ITC Limited


“Sometimes, not taking a risk is the biggest risk” 1

 – Padma Bhushan Yogesh C. Deveshwar

Background

ITC Limited is a diversified Indian conglomerate that is headquartered in Kolkata, West Bengal. It has a meaningful presence in all the three sectors of the Indian economy – agriculture, services and manufacturing. 2 With significant interests in Tobacco, Fast-Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, Agri-Business & Information Technology sectors, the company employs over 31,000 people across the country. 3

During FY 2018, ITC clocked annual revenues of Rs. 70,852 crores and enjoyed a market capitalization of nearly Rs. 3,40,000 crores.

ITC is rooted in the philosophy of congruence between business and social purpose. At the turn of the millennium, the company redefined its corporate vision to put sustainability and inclusive growth at the top of its agenda. Supported by the bedrock of consistent financial performance, ITC crafted innovative business models that generated sustainable livelihood opportunities and simultaneously helped to renew ecological resources. 4

To foster sustainable and inclusive growth, ITC spearheaded an Integrated Rural Development Program with four distinct objectives: (i) the dissemination of information and knowledge (ii) creating access to quality inputs and markets (iii) generating supplementary incomes, and (iv) augmentation of natural resources. The initiative progressively led to a comprehensive development of the rural ecosystem. It empowered the farmers and raised rural incomes. 5

To address the challenges of environmental degradation, ITC constantly strives to minimize its environmental impact. It is the only company in the world to be carbon positive, water positive, and solid waste recycling positive – all at the same time. Nearly half of the energy consumed across the corporation is derived from renewable sources. 6

The Genesis of the Institution

ITC Limited’s parent organization British American Tobacco (BAT) owes its origins to Mr. James Buchanan “Buck” Duke, who was in charge of a granulated tobacco factory in the United States in 1881. Buck Duke invested early into cigarette machinery. His company captured 38% share of the US cigarette market by 1889. He then facilitated the amalgamation of four other companies with his own to form the American Tobacco Company (ATC).

Soon thereafter, ATC acquired a foothold in the British market. To counter the impending threat of competition, W.D. & H.O. Wills gathered all the major tobacco businesses in Britain to form the Imperial Tobacco Company (of Great Britain and Ireland).

This consolidation led to intense competition and internecine price wars in both the US and the UK markets. Dwindling profits finally brought the two companies to the negotiation table.

In September 1902, the two giants eventually consented to pull out from each other’s home markets. They also jointly established the British American Tobacco (BAT) Company in an effort to establish their presence in territories outside of the US and the UK.

At that time, these two partners in BAT held separate interests with respect to the manufacturing and selling of cigarettes in India. The American Tobacco Company had invested into a cigarette manufacturing facility at Munger in 1907 through Peninsular Tobacco, while Imperial Tobacco Company was selling branded cigarettes in India through Dominion Tobacco and other companies.

The presence of British American Tobacco (BAT) in India was formally established in 1906, when two of its employees (Jellicoe and Page) landed in the country in search of an agent to distribute their Wills and Scissors brand of cigarettes. The duo began to educate people on the “pleasures” of smoking cigarettes. They advertised their products through roving musical trucks.

Sales soared very soon, and an extensive distribution network came into being.

The Imperial Tobacco Company of India came into being in August 1910 when British American Tobacco (BAT) decided to set up a full-fledged sales operation in the country. To cope with the growing demand, BAT set up another cigarette manufacturing unit in Bangalore in 1912. 7

In July 1912, BAT also established the Indian Leaf Tobacco Company (ILTC) to focus upon the local sourcing and processing of tobacco. To meet with the packaging and printing requirements of the cigarette business, BAT set up a packaging and printing facility in 1925. In 1939, ITC invested in duplex board. The company entered the paper business in 1944.

The Post-Independence Era

The years after Indian independence were rather challenging for the Imperial Tobacco Company. The Government of India levied excise duty on cigarettes in 1948, and the states levied other taxes. Taxation soon became the single largest component of the cost of cigarettes in the country.

