ITC changed its organizational structure in mid 90’s after the current Chairman Mr. Y C Deveshwar took over the Chairmanship of the company. The change was largely driven by the problems the firms faced due to its old organizational structure. Earlier all the directors were heading the various business divisions of ITC. Since the tobacco division was primary earner for the group, it wielded a lot of power and in turn its director also had a lot of say in the decisions of the entire company. Second factor was that the director in charge of the business was close to BAT (which had around 30% stake in the company).
BAT had its own interests which were many a times not same as that of ITC. BAT tried to take over the company in mid 90’s. Deveshwar managed to prevent the takeover. Also, he changed the structure to its current form. The number of executive directors was reduced from 8 to 4. These directors were not directly responsible for the divisions but were in charge of the strategic supervision of the company. There were also 8 independent directors which formed the board of directors. The main idea behind the restructuring was to separate the conflicts of interests of the directors who were earlier also the business heads.
The chairman and the board of directors are not involved in the day to day management of the company. Below this level was the Corporate Managing committee consisting of 4 committees – he Audit Committee, the Nominations Committee, the Compensation Committee and the Investor Services Committee. The mandate of this committee is strategic management. The third level has the executive management team, which consists of the divisional CEOs of each business assisted by their own divisional management committees. This level handles the day to day operations of the company.
Mr. Deveshwar believed that the concept of core competency was applicable to firms in the developed countries. In emerging economies like India, the importance was of management competency. This meant that the firms did not have to restrict themselves to a few products. The organizational structure and processes should be designed to provide effective management of various businesses while also focusing on each of them. The last 2 Chairmen of ITC Ltd. have shaped the way the firm is today. Most of the strategy of the firm can be attributed to these people. Mr.
Chugh joined ITC in 1971 after working for 10 years in the Heavy Engineering Corporation, a public sector organization. Mr. Chugh set up the ITC Bhadrachalam Paperboards Limited. He came back to the as the Vice Chairman in 1989 and then took over as the Chairman in 1991 till 1995. During Mr. Chugh’s tenure of four years as Chairman, ITC grew more than two fold in turnover and almost four times in profit. He was one of the first CEO’s to talk about India’s multinational companies. During his times, ITC Ltd. was under considerable influence of its parent company BAT.
Towards the end of his career, he sensed that BAT was pursuing its own interest and did not want ITC to grow especially in businesses where BAT would be its competitor in the global market. He then took certain decisions which were not in line with what BAT was expecting. Induction of Mr. Deveshwar as the Chairman-Designate and diversification into power and finance were two such instances. When Mr. Chugh tried to induct Mr. Deveshwar as a Chairman-Designate in ITC he was opposed by BAT. It was due to the stake of financial institutions that this could happen.
The decision of diversification into power and finance was opposed by BAT. But Mr. Chugh went ahead with the diversification, though these did not prove to be successful. By the time Mr. Chugh retired as the Chairman, ITC had started taking independent decisions without the consent of BAT. In a way, his leadership skills paved way for Mr. Deveshwar to gain the management control of ITC. Mr. Deveshwar’s tenure can be equated with the second wave of diversification by ITC. He joined ITC right after completing his education from IIT Delhi in 1968. His big break came in 1984, when he joined the ITC’s Board of Directors.
He later took over the ITC Hotels business and was responsible for it. He diligently learnt the functional needs of the business, a rare for any CEO of any business. He was handpicked by the government in 1991 to head the Indian Government owned airline Air India. He tried to push forward the idea of merging Air India with the other government owned airline Indian Airlines. He came back to ITC as the Chairman Designate and then took over as the Chairman in 1996. He successfully managed to stave off BAT’s takeover attempt in 1996. He was responsible for changing the organizational structure the way it is today.
He has completed over a decade as the Chairman of ITC. During his tenure the company grew from a Rs. 5,000 crore worth business to over Rs. 16,000 crore worth business, growing at a CAGR of about 14%. There are some similarities about both these people. Both of them had spent considerable in ITC before becoming the Chairman. They had both worked for considerable parts heading the subsidiaries of ITC. This probably gave them a sense of ownership and more independence in handling the affairs of the business. But a notable difference was the tenure of the two people. Mr.
Chugh retired after 4 as the Chairman whereas Mr. Deveshwar who took over as the Chairman in 1996 is still the Chairman of ITC. Also, the diversification attempt made by Mr. Chugh was not successful. Mr. Deveshwar made a committed and a focused diversification into businesses like Agri business, FMCG, lifestyle retail etc. The success of these businesses is still to be seen. The key capability of ITC is its management capability. This has helped the firm move into completely new areas like FMCG. The next key capability of the firm would be its Chairman Mr. Deveshwar.
He has been instrumental in changing the outlook of the firm and taking it to a new level. In a way, it seems more like a people-driven company than a process-driven company. As mentioned by Mr. Deveshwar, the concept of core competence is not generally applicable to companies in the emerging countries. It is the capability of its management of handle diverse businesses which results in the success of the firm. This is what Mr. Deveshwar is probably planning to achieve and the change in the organizational structure way back in mid 1990’s was a step towards the same.
Cigarettes have been the core business of ITC till date. 6 ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It’s highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake. It has achieved its leadership through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution. However it has been challenged on several fronts.