RATAN TATA is as different as can be from the popular image of a business titan: he is a natural gentleman who lives austerely, litters his conversation with references to “dignity” and “duty” and is happiest when talking about his pet dogs, two German shepherds. He owns less than 1% of the group that bears his family name. But he is a titan nonetheless: the most powerful businessman in India and one of the most influential in the world.

The Tata group, of which he is chairman, is a giant too—or rather a collection of them. This family of companies covers cars and consulting, software and steel, tea and coffee, chemicals and hotels. Tata Consultancy Services (TCS) is Asia's largest software company. Tata Steel is India's largest steelmaker and number ten in the world. Taj Hotels Resorts and Palaces is India's biggest luxury hotel group by far. Tata Power is the country's largest private electricity company. Tata Global Beverages is the world's second-largest maker of branded tea. Overall, the group earned 3.2 trillion rupees, or $67.4 billion, in revenues in 2009-10 (see chart) and 82 billion rupees in profits.

Mr Tata has transformed the group. When he became chairman in 1991, India was groaning under the Licence Raj and Tata seldom ventured outside its home market. Today, as he prepares to step down in late 2012 and the search for a successor speeds up, India is one of the world's most dynamic economies and Tata operates in over 80 countries. The latest sign of its ambition came this week at the Geneva motor show, where Tata Motors showed a prototype of a small car for European drivers.

But the Tata story is about more than its own transformation. Just as Tata played a leading role in nation-building from its foundation in 1868, creating India's first Indian-owned steel plant, power station, luxury hotel, domestic airline and sundry other firsts, it is now one of the stars of India's globalisation. The group has also projected a new type of company onto the global stage—more diversified than Western firms, more engaged in the life of the community and, if its employees are to be believed, better equipped to prosper in both developed and developing markets.

The house that Ratan built

Mr Tata's enthronement in Bombay House, the group's headquarters, took place just before the liberalisation of India's economy, an event that Indian business people habitually call the country's “second independence”. He spotted that liberalisation was both an opportunity and a threat. It was an opportunity because it set Tata free: the economy had been so tightly regulated that you could be fined or even imprisoned for exceeding your output quotas. It was a threat because Tata was vulnerable. Its companies were unco-ordinated, overmanned and undermanaged. They had competed with each other so vigorously that four textile mills drove each other out of business, yet there was a serious risk that leaner, fitter foreigners would wipe out the lot.

Mr Tata set about streamlining with a vengeance. He focused the group on six industries that have provided most of its revenues since 2000—steel, motor vehicles, power, telecoms, information technology (IT) and hotels—and increased its often paltry shareholding in these core businesses. He gradually established Bombay House's power over the barons who had ruled the various businesses for decades. Companies now have to earn the right to use the Tata brand. The Tata Management Training Centre does as its name says; and TAS selects high-flyers who move regularly from one company to another as their careers develop. Teams of “auditors”, stars from across the group, conduct annual surveys of selected companies, reporting on progress and suggesting lessons to learn.

The group embraced globalisation. The pace of foreign acquisitions has grown dramatically: in 1995-2003 Tata companies made, on average, one purchase a year; in 2004 they made six; and in 2005-06 more than 20. So has the scale. Tata Tea's takeover of Tetley Group, a British company, for $450m in 2000 was the first of several bold buys of well-known brands that announced the group's arrival in the global big league. In 2007 Tata Steel bought Corus, Europe's second-largest steelmaker, for $12.1 billion. A year later Tata Motors paid $2.3 billion for Jaguar Land Rover (JLR).

In all Tata has spent around $20 billion on foreign companies. Today it earns about three-fifths of its revenue abroad and employs more British workers than any other manufacturer, and two of its biggest companies, Tata Motors and Tata Communications, are listed on the New York Stock Exchange.

Tata has been busy in emerging markets, too. Tata Steel and Tata Motors have been snapping up Asian companies, such as Thailand's Millennium Steel and South Korea's Daewoo trucks. At home Tata Motors makes the first Indian-designed car, the Indica, and the world's cheapest, the Nano. Mr Tata talks about the company's duty to produce groundbreaking products for the world's poor with missionary zeal.

The changes have been dramatic. A group that used to be identified with secure employment (“for shoes there's Bata and for jobs there's Tata”) has become obsessed by serving its customers and matching international standards. Tata Steel has more than doubled its output since 1994 (from 3m tonnes to 6.4m) while cutting its workforce in India by more than half (from 78,000 to 30,000). A jaunty self-confidence has replaced the self-doubt of the early 1990s. Yet Mr Tata's changes have gone only so far. That is partly because of caution and reverence for tradition, but also because there is logic behind the group's diversity.