In order to sustain profits, the company raised its prices. As a result, the company’s brands lost market share to local rivals such as Golden Tobacco and National Tobacco. Between 1947 and 1961, ITC’s market share slipped from over 70% to below 40%.

Post-independence, ITC continued to invest in all the complementary businesses associated with cigarettes in India. In 1954, it entered the aluminium foils business. The company commenced the manufacture of cigarette making machinery in 1960. It entered the fiberboard containers business in 1963, and began to manufacture cigarette filter rods in 1969. That was also the year in which ITC appointed Ajit Narain Haksar as its first native Indian Chairman.

Under Haksar’s leadership, ITC began a journey that would make it a rare business enterprise with significant foreign ownership that wedded its own developmental goals with those of its host country.

The AN Haksar Era (1969 – 1983)

Born at Gwalior in 1925, Ajit Narain Haksar joined the Imperial Tobacco Company of India in 1948 as a management “pupil”. Armed with an MBA from the Harvard Business School and a faith in market research, he institutionalized the marketing function at the company. Haksar was appointed as ITC’s  Marketing Director in 1966 and Deputy Chairman in 1968, before being appointed Chairman in 1969. 8

Prior to accepting the responsibility as the company’s Chairperson, he is reputed to have asked the following three questions of the BAT senior management:9 Page 198-199

  1. Which comes first – your company or my country?
  2. Who runs the Company – BAT, or the Chairman and the Board of Directors in India?
  3. Will ITC be required to do what BAT wants, or what its Chairman and the Board of Directors in India consider to be more appropriate investments with relevance to India?

Upon receiving suitable answers that helped to clear his conscience, he consented to become the first “Indian” to be placed at the helm of that flabby, foreign-owned organization with a colonial mindset. To his credit, Haksar led ITC’s metamorphosis into an aggressive, outward-looking corporation that was quick to spot and capitalize upon the emerging opportunities.

In the early seventies, a strong nationalist undercurrent swept India. It resulted in much turbulence in the economic, political and regulatory environment of the country. ITC’s competitors sought to position the company as a “foreign” enterprise that endangered indigenous firms.

The company responded by changing its name to I.T.C. Ltd in 1974. It also drew up plans to enter the core industry sectors where the Government found it otherwise difficult to attract investment.

After careful deliberation, ITC decided to diversify into Hotels, Paperboards and Marine Foods. While paperboards had linkages to the cigarette business, hotels and marine foods were potential foreign exchange earners. Being employment-intensive, the hotel business served the larger social needs of the country. It also utilized the company’s marketing expertise and consumer service skills in an industry where the competition was nearly absent.

However, the parent company held strong reservations about ITC’s ability to manage its diversification forays. For instance, when AN Haksar and his deputy Ramesh Sarin presented the plans for a paper mill to BAT, they were dissuaded from the endeavor. Nevertheless, ITC persisted in its endeavour.

In July 1979, Sarin wrote the following lines to BAT in London:

“This letter is written on the first sheet of paper produced at Bhadrachalam Paperboards Limited (BPL). It is not indicative of quality, but it does signify human endeavor and enterprise. The project has been completed before time, and within the agreed budgeted cost.” 9 Page 356

The diversification of ITC’s businesses was largely successful, except for marine foods. 9 Page 433 The company managed to hold on to its leadership in tobacco, while its hotels division quickly outstripped much older rival chains. The move into paperboard broke new ground in an area where no one had cared to invest for a decade. All this was accomplished with frugal resources during the “license-permit raj” era, with the purchasing power of consumers being limited.

Haksar also sowed the seeds of ITC’s transformation into a vibrant company that not only enhanced shareholder value, but also contributed to the Indian nation. Combining corporate objectives with social responsibility, ITC moved into carpet exports. The company gave training to the weaver artisans in Shahjahanpur, improved the quality of the product, provided the weavers with wool, and sold the carpets abroad. The monthly income of the weavers rose ten-fold to Rs. 2,000.

