered lobbying in Washington and Tokyo.

Tim Collins persuaded Masamoto Yoshiro, former head of Exxon in Japan and Citibank Japan, to be the chairman and CEO (see interview with Yashiro) to execute the turnaround. He recruited a team of investment bankers to start that line of business and a host of senior executives like Dvivedi, Sajeeve Thomas, and Janak Raj from Citibank to execute his plans for a total remake of the bank.

“Japanese do not like abstractions like software, they excel in manufacturing the concrete”-- Masamoto Yashiro

A great believer in harnessing the skills of Indian software companies, Masamoto Yashiro chairman & CEO, Shinsei Bank, explained the issues in Japanese banking, in a candid interview with Shivanand Kanavi


Q You were an outsider to banking. So how do you look at banking in Japan?

A I spent many years with the oil industry, 30 years with Exxon. Both oil and banks were regulated in this country. Japan does not have oil resources, so they let the oil companies operate much more freely than banking, especially in the 1980s. In the case of banking, till recently banks were not free to offer new products. So like the CIO, CFO, etc, they had one ‘Chief Ministry of Finance Contact’. These officials used to go every day to the MoF and sit around in the corridor and see who was coming and going. It was that bad. There was no initiative.

Q When Tim Collins invited you to join him in Ripplewood you had already retired. So what made you take his offer?

A He was very insistent. He thought there were many business opportunities in Japan. I thought I must help in restructuring Japanese companies. But initially it was outside of financial services. But very soon the banks that were nationalized were available for investment even for foreign interests, and that came about very quickly. So I had to divert my energies to the banks. That is how I ended up here. But I continue to be a limited partner of Ripplewood.

Q When you took up the assignment at Shinsei did you think it would be a model for ot her Japanese banks?

A Yes and no. LTCB had only sold debentures and given corporate loans, so I thought we should change the business model completely. But to do all these things you needed to change the infrastructure. Infrastructure as it existed was antiquated and was 20 years old. We had mainframe computers, we were using Cobol! Everything was old. The story of Jay’s (Dhananjaya Dvivedi’s) contribution is very well known. Anything we want can now be supplied by Jay’s group. The product is à la carte.

Q Is this unusual for a Japanese bank? Are others acknowledging your success?

A Yes, it is unusual. Others do not want to acknowledge it openly, but IT people know that we are doing the right thing.

Q Japan is the second-largest software market. Who is servicing it?

A It may be in terms of money. If you have to pay five times more than elsewhere, you can even be number one very quickly.

Q What is your advice to Indian software companies?

A Strangely, Indian banks seem to go to Australia for software! Japanese companies focused on manufacturing and brought their costs down, but they did not touch non-engineering parts of overhead. They keep spending more, year after year. They are worried about visible products, which they can improve. Abstraction is the last thing we attach value to. India has many philosophers; we don’t have any.

Q Would Shinsei bank be interested in emerging markets like India?

A We are looking at Korea and Taiwan, but India is too far for us. But since we have many Indians working in the bank, maybe we should take a look at it.


“We had no management information systems here when we came in. Reports were produced once in six months, but top management could not monitor on a monthly basis which products were doing well, which customer groups were behaving in interesting ways, and so on. We also wanted to launch the retail bank with a whole new way of banking access. For example, ATMs here closed at 3 pm. It was not the law, more an industry practice, but everyone followed it. Also people were being charged for using ATMs. But a retail bank with very few branches like us had to invite people to use ATMs and the Internet more and more to do normal banking. So all these equired a new infrastructure, which at the same time had a low total cost of ownership. Jay’s team, with the help of Indian software vendors, has delivered that. Jay is like a cook — if we want caviar added to a product he can do it, if someone wants garlic removed from something else, he can do it,” says Yashiro with a twinkle in his eyes.

“I have known Yashiro-san from my Citibank days,” says Jerry Rao, CEO of MphasiS-BFL, which did a lot of preliminary groundwork for the IT roadmap at Shinsei. “In fact we both retired from Citi at the same time in 1998. I invited him to be the advisor to MphasiS, which I had just started. Yashiro-san and Jay had to cut costs, implement a retail banking solution in a 100 per cent wholesale bank and migrate from an old system to a new one, while retaining the old people. Strangely, Japan, which is very advanced in automobiles, electronics, and so on, is very backward in banking and insurance. Yashiro promised 100 per cent improvement. Executing five different meshed projects simultaneously isn’t trivial, even though the technology was known in global banking,” adds Rao.

“We had to choose a design that would allow flexibility for our business plan. Customer self-service was the first point of our system, not labour saving. When the customer comes in he should have full power to service himself. Flexcube gave us the first generation packaged software to run retail banking. It is an extremely well engineered product if you work within its limitations, but if you want to add something in there like a credit card, or any other complex product, then it has a problem coexisting in this package. The new-generation product is from Polaris. We use three or four products from Nucleus, collection systems, general ledger, etc, but the more important thing about them is tenacity. If something does not work, they make it work. Complex engineering pieces have been developed by Nucleus,” adds Dvivedi.

