ITC Limited: India's First - IIM Bangalore

Abstract :
This case describes how corporate strategy and competitive strategy, enmesh. It
describes an inflexion point at which the company was faced with a prisoners dile
mma situation with regard to a critical set of operational decisions of tactical
significance affecting manufacturing operations. The unintended consequences, r
egardless of which path were taken, could have lasting reverberations for sustai
ning creditability and communication in organization development and management
processes. The unfolding situation describes a situation typical of the challeng
es arising in low margin high volume traditional businesses close to growth satu
ration and maturity. In ITC Limited, the extent to which the deep restructuring
in its traditional businesses was feasible and sustainable also set the pace of
diversification. The case also brings out tacit dimensions of power conflict tha
t strategy formulation and implementation manifest in industrial relations confl
icts.
Abstract :
ITC Limited was the first large Indian transactional firm to undertake significa
nt diversifications and restructuring as part of its corporate strategy. The div
ersification strategy was designated by visionary leaders and professional manag
ement from within. The strategy required to be supported by squeezing profits fr
om low margin high volume traditional businesses that were close to growth satur
ation and maturity. The company was required to set the rate of engagement with
its diversification strategy by determining the extent to which the deep restruc
turing in its traditional businesses was feasible and sustainable. The case brin
gs out hidden dimensions of power conflict that strategy formulation and impleme
ntation involve and raises questions about the alleged inflexibility of labour m
arkets, the interface between product markets and internal labour development an
d management processes.
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Description
The case traces the evolution of ITC Limited (ITC) from its inception as a marke
ting subsidiary of British American Tobacco (BAT) in 1910 to one of India's most
valued diversified corporations. Remarkably, despite being a dominant market le
ader in the socially undesirable tobacco business, ITC is regarded as a responsi
ble corporate citizen. Even more significantly, ITC which regards itself as an "
Indian" company in which BAT, its ''erstwhile parent'' is a large and important
''shareholder'', can be held out as an exemplar of the India Way - looking beyon
d stockholders' interests to public mission and national purpose - articulated b
y Professor Peter Cappelli and his colleagues at Wharton. The century long story
is captured in five sections. While first section traces the early years of the
company, the next four sections present ITC's evolution under its four Indian c
hairmen. The "Haksar Era" outlines the strong nationalist context in which BAT's
stake in ITC was diluted, and the company's diversification into hotels and pap
erboards businesses. "The Sapru Era" describes the consolidation of market leade
rship in cigarettes and the company's foray into agri-business. "The Chugh Era"
captures the tumultuous relationship between BAT and ITC, and the aborted takeov
er attempt by BAT. "The Deveshwar Era" traces his initiatives to strengthen the
core businesses, diversify into new areas and embed a strong focus on social imp
eratives. The case concludes with questions on the company's goal to become the
No. 1 FMCG (fast-moving consumer goods) company in the country, and the successi
on challenges faced by Deveshwar.
Learning objective:
The richness of the ITC story (it is a 100-year-old company) along with its uniq

ue context (its origins as a multinational subsidiary and its dominant presence

in the socially undesirable tobacco business) and its emergence as one of India'
s most valuable corporations helps us to explore the entire gamut of issues rang
ing from "parent-subsidiary" relationships in the context of managing multinatio
nals (in a course on International Management) to the role and purpose of busine
ss in modern day society (in a course on Corporate Governance and Leadership). S
pecifically, the case can be used to evaluate the viability of governance framew
orks/leadership models such as the "India Way" - held out as alternatives to the
model of management widely practiced in the United States and other Western cou
ntries. Is the relevant "society" the one where the headquarters of the multinat
ional is located ("home" country), or is it that of the subsidiary ("host") coun
try? The potential for conflict between these two mandates is strong. And when t
he social mission is one of nation development, the management of the parent-sub
sidiary relationship ? already demanding because of inhabiting diverse competiti
ve and institutional environments ? could become extremely challenging because o
f the emotional and political undertones that typically accompany any ''national
'' cause. The ITC case enables one to explore these issues.
Subjects Covered:
Business & government relations; Conglomerates; General management; Internationa
l management; Leadership
Setting:
Geographic: India
Industry: Tobacco