Haksar built a deep and robust professional leadership team at ITC through significant investment into human capital. Training, coaching, mentoring and the development of long-term relationships became a part of the DNA at ITC. High-potential managers were fast-tracked. They were groomed for leadership roles by means of rotation across businesses and functions.

Haksar combined professional excellence with outstanding entrepreneurial qualities. His leadership philosophy was anchored in the following beliefs:

  1. Putting the interest of the nation ahead of the business pays in the long run;
  2. Putting the interests of the people ahead of your own interests helps to build institutions; and
  3. The building of sustainable businesses and happy teams helps to build careers.

Meanwhile, the Foreign Exchange Regulation Act had been enacted in 1973. It restricted foreign equity ownership in any company to 40%. BAT was thus forced to dilute its stake in ITC.

The JN Sapru Era (1983 – 1991)

After 14 years at the helm, AN Haksar passed on the leadership baton in January 1983 to his brother-in-law Jagdish Narain Sapru.10 Page 4 ITC’s diversification agenda progressed under Sapru’s watch, even though the company ceded some market share in its flagship cigarette business to nimble competitors.

ITC Classic Finance was set up in 1986 as a non-banking finance company. An Agri-Business Division was set up at Hyderabad in 1988, with the mandate to produce hybrid seeds, market edible oil, and export agricultural products. In 1989, ITC acquired a 51% stake in Tribeni Tissues Limited. The company also opened Bukhara restaurants in the United States. 10 Page 5

In the February 1987, the Union Government replaced the ad-valorem excise duty structure with a new framework whereby excise was levied as a function of the cigarette length. With its strong portfolio of high-priced brands, ITC benefited the most from this change.

However, in a deeply embarrassing development, the Anti-Evasion Directorate of Central Excise Department issued a show-cause notice to the company in March 1987. It charged ITC with tax evasion to the tune of Rs. 803 crores during a four-year period commencing March 1983, shortly after Sapru had assumed charge as the Chairman.

It was alleged that ITC’s cigarettes were being sold in the market at a price higher than the printed maximum retail price. The company contested the claim. A long-drawn legal battle ensued. ITC’s professional and image reputation was significantly tarnished due to these charges. 11

The relations between ITC and its parent company BAT remained cordial during Sapru’s tenure.

The KL Chugh Era (1991 – 1995)

Krishan Lal Chugh joined ITC as an engineer at its Munger factory in 1971, after a ten-year stint at the Heavy Engineering Corporation, Ranchi. He made rapid progress up the corporate ladder. Under his stewardship, ITC’s Bhadrachalam project was commissioned within budget and ahead of time.

On the strength of an impressive track record, Chugh became ITC’s Vice-Chairman in 1989 and was elevated as its Chairman in November 1991. Under his leadership, ITC re-positioned all of its major cigarette brands and identified financial services and global trading as its new engines of growth. ITC partnered with Peregrine Investment Holdings and also tied up with BAT’s subsidiary Eagle Star Insurance.

In international trade, Chugh’s aspiration was for ITC to emerge as a leading trading house along the lines of a Japanese sogososha. He thus carved out the export business into ITC Global, a fully owned subsidiary company that was based out of Singapore.

In 1993, the British Prime Minister John Major visited India as the chief guest at the Republic Day Parade. The BAT officials in his entourage broached the proposal of increasing the parent company’s stake in ITC from 31.5% to 51%.

At the time, they are reported to have received positive signals from the Indian Government as well as ITC itself. However, when the BAT Managing Director visited India in March 1994 to progress the matter, neither of the parties supported this move. This led to a souring of relations between BAT and KL Chugh.

In November 1994, Chugh unveiled ITC’s plans to diversify into core sectors such as power. This did not fit into BAT’s global portfolio. It was thus vehemently opposed by the parent company. A stormy Extraordinary General Meeting (EGM) that was held in March 1995 to seek the permission of the shareholders for further business diversification ended up in chaos.