Hitting the headlines
What would have cost $500–600 million for any other bank in Japan using traditional mainframes and customized software has cost Shinsei just $60 million. Naturally the engagement is continuing and expanding. This has led to headlines in Japanese newspapers like: “If you want to learn about software, learn from India”— Nikkei Sangyo Shimbun (17 September 2001); “Not enough IT engineers, foreigners save in software development” — Nihon Keizai Shimbun (22 September 2002); “Two secrets of ‘Cruel’ Shinsei Bank: open computer systems, Indian companies” — Nikkei Sangyo Shimbun (26 October 2001); and so on.

The robustness of the system, besides its low cost, was also highlighted in early 2002 when two major banks – UFJ and Mizuho (the largest bank in the world) – had crashes in their mainframe-based IT systems. Now grudgingly other banks are trying to copy what was done at Shinsei. Thus, Shinsei is becoming an agent of creative disruption within Japanese banking circles in more ways than one. Bill Gates takes a keen interest in Shinsei and has visited it. After all, it is the largest installation of Windows based banking software.

But the change did not go smoothly. There was a definite culture clash. “Even now only about half the old employees appreciate the change. The other half might still want the placid old days of LTCB. But change is a one-way street,” says deputy GM (IT) Michiyuki Okano.

Culture clash
What were the roots of culture clash? “Firstly, Japanese believe in a consensus approach (namewashi). Any change has to be discussed and only after a consensus has been achieved things move. But here change was happening through orders from the top, and at a furious pace. Of course change could only come this way, otherwise we would be debating endlessly,” adds Okano.

“The other was the Japanese obsession with perfection. Europeans and Americans may accept some imperfections, but Japanese do not. Now this can take an inordinately long time,” says Okano insightfully. “In the beginning we might have been a little cocky too. We had installed Flexcube at 60 sites and Shinsei was the 61st. But soon we learnt a lot. The drive towards zero defects was unprecedented. We improved greatly through this experience,” says i-flex CEO Rajesh Hukku.

Nucleus had the tough job of supporting the migration from legacy mainframe systems to new Intel servers and a PC-based system. “We built a reconciliation engine to show the equivalence of both the systems. It was crucial to migration. However, many times we had people holding two printouts from the two systems to a light and pointing out a font difference or a change in the position of a column!” says Vishnu Dusad.

“Indian companies have good engineering skills, but to make an impression in Japan they do need to realise also that time in Japan is of utmost importance. A Friday morning deadline means that the client expects it at 9 am Friday Tokyo time, not Friday afternoon, evening, or Monday or Tuesday. In fact a familiar ‘no problem’ response always scares me unless a detailed road map is given to show how the problem will be solved,” says GM (IT) Peter Franken, another former Citibanker.

Already Dvivedi and Yashiro are thinking of leveraging the IT skills developed in-house in conjunction with Indian software engineers. There is a plan to start a Shinsei Bank support centre in Pune. Nucleus already has 100 engineers at a centre in Pune. “We are creating a pan-Asian banking model. The Pune centre will be a big step for us,” says Dvivedi.

The results are there for all to see. Shinsei ATMs are working 24 hours, and the retail bank has attracted over half a million customers starting from zero less than three years ago. Customers can access their accounts at railway stations and even through 52,000 third-party ATMs at no cost. Deposits by new customers have crossed $14 billion.

Of course technology is not the only thing that has brought this in. A brand new retail banking culture brought into Japan by the Shinsei team headed by another Indian, Sajeeve Thomas, is responsible for that. Every branch of Shinsei looks like a modern showroom of an upmarket store rather than the congested paper-laden office it used to be. Earlier each transaction used to take forever. It was assumed that the customer had infinite time. To count the money half a dozen or more officers used to be involved before handing it over to the customer! Today Internet kiosks at every branch take care of that.

In fact the impressive headquarters of Shinsei had a 100- foot-high glass entrance with not a soul there. “I could not believe it in the beginning. How can the lobby of a bank be empty and forbidding?” asks Thomas. He quickly changed it by starting a retail branch there with a Yahoo! Internet café and a Starbucks coffee shop thrown in. “We did a survey among our own employees on what should a retail bank look like. The names that popped up were Starbucks, Seven Eleven, Uniqlo (a Japanese clothing store), and Sony. We called in designers to remake all our retail branches to give a customer-friendly experience. The elimination of enormous amount of paperwork and centralised data processing created a lot of space in each branch. Shinsei had a brand recognition of 4 per cent when it started. Today it is 87 per cent,” says Thomas.

The self-effacing Thomas has brought in more than an exterior change. The culture has changed —the stiff old manager hidden behind paper in a forbidding room inside the branch has been replaced by a smiling one, right at the reception to direct any customer to the appropriate kiosk.

But what about the basic corporate lending business that Shinsei inherited? “Well that too has changed,” says Janak Raj another ex-Citibanker who heads risk management group.
“When I was in Citi Japan in the early 1990s we wanted to sell a building and there was no problem getting an offer of $500 million for it, by just walking around and visiting a few nearby offices! That was the nature of the bubble economy those days. Obviously these assets shrunk to 10 per cent of their value after the bubble burst,” adds Raj.