E pluribus plura

In Jamshedpur men in thick denim shirts and hard hats watch as molten steel is poured from a gigantic ladle. In Mumbai young women in exquisite saris add to the allure of the Taj Mahal Palace & Tower hotel. In Pune PhDs from the Massachusetts Institute of Technology and various Indian Institutes of Technology feed data into one of the world's most powerful privately owned supercomputers. They are all part of Tata's global workforce of about 395,000 people.

For all the frantic restructuring the group remains strikingly diversified by Western standards: 98 operating companies, 28 of them listed on the Bombay Stock Exchange, in a bewildering range of industries. It is bound together by complicated interlocking structures: various central bodies, such as the Tata trusts and Tata Sons, hold shares in the companies.

Tata is also held together by a common culture that has been marinating for 140 years. Employees love to tell tales of how Tata got the better of the British overlords. They also love to point out that Tata created many of India's greatest institutions, such as the Indian Institute of Science, the Tata Institute of Fundamental Research and the Tata Memorial Hospital. Reverence for Jamsetji Tata, the group's founder, borders on ancestor worship: his ever-present busts are garlanded with fresh flowers daily. On March 3rd thousands marched through the streets of Jamshedpur, as they do every year, to celebrate his birthday.

Tata prides itself above all on its culture, which it argues is defined by three things: loyalty, dignity and what is now called corporate social responsibility (CSR). It is not unusual to find a Tata lifer whose spouse works for the firm and whose father also did. Tata is admirably restrained by the flashy—it is tempting to say money-grubbing—standards of modern India. It has always eschewed “sinful” industries such as drink, tobacco and gambling. It is as committed to public service as it was when Jamsetji Tata was laying the economic foundations of Indian independence.

Tata charitable trusts own two-thirds of the holding company, Tata Sons. Alan Rosling, a former Tata executive who spearheaded the group's globalisation, liked to say, “We're making money so that our shareholders can give it away.” The trusts funded worthy causes, from clean-water projects and literacy programmes to the various Tata institutions, to the tune of $97m in 2010. But the commitment to CSR is deeper than this.

Consider Jamshedpur, the home of Tata Steel and perhaps the world's most successful company town. Tata Steel runs almost all the city's institutions: these include a 980-bed hospital, a zoo, a giant sports stadium, academies for football, archery and athletics, golf courses and the local utility company. (“They provide you with a house and a car,” jokes Prabhat Sharma, head of corporate affairs for Tata Steel. “The only thing you need to bring is a wife.”) The company also employs 250 people to work with local tribespeople, to improve agriculture, health care and education, and regularly sends a hospital train farther into the hinterland. The city is remarkably well run by Indian standards, with broad avenues, green parks, reliable power and water that you can drink. Tata Steel gently mocks all this corporate philanthropy with the slogan, “We also make steel”.

This largesse has come under some strain in recent years. Tata Steel has reined back some activities (it no longer makes ice or shoes) and created a separate utility company. Tata Tea (now Tata Global Beverages) has sold its vast plantation in the Western Ghat mountains where it was the biggest employer for more than a century. But rationalisation has not gone far by Western standards. The tea plantations were sold to former employees. Tata Steel gave generous pensions to the thousands of workers it got rid of.

The group has inevitably provoked criticism as it has stridden onto the international stage. Western investors who already apply a discount to American and European conglomerates are leery of India's more sprawling variety. Many Indians may view the prominence of Ambanis, Birlas and Tatas as part of the natural order of things. But Westerners tend to associate it with unreconstructed tradition and messy family politics.

The widespread suspicion that Tata had overpaid for Corus and JLR seemed to be confirmed when the world's stockmarkets tumbled in 2007-08. Even Mr Tata admits that the group had to reach deep into its pockets to keep some subsidiaries going. But the crisis has done nothing to damage Tata's growing self-confidence. The global deals are beginning to repay its patience: JLR is likely to make $1 billion in profit this year as well as providing Tata Motors with valuable skills. Mr Tata warns the group against drawing the wrong conclusion from the meltdown: it needs to be more bullish rather than more conservative.

The sense behind the sprawl

Tata executives also insist that the group's sprawl makes sense, even if they sometimes explain it in idiosyncratic terms. R. Gopalakrishnan, a director of Tata Sons, explains the structure with reference to the extended Indian family: the patriarch sets an example to his “sons” and kicks them out of the house if they fail to live up to his values. But they also claim support from management thinkers such as Tarun Khanna, of Harvard Business School, and Jim Collins, the author of “Good to Great”.

Mr Khanna points out that diversified groups are the “dominant” form of business in many emerging markets, including Chile, Indonesia, Mexico, Pakistan and Thailand. He argues that this makes eminent sense in countries with weak governments and underdeveloped institutions. India regularly comes in the bottom half of the World Bank's “Doing Business” rankings. Many institutions that Western companies take for granted are missing.