On the eve of the EGM, BAT had issued a press statement that alleged ‘‘culpable financial irregularities’’ by the top management of ITC. It specifically called for the Chairman’s resignation. In turn, Chugh accused BAT of wanting to strip ITC of its assets – in order to further its own business interests.

In his own defence, Chugh cited the impressive performance of ITC under his stewardship. Indeed, the company’s revenues had doubled and its profits nearly quadrupled during the four years that Chugh was at its helm.

The political parties in India swerved to support KL Chugh against what was perceived as a hostile takeover attempt. What started as a battle between an MNC parent and its subsidiary eventually became a war between an individual person (Chugh) and a faceless corporation.

The company’s auditors were tasked with investigating the financial irregularities alleged by BAT. Their report was a damning indictment of the way that ITC Global was managed. It held the Chairman and top management of ITC Limited responsible for the wrongdoings.

These financial irregularities were confirmed by an audit committee of the Board, which later concluded that ITC’s involvement in certain questionable deals had led to a drop in profits of Rs. 261 crores for 1995-96. However, Chugh was personally cleared of all charges. 12

In a surprising anti-climax in September 1995, KL Chugh announced his decision to step down in the “best interests” of the company’s growth. He also took responsibility for the losses suffered by ITC Global. Soon, the Enforcement Directorate served a notice on ITC for alleged foreign exchange violations in its export deals.

In December 1995, after much jockeying between BAT and Indian Financial Institutions that were the two major shareholders of the company, Yogesh Deveshwar was named as the next Executive Chairman of ITC. An eminently forgettable chapter in the company’s history thus came to a close. At the same time, a truly memorable one was about to begin.

The YC Deveshwar Era (1996 – 2017)

Yogesh Chander Deveshwar was born in February 1947 at Lahore. He joined ITC as a “management pupil” in 1968, after graduating as a Mechanical Engineer from the Indian Institute of Technology, Delhi. In an early career break, he was invited to serve at the ITC Corporate Headquarters in Kolkata in 1972 as a “Management by Objectives” Advisor.

In 1974, Deveshwar was appointed as the Factory Manager of ITC’s Packaging and Printing facility at Chennai. He was promoted as the General Manager of this division in 1978. At merely 37 years of age, Deveshwar was appointed to the board of ITC in 1984 as the Director-in-charge of the Hotels Division.

In 1991, Deveshwar moved on lien from ITC to serve the Government of India as the Chairman and Managing Director of the national carrier Air India for a period of three years.

Upon returning to ITC in 1994 as Vice-Chairman, YC Deveshwar’s mettle was tested in many ways. For instance, Godfrey Philips had launched the Four Square Specials brand of filter cigarettes that was making deep inroads into Gold Flake’s territory. In order to stop the intruder, a feasible option was for ITC to introduce a similar variant of Gold Flake. However, this ran the risk of downgrading its precious Gold Flake franchise.

Nevertheless, against the advice of his entire divisional team, Deveshwar proceeded with the launch of Gold Flake Filter. Simultaneously, Gold Flake Kings was promoted to circumvent the possibility of brand dilution. The strategy worked splendidly, and Gold Flake’s volumes grew manifold over time.

Deveshwar became the ITC Chairman on the New Year’s Day in 1996, at a very precarious juncture. A public battle for the control of the company had ensued, amidst a huge smear campaign that battered ITC’s reputation. Its weak diversification performance over a period of two decades was facing severe criticism too. The company was also being probed by the government for large-scale evasion of excise duty, and for the violation of foreign exchange regulations too.

Deveshwar thus inherited a fractured organization that was characterized by very low morale.