However, Shinsei broke the mould of zombie lending (bankrupt banks lending to bankrupt firms to keep them afloat), a term coined by Anil Kashyap of the University of Chicago’s Business School. Immediately it was declared a “cruel bank” and a representative of Wall Street’s greed. But Yashiro stood firm, in not lending to bankrupt firms just to keep the “relationship” going, while being sympathetic to viable ones. However, now the recovery has become smoother and many old borrowers have paid up, thereby reducing the bad loan portfolio — by $27 billion in three years. Out of those only $10 billion were reduced by exercising the put option and returning them to the government as agreed in the contract of sale, while $17 billion were actually recovered. “Now other Japanese banks are also collecting a lot of money. Otherwise
no-one can survive,” says Okano. Considerable progress has also been made by Janak Raj’s team in securitizing loans by issuing new bonds, adding another stream of revenue to the balance sheet.

As a result Shinsei has become the most profitable bank in Japan today— it declared over $440 million in net profit in March 2003. GM (management accounting) Sanjeev Gupta, another former Citibanker, and his team are happily preparing the balance- sheet for the much-awaited IPO. Investment bankers expect the offer, slated for mid-February, to fetch close to $10 billion for the bank. The investors plan to raise $2 billion through this issue. Considering that they bought the bank for $1.2 billion, the ‘vulture fund’ attribute of Ripplewood might change to ‘venture fund’.

Will Shinsei change the Japanese financial sector, as Tim Collins and David Rockefeller suggested? The jury is still out. Change anywhere, and more so in Japan, is painfully slow. When it does come, as in the Meji restoration at the turn of the century, it can be amazing. A mixture of angst about change and pride in being Japanese drives Yashiro at 74. But he can claim modest success – by the grudging imitations that are happening in other banks – and retire a satisfied man. Obviously he has absorbed global best practices and rebelled against inefficiencies and irrationalities in the Japanese system. But he has handled the change with firmness and sensitivity. Not an employee was fired in all this process and many more customers have been added. He put a stop to zombie lending and took his fiduciary responsibilities towards his depositors seriously, combining them with sympathy (not loyalty) towards his corporate borrowers. Shinsei Bank rose out of the ashes of Long Term Credit Bank of Japan, which went under in 1998 with $40 billion in bad debts

Yashiro loyalists, like Jay Dvivedi, Sajeeve Thomas, and Janak Raj, might move on once Yashiro retires. In fact Dvivedi might eventually even set up his own software consulting firm. The Indian software companies are using Shinsei as the edge of the wedge into Japanese market. Already Nucleus is finding new customers like Honda, and more banks. I-flex has installed its products in six more banks in Japan. And so on.

As for the 2,000-odd Indian software engineers in Tokyo, it is not really ‘Jaapaan, love in Tokyo’ à la Shammi Kapoor. Very few learn Japanese or study the Japanese culture. Most yearn for home food, for which there are over 200 Indian restaurants in Tokyo alone!

Shinsei has been good karma.

Tata Steel - Renaissance

Business India, July 23-August 5, 2001
New steel

Tata Steel, the 90-year-old pioneer in steel making, has absorbed the shocks of liberalisation and turned from Tata’s ugly duckling into a swan

Shivanand Kanavi

“The treasury has its source in the mines; from the treasury the army comes into being. With the treasury and the army, the earth is obtained with the treasury as its ornament.”
Arthashastra, by Kautilya, Chapter 2, Section12

The mother of all Indian tomes on statecraft and political economy, Arthashastra, was written not too far from the village of Sakchi (renamed Jamshedpur in 1919) over two millennia ago. Tata Steel confirms this ancient wisdom in many ways. During 2000-1, Tisco had the most profits within the House of Tata, after TCS.

Today, J.J. Irani the outgoing MD of Tisco, under whose leadership the company has undergone a remarkable transformation in the last decade, proudly points out that World Steel Dynamics (WSD), a US-based research firm, has placed Tata Steel on top of 12 world-class steel-makers (see table). The peer list includes such global giants as Nippon Steel, Usinor, Posco and Nucor. The 17 parameters compared for grading included operating costs, ownership of iron ore and coking coal, location, skills of manpower, power cost, on-going cost-cutting efforts, downstream business, borrowing costs and quality of management. Though such surveys were not done earlier, one can say that Tata Steel has not been in this elite club, far less has it topped it. A few years back, the public sector SAIL did better than Tisco, leading several people to question Tatas’ wisdom in continuing with the steel business. Some even said the group should focus on I T, perhaps even automobiles, and exit steel. But the Tatas abhor the idea of exiting a business when it is in trouble. (See Ratan Tata interview:“Given the right incentives, India can be a steel supplier to the world”) i


It has taken nearly 10 years of dogged effort to trim costs, improve operational efficiency, spend large sums to modernise the plant, develop a high-margin downstream product mix and increase labour productivity – all of which has turned this ugly duckling into a swan.