The group's spread not only improves its chances of grappling with bureaucracy and filling various institutional voids but also helps it wage two of the hottest wars in modern India: for talent and trust. Tata can compete with Western talent-magnets such as General Electric and Accenture. It is well enough known to appeal to people in the remotest villages. In last year's BrandFinance Global 500, a ranking of the world's most valuable brands, the Tata name was reckoned to be worth $11.2 billion, placing it first in India and 65th overall. Even the twin strategy of advancing at both the bottom and the top of the market makes sense: it is hard to dismiss Tata as a “cheap” brand when the group owns luxury hotels and fancy consultancies.

Mr Collins argues that “culture” is a rich corporate resource: many of the “great” Western companies that he studies share a propensity for ancestor worship. Tata's culture of probity has helped to insulate it from India's endemic corruption. It has guided its behaviour when standards have slipped: when the company discovered widespread irregularities in Tata Finance in 2001-02 it blew the whistle on itself. Tata has not escaped unharmed from the snowballing scandal over the Department of Telecommunications' decision, in 2008, to allocate wireless spectrum to favoured companies at below market prices. But in general its reputation has earned its senior figures the benefit of the doubt.

Tata's diversified structure has given it a valuable mixture of flexibility and deep pockets. Its companies have been able to seize opportunities, such as Tata Steel's takeover of Millennium Steel or Tata Motors' joint venture with Marcopolo, a Brazilian bus manufacturer. Bombay House provides Tata companies with clout when they want to make ambitious acquisitions (Tetley was twice the size of Tata Tea) or when the market turns against them.

Tata's new frontiers

A profile in Fortune in 2002 characterised Tata as both “one of India's most beloved companies” and “a mess”. The latter no longer looks correct. But Tata will be held to much higher standards as it competes with the world's best. Its future success will depend on the answers to two questions. Can it use its muscle to become a master of innovation? And can it become a truly global company rather than just an Indian one that does well abroad?

Mr Tata's mission in his final years as chairman has been to foster innovation. He has started an annual competition with a prize for the best failed idea (failure is a “gold mine” for a great company, he says). He has also created five “clusters” (plastics and composites, nanotechnology, engineering, IT and water) that throw people from different businesses together.

The group is pursuing innovation on two levels. At the high end, Tata Chemicals is conducting research in nanotechnology and food science, and TCS holds regular innovation conferences in Silicon Valley. But what has caught more attention is the group's commitment to “frugal innovation”: new products designed to appeal to poor people and the rising middle class.

Tata's best-known frugal product, the Tata Nano, a 150,000 rupee car, has run into problems: some cars have suffered from what Ravi Kant, the vice-chairman of Tata Motors, calls “thermal incidents” and his customers call “catching fire”. Distribution has been poor, although more are appearing on the roads. Carl-Peter Forster, chief executive of Tata Motors, admitted this week in Geneva that the Nano business model is having to be reinvented.

Even if the Nano proves disappointing, frugal innovation looks promising overall. Tata Motors is making small trucks that are replacing three-wheelers. TCS has co-produced a cheap water filter, the Swach, using ingredients such as rice husks. Tata Steel has made a prototype of a $500 house that can be bought in a shop. The hotel company is building $20-a-night billets for India's army of commercial travellers.

The group is learning to combine the strengths of its various parts. Three companies collaborated on the Swach. After the Asian tsunami in December 2004 TCS and Tata Teleservices joined forces to develop a weather-alert system for fishermen. The group is also marrying high- and low-end innovation. The supercomputer in Pune was built in six weeks for around $30m. TCS has created a cheap software package that can teach adults to read in 40 hours.

The Nano needs sprucing up

In globalising, Tata has been a fast learner, absorbing lessons from JLR and Daewoo. It has become more ambitious: Tata Global Beverages presents itself as a global company rather than an agglomeration of acquisitions. Tata also claims that it is easier for Indian companies to compete in Western markets than it is for Western ones to adapt to the complicated demands of developing markets.

But the group nevertheless faces serious problems. One is the parochialism that afflicts big countries (and companies): the upper management is still dominated by Indians who know only life within Tata. A second is hubris. Tata is too inclined to celebrate the great pruning of the 1990s rather than ask whether another is due. It may not be able to justify today's degree of diversification when the Indian market is growing so rapidly and when it is doing so much business in the developed world. It needs to consider whether it is time to lop off weaker limbs such as Tata Teleservices, an also-ran in India's crowded telecoms market, and Tata Financial Services.

The most immediate task, though, is more humdrum: replacing Ratan Tata. This will not be easy. Mr Tata has driven the group's big transformations from its restructuring to its focus on frugal innovation. His personality pervades the organisation, which is in a far better state than it was when he inherited it.

Tata has plenty of senior executives who have grown up under his regime—not least Noel Tata, Ratan's half-brother and the son-in-law of Pallonji Mistry, Tata Sons' largest individual shareholder. It has also forged a long-term strategy that could power its growth for years: producing a stream of innovative products that will both cater for the rising masses of the emerging world and shake up markets in richer places.