In an unprecedented move in October 1996, the Enforcement Directorate arrested former ITC Chairmen JN Sapru and KL Chugh as well as 12 other top ITC executives. They were charged with under-invoicing ITC’s export deals so as to illegally retain foreign exchange abroad. 13 This appeared to be a sinister attempt by the parent company BAT to discredit the local ITC management team, in order to take control of the company through the back door.

Deveshwar fought back valiantly. He appealed to the people as well as the authorities not to act on the basis of mere allegations and press campaigns. Deveshwar made a public offer granting authorization for any “anybody to look at any bank account in the world”. People appreciated his sincerity. They began to see the truth, and swerved to support ITC and its leadership team. 14 YC Deveshwar thus managed to prevent BAT from taking control of ITC.

Deveshwar also ensured that BAT officials did not interfere in its operational management. On the portfolio side, he guided ITC’s exit from businesses that were not adding significant value. ITC Classic had reported huge operational losses that almost wiped out its net worth. This business was sold to ICICI. The company’s stakes in ITC AgroTech and ITC Zeneca were sold to Conagra. ITC Global, the company’s trading arm, too faced liquidation.

On the other hand, significant investments were made in the company’s core businesses of cigarettes, hotels, and paperboard.

ITC’s brand portfolio of cigarettes was rationalized to help the company emerge as a much stronger market leader. The company’s cigarette manufacturing facilities were also significantly upgraded.

 The footprint of the hotel division was revitalized through a rebranding exercise. New hotel properties were developed, and the existing ones were enhanced.

In the paperboards business, a state-of-the-art 100,000 TPA elemental chlorine-free fiber line was set up. The paper and hotel divisions were also folded back into ITC’s integrated structure.

In the Millennium Year, ITC ventured into Information Technology as well as apparel retailing. In 2002, the company entered the packaged foods market.

However, ITC’s most significant innovation was to establish the e-Choupal mechanism for the direct sourcing of agricultural commodities from the farmers. This Internet-based intervention selectively dis-intermediated the middlemen, who otherwise maintained a tight hold upon the agricultural value chain in rural India. E-Choupal generated immense social capital for the company. 15

Deveshwar thus did a commendable job of bringing the organization back on the rails. Over his tenure, ITC significantly widened its engagement with the community through social & farm forestry, watershed development, women empowerment, livestock development and primary education in rural areas.

The company also made significant and sustained progress with its ecology-oriented initiatives. It turned “water positive” in 2002, “carbon-positive” in 2006, and ‘‘solid waste recycling positive’’ in 2007. 16

Coupled with the company’s continued superior business performance by way of a CAGR of 23% in shareholder returns, these social and environmental achievements resulted in ITC becoming a global exemplar of Triple Bottom Line performance. 17

The Contours of the Transformation

Over a period of two decades starting in 1996, ITC underwent a metamorphosis. Through its “Responsible Competitiveness” paradigm, the company built a globally competitive capacity to create economic value whilst ensuring that the environment was nourished and sustainable livelihoods were created at the same time. ITC’s “commitment beyond the market” led the company to innovate synergistic business models that built economic, ecological and social capital as a unified strategy.

While ITC continued to be the market leader in cigarettes, the capacity of its Paperboards business grew seven-fold in twenty years. The Packaging business won global acclaim for excellence. ITC’s hospitality business grew to over 100 properties, with its luxury properties emerging as the greenest luxury hotel chain in the world. ITC’s new FMCG businesses crafted a vibrant portfolio of around 25 mother brands that collectively garnered a consumer spend of over Rs. 12,000 crores.

ITC also emerged as a significantly large exporter of goods and services. Its aggregate foreign exchange earnings touched nearly US$ 6.8 billion in the course of a decade. 18At the same time, the company became a global leader in Sustainability Performance. It helped to create sustainable livelihoods, empower local communities, and led to the conservation and replenishment of a sustainable environment for future generations.

The company’s e-Choupal eco-system benefitted 4 million farmers. It was acclaimed as one of the world’s most successful rural empowerment programs.