The company, which came into being in 1907, started production of pig iron from its blast furnace 90 years ago in 1911. Which is why many people even now, react to Tisco’s profits by saying: “Oh they have a depreciated plant”. The truth is, Tisco today has one of the most modern plants. As far as cold rolling, it is the most modern plant, not only in India but in the world. Except for the seven blast furnaces, which range from probably the oldest working blast furnace in the world – BFA, built in 1911 and a modern one B F-G, built in the ’90s – the rest of the integrated plant has undergone a total revamp. “In the early ’80s, I told JRD that if we do not modernize the plant, we might soon turn it into a steel industry museum and stand at the gates selling tickets,” reminisces Jamshed Irani, the out-going managing director who led the transformation in Jamshedpur in the last decade.

The steel shop was also transformed, from an open hearth process to the modern basic oxygen furnace (also called LD shop). Then came continuous casting. However, the product mix of Tisco was still primarily ‘longs’ used in construction. So, first of all, a shift was made to a modern wire rod mill and when ‘flats’ consumption increased in the country, a hot rolled coil mill was built. The last element, recently added, in this modernizing effort was the cold rolling mill along with galvanising lines.

Cold rolled coils are used in the automotive industry and the white goods industry, in refrigerators, air conditioners and washing machines. The galvanised sheets are used for mundane applications such as roofing to outer skin panels of cars. Thus, Tisco today has the most complete product mix as an integrated steel maker. One of the reasons for it staying afloat and even making profits in an industrial slump, is this product mix, which other steel makers in India lack. So, today when the flats are not fetching a good margin, the better margins in longs are helping the bottom-line.

Sajjan Jindal, vice-chairman and managing director of Jindal Vijaynagar Steel, points out, “The strengths of Tisco are: control over raw materials, a highly-skilled operating team, fully integrated plant including rolling mill, Tata brand equity, mixed product profile (flats and longs), cheaper access to capital being an AAA company. While we pay an average of 17 per cent, they pay 12 per cent — which is even below PLR.”

The planning and commissioning of the 1.2 MTPA cold rolling mill has been an important achievement for Tisco in many ways. It has not only added high-value products, which can fetch three times the price of hot rolled coil, but seems to have energized huge segments of management. The project managers felt it important enough to chronicle the saga in a hardbound book The Lotus and the Chrysanthemum. Besides the intrinsic importance of the project, what comes out clearly is the enthusiasm that the project generated in the company and the H R fallout. The project was completed at a rock bottom price of Rs1,600 crore and in a world record time of 26 months. Whereas, a similar cold rolling project took 38 months for Baoshan in China, 37 months for Siam United Steel in Thailand, 31months for Bethleheim Steel in the US and 29 months for Posco in South Korea. The phase of “modernisation of the mind” as Irani calls it, has clearly begun.

“It is an issue of leadership and motivating people. Rigorous followup – we used I T tools for project management – a lot of weekly meetings etc. We had a lot of problems from local vendors, but we made them come every month and make presentations with photographs on progress achieved. When we started, I had not seen a cold rolling mill (CRM), so we created a technology team, which went all around the world to see the CRM,” says B.D. Muthuraman, the new managing director who was in charge of the CRM project.

“Given right incentives, India can be a steel supplier to the world”--Ratan Tata

In a free-wheeling hour-long interview, Tata group chairman Ratan Tata
spoke to Shivanand Kanavi about the challenges faced at Tisco. Excerpts:

How do you look at your nine years as chairman of Tata Steel?

When I became the chairman, Tata Steel had just come out of the administered price regime where price increases were simply passed on to the consumer. The month I took over there was a crisis because freight equalisation had been discontinued and we were adversely affected since the major markets were in the south and the west. Tata Steel had come out of a seller’s market and hadn’t really oriented itself to the customer.

We set up two task forces, one to look at realisation and the other to look at costs, both of which were headed by Jamshed Irani. They went about looking at issues in a real hard way. We made some progress on both those scores. We started benchmarking ourselves with the best of the breed in the world. That really paid off, in terms of keeping great pressure on the level of our costs.

We also made a decision not to expand but modernise our facilities, and to move into flat products, which we saw as the growth area. We went through some difficult years in terms of cash flow and liquidity as we increased our levels of borrowings to see the various phases of modernisation through. Finally, the hot rolled mill and subsequently the cold rolled mill came into being. For a period of time, Tata Steel did not look hot to investors and analysts until we moved to the last phase of what we were doing.

The leadership in Jamshedpur has had a tremendous role to play in what was achieved. Jamshed Irani and his team have resolutely gone about making this transition, with no pulls and pressures that it should have been done in another way.

I think the only distraction would have been the view that Tata Steel should grow to 15 million tonnes, that it should be a volume producer as against a company that would be the best in its class. And perhaps, the period when one thought that Gopalpur would be the focal point of growth. I felt that growth in steel is going to be a difficult one and that we should consolidate ourselves and improve our operations before we looked at expansion.

What stops India from becoming the steel supplier to the world?

There are several issues. Koreans operate at 9:1 debt equity ratio, their interest rates are close to 1-2 per cent, whereas it is 18 per cent here. Tisco has had the benefit of the
Steel Development Fund, which is softer but which does not cover everything. The social costs in India and Tisco are a part of our baggage. Posco, for example, will bulldoze a plant that is obsolete and build another one in its place that is newer. We can’t do that in India. We need a MITI like approach to become supplier to the world. Here the steel industry has never been given the required incentives.

To build a modern company in Bihar must have been quite a challenge.

