The Productivity Challenge for Survival

The President of the 2nd largest tobacco company in India looked out of his office in Delhi. The
wide landscape occasionally strewn by trees and tall skyscapers was a sight to behold but he
was in deep thought .The representatives of the Principal shareholder in US ,with whom his
Company had a collaboration , during their recent visit, had made a report that the Mumbai
plant which was a main suppliers in Indian was not doing well. In view of the low productivity
and high cost they had recommended that the Unit may well be closed down and relocated
elsewhere and would not like to see their investments eroded. The Government had also recently
reclassified the excise duty structure in the budget from ad valorem duty to duty based on the
length of cigarettes which further eroded their competitveness and market position viz a viz their
competitors. He has been informed that the industrial relations at the Unit is troubled.He is to
have a meeting with his Mumbai team and decide further course of action.

Background government revenue which the goverment

GP has been in the business of
manufacturing and marketing of cigarettes
and tobacco products over the last 5
decades.Its ownership has changed at
various point of time from British to
American and then American - Indian
owners. Both the owners had an equal stake
of 36 % and the rest are held by public and
institutions. It has created great brands
which had an all India loyalty in various
segments. It has been very profitable and
gave regular dividends in line with markets
expectations. It has 2 plants –the larger one
with 65 % volume in Mumbai and a smaller
one in Ghaziabad in UP, a north Indian
state. It has about 1100 employees in
Mumbai including 100 managerial staff and
about 300 employees including 50
managerial staff respectively.
Business Environment
The industry has been dominated by four
players who supply about ninety percent of
the sales volume and the balance is by
regional fragmented players because of a
high entry barrier. The government policy
towards this industry has not been
favourable and consumers awareness
towards ill health has been very high leading
to consistent tapering consumption. The
Industry has become „a milking cow‟ for the
cannot let go and virtually each year budgets
levy higher excise duties ostentably to curb
consumption inline with the government‟s
policy .In this sector no new FDI has been
allowed including the recent applications
American and Japanese majors who hold a
sizable share in the world market. The
challenge for the companies lie enlarging the
consumption of non cigarette tobacco
consumption like rolled cigarettes etc which
has a huge consumption in view of the
smoking habits of the population and is
catered to by the household and informal
sector.
Philosophy
The company is managed by a team of
professional managers and has a well
defined governance structure at the board
and management levels. The values that
drive corporate behaviour worldwide are
passion for winning , innovation through
winning and entrepeneurship, winning trust
internally and externally, global mindset and
being socially responsible corporate citizen.
Management
The Corporate Management Team is based
in New Delhi .The Management team in
Mumbai is headed by the Factory Manager
and Functions viz Production, R & D
,Quality Control, Materials, Human
Resources , Distribution. The Heads have
managers and staff to support these
functions. The Heads of these functions
except the HR have been with the Company
for over 2 decades .The HR Head is a recent
entrant.
The Company has been producing 12
million cigarettes every month and with this
volume has been making very marginal
profits and not been able to meet corporate
targets and further will make losses every
month with the recent changes in the excise
structure. The Unit has been having plant
and machinery to support the volumes and
the Management is toying with the idea of
making massive investments in next
generation machinery to improve production
higher volumes. Recently the Management
team has gone through a review process
with the representatives of the Principals in
US as stated earlier
The management team meets regularly to
plan , review and achieve results in line with
the Corporate plans and have a strong
professional orientation in meeting the
goals .
They are also considering an agenda of
improving productivity of the plants in line
with the observation of the Principals team
visit who have noted „ This plant is run by
Union‟.
The Factory Manager has asked his team to
send their proposals in their respective areas
to increase productivity in the last meeting.
The Factory Manager on the advice of the
President has also requested the an
External Consultant to do the same.
Industrial Relations environment
The Unit has a union represents all the
worker and staff since the last 15 years and
is legally recognized . There is strong
internal committee and the leadership is by
an external person who has a political
affiliation to the ruling Government‟s party.
It represent the workers in many other
companies including the one of the
competititor. There are regular meetings
between the Management team led by the
Factory Manager every month and the union
The last few settlements of 5 years have
been resolved though negotiation and union
has got its demands of increased wages
based on collective bargaining which has
also seen work disruption at times . The
yearly bonus issue during October gets
resolved through some work disruption and
go slow tactics .
Since last year when the next wage
settlement is was due , the Union had given
a Charter of Demands to the Management
asking for astronomical hike in wages in
line with trends in Mumbai . Managements
have been able to arrive at settlements at
fairly high wages based on benchmarking
with the industry – cum - region formula
either bilaterally or through conciliation and
few through judicial process which were
very long . The Management have been
expressing their inability to undertake such
an the increase and asked their union to
tone down their demands . There is no
headway over several rounds of meeting.
The Management based on the consultant‟s
recommendations presents to the Union a
Proposal for increasing Producitvity which
involves manpower rationalization of 178
workmen and staff.
The Union forthright rejects it.
In the mean time the major competitor has
announced closure of his plant and
relocation out of Mumbai
The workers are getting restless and
frustrated and there is pressure on the
leadership to resolve the wage settlement as
has been done in the past. Daily work
processes are getting affected.
There is rumbling heard that the workers
and their committee are already talking to
outside perceived „tougher‟ leadership to
force the management to make a wage
settlement in line with their demands. The
Union committee has gone to the „tough‟
leadership and influences all workers to
unite under the new leadership . The
recognized union is left with 15 committee
members.The Management receives a notice
to discuss with the
new union leadership . There is also a case
of serious assault because of union rivalry
on the premises.

The President attends the management

meeting which lasts three hours . After
listening to the views he tells the
Management team that they have 6 months
window reach a productive operational
settlement with the words “If you plan to
close the unit, it will not close.”

You are the Management team .

This case is written by Professor Virendra

Shukla and is intended be used as a
basis for class discussion in the areas of
are Leadership, Change Management ,
Communication, and Human Resources
Management and Industrial Relations

@ June 2010,. All rights reserved