ITC’s afforestation programme resulted in the greening of over 2,25,000 hectares of land. This generated over 100 million person-days of employment for poor tribals and farmworkers.

ITC’s agroforestry initiative covered 25,000 hectares. This helped to multiply farmer income as well as farm outcomes. It also demonstrated that competing demands for food, fodder, fibre, fuel, and forest on India’s finite land might be largely reconciled within a single farm.

Further, the company’s Soil and Moisture Conservation programme promoted integrated watershed development in moisture-stressed areas – covering 2.6 lakh hectares in 42 districts across 10 States.

ITC’s Animal Husbandry program serviced 1.3 million milch animals over the course of a decade. This led to improved productivity and supplementary rural incomes.

The company’s Women Empowerment Program made an impactful difference to the lives of over 50,000 rural women. Its “Well-being out of Waste” (WOW) program promoted extensive segregation and recycling of waste. 18

The Engagement Pillars

When YC Deveshwar assumed charge as ITC’s Chairman, he crafted a blueprint for engaging the organization and its people around the Triple Bottom Line framework. The goal was to help reinvent the company, and simultaneously build economic, ecological and social capital for the nation.

The execution of this strategy rested upon the three complementary pillars: a) Vision, b)Values, and c)Vitality. 1 The Vision provided the overarching inspiration, while the Values served to guide thought and action even as Vitality enabled excellence in strategy formulation and execution. 19

Vision

The service of a larger societal purpose had been ITC’s hallmark ever since AN Haksar first articulated it.

YC Deveshwar built upon that foundation to articulate a vision for ITC to become an engine of growth for the Indian economy while simultaneously creating superior value for its shareholders. 20 Unique business models were created in order to synergize long-term shareholder value with the fulfillment of the larger societal purpose.

Values

The core values of ITC were shaped around the belief that business organizations arise from within the society. They are therefore duty-bound to serve social interests. The defining trait of the company was its deeply nationalistic character that guided the alignment of its corporate strategy with action in the service of national priorities. An unwavering commitment to integrity, ethical conduct, meritocracy, teamwork and abiding concern for stakeholders constituted the heart of the company’s value system.

Vitality

Vitality was the engine that enabled robust strategy formulation, and excellence in its execution. It manifested as the company’s ability to strengthen its competitive capability, deepen its consumer insight, deliver breakthrough innovations in products and processes, and the development of the ability to rapidly absorb knowledge and harness technology.

ITC’s robust business strategies, its climate of professionalism, and a caring culture constituted the framework for effectively channelizing corporate vitality. This led to enhanced market standing and profitability, in addition to enlarged contribution across the Triple Bottom Line.

The Strategic Drivers of Transformation

Deveshwar began the process of reinvention at ITC by working assiduously to put strong internal systems and processes in place. This was intended to put the ethical controversies of the past to rest, and also preclude the development of new distractions.

An inspiring vision was developed. It forged unity amidst diversity – between the agenda of individual businesses and the broader corporate identity; between the present imperatives and those of the future; between shareholder needs and those of society. ITC’s business portfolio was also restructured.

 A multifarious strategy was crafted to support the transformation. It rested upon five key elements:

a) Diversification,

b) Harnessing of internal strengths,

c) Service of the national interest,

d) Triple Bottom Line Performance, and

e) Robust Corporate Governance.

Diversification

Cigarettes were a lifestyle product in the twentieth century, but became a “sin” product in the new millennium. The business also came under pressure from increased taxes and stronger regulation.

Deveshwar was convinced that judicious but full-throated diversification was the best way forward. The legendary distribution expertise of the company, its considerable brand management skills, as well as significant cash reserves, set the stage for the development of a significant FMCG footprint.

ITC set about creating world-class consumer brands that could create and retain greater value for the Indian economy. It entered several categories of consumer goods – branded packaged foods, personal care, branded apparel, and lifestyle retailing, education & stationery products, safety matches and incense sticks. Its diversification foray was characterized by a long-term focus. 21

Thanks to the diversification exercise, ITC’s non-cigarette businesses yielded around half of its revenues by 2017 even though they still yielded less than 20% of the profits. Diversification also helped the company to retain talent. Its professional managers were provided with the opportunity to be entrepreneurs within the ITC umbrella. They were encouraged to create new businesses from scratch.