The credit has to go to a very strong community spirit in Jamshedpur. The people of
Jamshedpur have a very strong sense of pride, and there is a sense of fear that it should not become like the rest. When I lived there, in the ’60s, there was a time when for Rs15,000 somebody could get killed. Finally, we had a good SP who cleaned up the place. So the rot can happen in Jamshedpur also. Tata Steel has been a fair corporate citizen, it has given a lot to the community. It has administered not in its own self -interest, but in the broader interest of the community.

Don’t investors question why you give away Rs100 crore every year to Jamshedpur and surroundings?

In particular, foreign shareholders think that this is baggage we are carrying and, in a manner of speaking, it is. But if you look at the industrial harmony and so on, I don’t think you can ascribe a value to it. This is a cost you have and despite that if you are still going to be the lowest cost steel producer, then no one should mind.

Instead of investing in ferrochrome and titanium why don’t you acquire steel?

Within India Tata Steel has looked at some options. But we recognized that, regrettably, the steel industry does not cover the cost of capital — and this is the global situation. Therefore, you do see reductions in capacities in various parts of the world. If you have to invest thousands of crores, as we did in the modernisation of the plant, and if it doesn’t give us a return that is equal to the cost of capital, then we have destroyed shareholder value. Moreover, just because you are Tata Steel does not mean that steel can be your only growth area. In the world you have companies that started in fertilizers and now are in pharmaceuticals. Companies like Mannesman that were in steel are now in telecom.

There are other group companies operating in the area of telecom, then why Tata Steel?

Tata Steel has not decided to get into telecom. We said let’s parcel out various parts of the telecom activity and look at the Group as a whole being in telecom. Ideally, you would have got one consolidated telecom company in the Group. But again, shareholders say: ‘This is my money and all I have is dividend returns from the company’. So, another way to do it is, you parcel it out even though that is a less efficient way of doing it. The bits are not in competition but complement each other. Maybe one day we will merge those into one.

Are you looking at acquiring steel plants abroad?

We are looking at plants abroad. However, we should be sure that we can manage that extra capacity on a global basis also. You could get a huge asset at a very good price, but you might end up having surplus capacity, which will be outside India. You then have to support it in terms of foreign exchange and we do not have a foreign base to do it. So we may be cautious in looking at these plants. Our ethic also prevents us from walking away from an acquisition when it sours.

Did McKinsey’s advise you to dump steel?

McKinsey’s did not tell us to dump this or dump that. McKinsey’s just gave us discussion notes in various industries. They raised some serious questions regarding the steel industry and whether it destroyed shareholder value. And I must say they awakened us to the fact that we had to do much more in steel to make it an investor-attractive area of business.

Last year Tata Steel made the most profits in the Group after TCS.

We need to be a little circumspect. Tisco has now got two high margin plants on line. It has shed its old processes. Crucial to producing and sustaining these results is growth in demand in its user industries, like auto, white goods and construction. Even if domestic demand picks up but there is over capacity in the world then you will be faced with low cost imports.

However, there are two pluses; one is that steel is a commodity. Hence, Tata Steel has been able to go all-out in production, covering its cost and dropping its price. The other advantage is, if the Indian market got bad you could export it. In product markets like trucks or refrigerators you can’t do both these things.

“The language in the project changed as well. We call our workers ‘associates’. They used to make presentations regularly. In any project, the operating manuals come from the suppliers, in our case Standard Operating Practice Instructions was written by our workers. It has been used as a training document. Our operators kept redrafting it. Thus, they have ownership now. We look at the manual and make additions based on experience,” adds Muthuraman.

“We were operating the steel melting plant for 90 years in a particular way, whereas here things had to be done differently. So we segregated the project. We gave everybody a uniform. Even I have to wear it when I go into C R M. We selected a higher class of people, all of who know how to use computers, and used a different salary structure — a large part of the salary is variable (performance linked). The union also agreed to it. That experiment has succeeded and we are now moving for this type of organizational structure and salaries in other departments also. There are only three levels there, whereas in the rest of the plant there are 11 levels. Instead of forcing this model on others, we wanted them to feel that they want it themselves — and it is working,” says Irani.

A major factor, which led to a record low cost for the C R M, has been the optimum usage of in-house capabilities. “Our principle for the last 20 years has been to build as much as possible ourselves. We have a Growth Shop in Jamshedpur built by Sumant Moolgaonkar 30 years back for the express purpose of building steel plant equipment. So we naturally used it for the hot strip mill, LD project. For the wire and rod mill project we negotiated with our ultimate suppliers to give us the drawings to be used only by us and not to be exported — and we have maintained our word. Similarly, we did use Hitachi’s drawings for CRM but we do not then make it for others unethically,” explains Irani.

Sajjan Jindal was most impressed on his recent Jamshedpur visit. He told Business India: “It is a world-class facility. The highly skilled team at Tisco will make a winner out of it. Quality and marketing the automotive grade is a problem since it is a new product. It will take a little time, but they will do it. Tisco also got the cold rolling mill at a very good price, since nobody else was building a mill at that time.”

Along with modernising the plant came the emphasis on customers. “You have to see the change in our marketing offices in Kolkata and throughout the country to understand the change in the mindset,” says Firdaus Vandrewala, deputy managing director, international projects, who was till recently in charge of marketing. “From a totally sellers’ market during the control regime, we have moved into a highly customer friendly attitude with a very high usage and ERP tools and IT in general. We are constantly monitoring customer satisfaction and one of the most important programmes in the plant is the ‘Customer Week’, which we hold regularly. During the week, we invite our customers to see the plant and make suggestions and register any complaints which will be immediately addressed,” adds Vandrewala. Business India visited Jamshedpur during one such Customer Week programme. The importance attached to the programme was very clear, since all the top executives, including Irani and Muthuraman, excused themselves from interviews and photo-shoots to attend to the customers.

As far as manufacturing practices are concerned, Tisco has a long tradition of benchmarking with the First World even a century ago. In his endeavour to usher in a modern steel age in India, visionary Jamsetji Tata travelled extensively across the world and saw the best steel plants in Great Britain, Germany and the US and consulted with the best geologists and mining engineers, before he raised the money from the Indian public. The tradition was carried forward by Dorab Tata, who implemented his father’s vision in the jungles of Chota Nagpur near the village of Sakchi. He had the blast furnace set up by the Americans, the steel shop by the Germans, the coke ovens by the Welsh.

The control regime in independent India, of course, greatly reduced the opportunities to grow into a global giant. At the same time, by providing administered prices and other protection, it removed the edge from the steel business. However, Malay Mukherjee, COO, Ispat International, remembers his days in Bhilai: “During my time in S A I L, I had visited Tisco a number of times. Each time I learnt something from them and introduced many good practices in our SAIL plants. I got great satisfaction when, during my time in Bhilai, we won the first Prime Minister’s award as the best steel plant. Tata Steel was second. The satisfaction came from the fact that on many of the subjects we were judged on, I had implemented what I had learned during my visits to Tisco. I have maintained contacts over the years and I have been impressed by the progress they have made in modernizing the plant and putting in proper technology for quality improvements.”

Today Tisco is being hailed as one of the lowest-cost producers of steel in the world. A fact reiterated by a report by Consumer Research Unit of the UK. Incidentally, the report does not consider L.N. Mittal’s plant in Kazakhstan, which claims to be almost 30 per cent lower in cost than Tisco. This controversy aside, the cost consciousness in Tisco warms the cockles of Ishaat Hussain’s heart. “Everywhere you go in Tisco you will find an obsession with cost,” says Hussain, who is director, Tata Sons, and an old Tisco hand.

What did Tisco actually do to achieve the low-cost producer status? Answers Tridib Mukherjee, deputy managing director, who is in charge of operations and marketing: “We concentrated on four to five areas. First of all, we looked at our strengths. We have captive raw materials like coal, iron ore and lime stone so we can be the cheapest hot metal producers. When we looked at that part, we found that we were using up to 30 per cent of imported scrap as feedstock. This was totally unnecessary and we reduced it over a period of time to 5 per cent. Secondly, we increased the output of hot metal by increasing what we could get out of existing assets like blast furnaces. We used to produce 2,800 tonnes per day with our B F-G, which we gradually took up to 4,000 tpd. We benchmarked with the best practices of leaders like Nippon, CST (Brazil) and Posco in this regard. We fine-tuned our sinter plant and increased production from 2.4 MT of sinter to 3.9 MT, which is as good as having one sinter plant free. Similarly, we were using imported coal for coke ovens and found that by changing the way we charge the ovens to Stamp Charging, we could produce high-quality coke with our own pulverised coal. Now our mix is 70:30 for Indian and imported coke. We were also able to develop highquality low phosphorous steel with our own technology. This was necessary since our ore contains high phosphorous. For this we had to develop a dolomite-free process. We reduced the labour from 72,000 to 48,000. A major factor for cost reduction is, of course, employee involvement. We received literally thousands of suggestions. Our estimate is that the suggestions have saved us Rs250 crore last year,” says Mukherjee.


The stamp charging technology for coke ovens was seen by Irani in a power plant in Germany in the ’80s. He then convinced his colleagues to invest in redoing the coke ovens for this new method, which has proven a great success. But Irani explains that cost consciousness is more mindset than a specific project. “We attacked energy consumption. The use of liquid fuel has been eliminated by generating enough gas from coke oven and blast furnace. That gas is used to heat up steel before rolling it out. We have a material in India, called Blue Dust, which is grey in colour, very rich in iron but as fine as talcum powder. It cannot be used in the blast furnace in a powder form. So we put up a new sinter plant and developed the appropriate technology with Lurgi, which saved us money since we used to throw the Blue Dust away earlier. It has also extended the life of our mines. We improved the yields in our mills by benchmarking. There must be at least 500 items in each department for cost reduction. Cost consciousness is an attitude. It is not just one single project. For example, now that we are all on e-mail, our STD spend comes down,” he adds.

Today, prominent bill boards at the plant and in Jamshedpur city no longer say: ‘We also make steel’ Instead they say: ‘Cost, Customer and Code’. While the exhortation about cost and customer is as clear as daylight in today’s competitive market place, one wonders what the code is all about. The insistence on boy scout like adherence to the Tata code of conduct and good corporate practice in yesterday’s Bihar or today’s Jharkhand, sounds impractical to pragmatists, leave alone the cynics.