Harnessing of Internal Strengths

An important element of ITC’s growth strategy was the creative blending of its proven core competencies such as brand building, distribution, supply chain management, and customer service in order to create new engines of growth. This synergy of institutional strengths provided a tremendous competitive advantage to the company.

The Packaged Foods business drew upon the unique sourcing capability of the e-Choupal, the culinary expertise of a galaxy of chefs from the hotels business, and the innovation capacity resident in the ITC R&D Centre. ITC’s traditional marketing prowess encompassing deep consumer insight, branding skills, packaging excellence and an extensive trade marketing & distribution capacity came in handy too. 18

Similarly, ITC’s strong presence in agricultural commodities, Packaged Foods, and Personal Care products was leveraged by the company’s Life Sciences Centre to deliver products of the future aimed at nutrition, health and well-being. 22

Further, ITC’s remarkably successful Aashirvaad brand customized atta for every region of India. This became possible because the company was able to procure 18 grades of identity-preserved wheat at the farm gate through e-Choupal. These were then blended in order to meet regional preferences.1 Customized blending was a strength that was honed by the practice of tobacco blending over decades.

The Service of National Interest

Deveshwar held a conviction that there was no inherent contradiction between improving the competitive context, and making a sincere commitment towards the society and the nation. In order to make an enduring contribution to the Indian society, he resolved to build ITC into an exemplary, values-driven enterprise that would adopt the credo of putting the country first.18

Sustainability was embedded into the company’s core. Innovative strategies were designed to create sustainable value chains linked to its businesses. ITC’s early diversification into the hotels and paperboards businesses was also guided by national interest. The potential to generate significant foreign exchange earnings and create large-scale employment in the tourism sector were the triggers for the hotels foray. 23

Similarly, the opportunity to contribute to the economic development of a backward region like Bhadrachalam facilitated ITC’s entry into paperboards. The e-Choupal was also born from the vision of creating greater competitiveness for Indian agriculture.

Equally, these diversifications were backed by sound strategic rationale. Paperboards was a vertical backward integration for its printing and packaging business, which had already developed a sophisticated technology and skills platform by then.

Likewise, the hotels business was premised upon leveraging ITC’s deep consumer insights and marketing acumen. And the celebrated e-Choupal network helped to source farm produce worth over Rs. 400 crores a year for the foods business. It also became a distribution engine for ITC’s consumer products.

E-Choupal

A stellar example of ITC’s promotion of India’s national interest was the 
e-Choupal initiative. This was a unique click and mortar capability that served to make the country’s agricultural value chain more competitive. 24 The intent was to create an agricultural “market of markets” across India that would provide farmers with critical information on farm productivity, prices, and markets. Their earnings could be increased through better price discovery, improved quality and cost savings.  These e-hubs also provided services such as micro-credit, insurance, health and education to the farming community.

E-choupal re-organized the farm supply chain for more cost-effective sourcing using the physical transmission capabilities of current intermediaries, while dis-intermediating them from the information flow and market signals. The digital infrastructure was supplemented with a phased rollout of physical infrastructure (ITC Choupal Saagar) that served as a hub for clusters of villages. This hub and spoke model was energized at the village level through sanchalaks and samyojaks drawn from the farming community, who represented the extended enterprise.

Triple Bottom Line Performance

Besides enhancing shareholder value, ITC actively sought to create environmental and societal value. The ‘Triple Bottom Line’ approach defined the company’s growth path. The transformation of its paperboards division was a wonderful case in point.