How do Tatas run a First World company in a Fourth World environment? The articulate A.N. Singh, director in charge of township services, is an authority of sorts on the subject. He served in the I P S for 22 years in Bihar before he took voluntary retirement and joined Tata Steel. “The moment you play according to their rules, you will remain in the Fourth World. Of course, delays will take place. There is a great amount of poverty and lack of will to administer the laws of the country. But Tata Steel has been doing business for 90 years and there are others also doing reasonably well. If we can do it with our code of conduct, I do see a future. For example, we are in an island of peace in West Bokaro, surrounded by extremists. One of the reasons is our sense of corporate responsibility and being able to vibe with the community. For example, in West Bokaro we have open cast coal mines. The community living around us has realized for decades that they are flourishing because this coal mine is being run by the Tatas,” says Singh.

Irani adds: “Laloo Prasad Yadav is my friend, and right in the beginning I made it clear what friendship stood for. I said to him: ‘You have your rules and we have ours. We will do everything by your rules. We will not ask you to give a sales tax benefit here, or some short cut there. In return, don’t ask us for any underhand thing and break our value system.’ And to his credit, he has never made an indecent proposal. He asked us to clean up Patna, which we do as our social responsibility. He wanted a college to be built in Samastipur. We did that since we encourage education. He asked us to build a Tata ward for children in Patna hospital, which was in a very pitiable condition and we did that. Now we are doing a hospital in Hazaribagh. Laloo told somebody: ‘Going for anything illegal to the Tatas is like going to an Udupi restaurant and asking for a tandoori chicken’. Sometimes people come to Jamshedpur with expectations and then find in a week or longer that the Tatas won’t give money and they give up. If I find any of our officers has done underhand things, then I sack him instantly,” says Irani. No wonder Irani has earned the sobriquet from some leading politicians of Jharkhand— “the prime minister of Jharkhand.

When we enquired as to the truth of these assertions from a prominent businessman in Jamshedpur, who is not “burdened” by any code of conduct, he said: “Of course, it is true. That is why Tisco takes three months to get something done from the government in matters which take me three telephone calls.”

The emphasis on quality in Tisco has been recognised by Indian industry and several awards are pouring in. But the one that makes Tisco people walk a little taller within the Tata group is the J.R.D. Tata award for excellence in quality, which has been fashioned on the Malcolm Baldridge award. It makes them proud that this 90-year-old company, which many people thought stood for stodginess in the group, has made it to the top, while other companies in the group have not even reached the qualifying mark.

Irani, however, is not carried away by the hype about being the lowest cost producer in the world. He admits that if the advantage of coal and iron ore mines – which Posco and Nippon Steel do not have – is taken away, then Tisco will be one of the efficient producers and not necessarily the lowestcost producer. He points out that the World Steel Dynamics report clearly gives the same number of points to all the top 12 steel makers regarding ongoing cost-cutting programmes and the proactive quality of the management. So, Tisco’s position at the top can be temporary. “Living in today’s world means running to stand still,” is the advice he gives to Muthuraman.

The wily Kautilya seems to have hit the nail on its head about Tisco by stating: “The treasury has its source in the mines....”

Tuesday, August 14, 2007

E-commerce--IRCTC

Business India, September 15 – 28, 2003

E-com on the rails

A subsidiary of the railways serves up reservations on the Net

Shivanand Kanavi


Have you heard of Aluva, Allapuzha, Haldwani, Kollam, Palakkad, or Thrissur? Even if you had, definitely not as hot beds of ecommerce. Well, the data that Amitabh Pandey, GM (IT services) at IRCTC (Indian Railways Catering and Tourism Corporation) dishes out from his desktop would teach a thing or two to many Internet gurus.

IRCTC has been providing online ticketing for Indian Railways for the last year. In this short time it has come to be the largest e-commerce site in India, booking over 50,000 tickets per month. Some might say that Railways sell over 500,000 tickets a day, and hence this is “just peanuts”. Sure it is.But what’s important is the trend. The convenience of booking a ticket online using a credit card without standing in any queue, and then having the tickets delivered home by courier, is drawing people by the droves into it.

“It’s not just the metros which have been active but as soon as we add a new town on our system, they start getting active with hardly any advertisement,” adds Pandey. “You can see from the July 2003 data that clearly Mumbai (11,107), Delhi (7,504), Chennai (6,141), and Bangalore (4,430) lead. But a fairly large number of bookings are coming from Anand, Allahabad, Baroda, Bhopal, Bhubaneswar, Coimbatore, Dehradun, Faridabad, Ghaziabad, Guwahati, Indore, Jaipur, Jabalpur, Kanpur, Kochi, Kozhikode, Ludhiana, Nagpur, Patna, Rajkot, Silvassa, Surat, Vapi, Varanasi, and Visakhapatnam as well,” he adds.