The Turnaround of ITC Bhadrachalam: In the late nineties, ITC Bhadrachalam Paperboards was a troubled enterprise. It had survived in a closed economy, despite outdated products and a globally uneconomical scale. However, the reduction in customs duties as a result of the economic liberalization process exposed the business to international competition. The energy intensity of paperboard manufacture, the high cost and unreliability of electric power from the state grid, and the challenge of absorbing modern technology in the under-developed Bhadrachalam region stacked the odds against it.

Further, the dwindling forest resources of the country and a national policy that did not permit corporates to engage in farm forestry operations posed a serious threat to the continuity of its access to cost-effective fibre that was its raw material. On the other hand, India needed this sector to flourish so as to support its growing sectors such as education and packaging.

The company chose to invest Rs. 150 crores into ITC Bhadrachalam towards acquiring competitiveness in the quality as well as the cost of manufacture at its own mill. Pulling together all the resources at its disposal, the company’s insights as a consumer of value-added paperboards were fully leveraged in order to support the modernization and technological up gradation of the paper mill.

Substantial investments were also made into an ongoing biotechnology-based R & D program to develop high yielding, disease resistant clonal saplings that would grow at a rapid pace in relatively harsh climatic conditions. These saplings made the growing of pulpwood species on degraded wastelands a sustainable livelihood option. Marginal farmers and poor tribals in the economic vicinity of the mill were mobilized to grow these trees on their private wastelands.

This strategy implied longer gestation, substantial investment and considerable management attention in managing risk and uncertainty. There were periods of negative cash flows and low return on investment. It was an extremely difficult path, as compared with the easy option of importing pulp in an almost zero-duty regime. However, it enabled the poor and marginalized farmers to generate a sustained source of income by converting their wastelands into pulpwood plantations. ITC was a willing buyer of their produce, even as the growers were free to sell to the highest bidder in the open market.

Eventually, this strategy yielded three-dimensional success. On the social plane, it helped to create over 70 million person-days of gainful employment. A multiplicity of environmental benefits included the creation of a green cover for 1,60,000 hectares of land, carbon sequestration, groundwater recharge, regeneration of biomass, and the nurturing of depleted soil. Simultaneously, the paperboards business became an industry leader. It was profitable as well as socially & environmentally responsible. 25

Robust Corporate Governance

ITC was restructured according to a divisional framework. Robust performance measurement processes for independent “investment” centres were painstakingly created. These were supported by an elaborate management accounting system. Further, a new three-tiered mechanism of corporate governance was introduced. Under this scheme, ITC’s Board of Directors were mandated with strategic supervision while a Corporate Management Committee dealt with strategic management and the Divisional Management Committees carried operational responsibility for their respective businesses.

This arrangement allowed the company’s top management to assume the character of a holding company, with the mindset of a venture capitalist. They mentored the existing businesses, and created new avenues for growth by blending together various skills drawn from different parts of the ITC Group.

Awards and Recognition

ITC received national and global recognition for its multi-faceted achievements. It was ranked as ‘India’s Most Admired Company’ by the Fortune India magazine and Hay Group. The company was rated as the world’s 8th largest ‘sustainable value creator’ amongst consumer goods companies by the Boston Consulting Group. 26 As a testimony to its exemplary Triple Bottom Line performance, ITC was also presented with the “World Business and Development Award” at the historic Rio+20 UN Summit. 26

For his leadership in transforming ITC into an organization with a deep commitment to national priorities of sustainable and inclusive growth, Y C Deveshwar was conferred with the Padma Bhushan in 2011. 27 Also, Harvard Business Review ranked him in 2013 as the world’s 7th Best Performing CEO. 28

Concluding Reflections

YC Deveshwar handed over the mantle of executive leadership at ITC to Sanjiv Puri in February 2017. However, he shall remain as the Chairman of the company for another three years.29 YC Deveshwar had always canvassed for government support in order to maintain ITC as an independent, professionally managed company. The Government of India’s ban upon FDI in tobacco is the final spoke in the wheel for any potential BAT plan to take over the company after his retirement!

References

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