Pandey has become an evangelist for e-commerce. “Despite the fact that Internet spread is very limited, it is spreading very fast. I just came from Kumaon last week — in a tahsil town like Ranikhet there is Internet access. The telecom revolution has come to India. I remember when I was in Jhansi the only reliable telephone was the railway’s telephone at the station. Today I see my parents in their 1970s chatting on AOL. In fact a majority of users of online booking are above 30, breaking another myth that Internet commerce is basically a youth phenomenon.
The middle class is conscious of the Internet and its possibilities. It may be small compared to the volumes in India, but it has come to stay and is growing very fast. The opportunities are immense.
This is not rocket science; the idea has been around for a long time even in the Railways. After IRCTC was set up to mainly improve catering and hospitality associated with Railways, we went to the Railways and said this too could be done quickly by us. The ministry was totally with us. It took us only one presentation to convince the board. It was a simple presentation and the board asked us some questions. We assured them that the existing passenger reservation system would not be disturbed and they said, go ahead.”

With his enthusiasm for technology one would think Pandey is a techie. But he is not. A product of the Delhi School of Economics, Pandey taught in Delhi University colleges for a few years before joining Railway Traffic Services in 1982. Traffic services involve operations (train planning, running, traffic planning, etc), associated commercial activities, and safety monitoring.
Pandey’s 15 years in operations took him to Bombay,Nagpur, Bhusawal, Jhansi, etc. Then the Railways started to corporatise catering and set up IRCTC, which started operations in 2001.

Historically, the Indian Railways have played a major role in popularising computers in India. Reservations were computerised in the 1980s by CMC and immediately brought relief to consumers in terms of efficiency and time saved. The Railways set up the Centre of Railway Information Systems (CRIS) in 1986 to be an umbrella for all computer activities of Indian
Railways so that different divisions did not carry on incompatible IT activities. They also entrusted it with the task of design, development, and implementation of the Freight Operations Information Systems, along with its associated communications infrastructure.

CRIS improved the reservation system and also networked it so that any one could book any ticket from any terminal in India and improved the system further. This service, enjoyed by millions, contributed greatly to changing the image of computers as job-stealers into enhancers of productivity.

Of the 11 million passengers who travel in 8,520 trains each day, about 550,000 have reserved accommodations. The challenge is to provide a reservation system that can support such a huge scale of operations — regardless of whether it’s measured by kilometers, passenger numbers, routing complexity, or simply the sheer scale of India. The Passenger Reservation System (PRS) started in 1985 as a pilot project in New Delhi. It has distributed databases at Mumbai, Delhi, Kolkata, Chennai, and Secunderabad. These five centres are networked with leased lines and different towns are connected in turn to one of these centres. It is a robust system, selling nearly 200 million tickets a year, and no one wants to disturb it even if its technology is obviously two decades old. That is the reason the IRCTC team went to great lengths to assure the Railway Board that they would not touch the existing system in any way. IRCTC would need just an entry point into PRS, where the queries coming from its Internet customers would be converted into an appropriate form understandable to PRS. The Railways treated IRCTC as any other ticket window, hence IRCTC had to pay them in advance and collect the money later from its customers through credit card payments.

“Though we have secure servers, people are still hesitant to give credit card information on the net. Hence we are increasingly connecting it to the payment gateways of banks providing Net banking so that the money can be deducted from their bank accounts directly,” says Pandey. The number of banks joining in this direct debit is increasing by the day — ICICI Bank, HDFC Bank, IDBI Bank, Citibank, Bank of Punjab, Global Trust Bank, UTI Bank, and Centurion Bank are already on board. The recent addition of State Bank of India is expected to increase the reach of this system.

“Direct debit transactions have increased greatly after we hooked up with IRCTC,” says C.N. Ram, IT head at HDFC Bank. But Pandey continues to innovate. “We are looking at bookings on the phone through call centres as well as through mobile commerce, where service providers take up the collection risk.” The volumes of online booking are still small. In the last year they have amounted to only Rs57 crore, but as the number cities and towns serviced by IRCTC increases and as payment options increase, the volumes are also bound to rise. Why should towns be added to an Internet booking service? After all, the Net is accessible from anywhere in the globe. Well, the limitation comes from the courier service since the tickets can be booked from anywhere but the delivery is still physical. Of course, one way to sort this out is to take the e-ticket route, where the ticket is sent by email to the customers as many airlines do in the US.

Pandey and his team are of course ironing out any wrinkles in the system for example a common complaint from customers in Mumbai is that when a customer books a return ticket, inexplicably he gets a ticket terminating at Kalyan or Borivli, which are outlying stations. The reason is that Mumbai is not one station. Several fall in the area: Kalyan, Kurla, Dadar (Central), Dadar (Western), Borivli, Bandra, and Mumbai Central. When the customer does not give the right station code understood by PRS, the system assumes the outermost station in the cluster and goes ahead. “This is in fact the challenge in our system. PRS is an interactive system, which is operated by trained railway personnel the way airline reservations are done by travel agents, whereas Internet bookings are done by customers who are not accustomed to codes, etc, and need a self-help portal. We are working constantly to improve it,” says Pandey.

Clearly the “death of distance” vision of the dot.com era had substance which got buried in the hype. Now with greater Internet and PC penetration, along with improved telecom infrastructure, some glimpses of that future are here.