Somnath Dasgupta

How do you open this pack, he asks, and thrusts the incense sticks into the hands of an assistant. Get me the biscuits range, he requests next. Then he invites us to the display of top-of-the range greeting cards. "Our rival wants us to buy him," he adds. He points at shelves stacked with cans of ready-to-eat gourmet food, branded Kitchens of India. "I can’t afford them," he says modestly.

Clearly, Mr. Yogesh Chander Deveshwar, chairman of cigarettes major ITC Ltd, has many things on his mind and for the company. When he took over as the chairman in 1996 against the wishes of the UK’s BAT Industries plc, the biggest shareholder, ITC has reported a turnover of Rs 4800 crore for the year to March 31, 1995. Although referred to as a "diversified conglomerate" even then, the tobacco business accounted for Rs 357 crore in a total gross profit of Rs 402 crore. The other activities were agribusiness (Rs 32 crore loss) international business division ( Rs 92 crore loss) and financial services (which was simmering with losses and imploded shortly afterwards).

Check out ITC Ltd now: Fast moving consumer goods (FMCG), consisting of tobacco and cigarettes and a host of new business forays is still the profit driver and cash cow, but reported profits of Rs 1693 crore on revenues of Rs 8043 crore for the year ended March 31, 2002. Paper, printing and packaging and powerhouse, with a profit of Rs 162 crore on revenues of Rs 1031 crore. Agribusiness is another big segment, with a profit of Rs 11 crore on turnover of Rs 1148 crore. Hotels is another area, with revenues of Rs 162 crore.

So, grouped by new accounting standards, ITC has four activities: FMCG, hotels, paperboards, paper & packaging, and agribusiness. But sample this line from its latest available annual report: "branded garments, greeting cards & gifts, packaged foods and matches constitute new business activities."

And you begin to wonder: how does Mr. Deveshwar juggle all these diverse products? "It is all about distributed leadership," he says. Each strategic business unit (SBU) has a chief executive officer who reports to the board. The CEO of the SBU is given a task and targets, and the implementation is left to him. "Organisationally, ITC is no different from focused companies, but has the advantage of institutionalised support," says Mr. Deveshwar.

"Institutionalised support" is just jargon for the immense managerial talent that ITC, still considered the bluest of blue chip companies, grooms inhouse – or attracts from others, as in the case of new forays in which it has no experience. "For example, the CEO of the PPP division," as Mr. Deveshwar explains, "has just one concern – to produce world-class paperboard." Mr. Deveshwar and his board are heavily into strategy. Contrast this with ITC’s earlier structure, where each board member was responsible for a business line.

"This created a situation of ‘you scratch my back, I scratch yours’, with board members agreeing to each others’ ventures in return for similar support. "I don’t run any business," Mr. Deveshwar explains. But, as his actions and words show, he is both deeply involved with interesting nitty-gritties (he can reel off numbers on ITC’s production of packaged atta) and distant from others (how to open a specially designed agarbathi package without ripping of the cover).

Within each SBU, there are separate units if required. For example, the foods business consists of confectionery, staples and baked items. "This way, we can have a number of things running without overloading the top management," he says.

Referring to the earlier structure, in which everyone who headed a business was also on the board of ITC, Mr. Deveshwar points out one obvious advantage of the current model.

"You can’t sack a director because he is elected by shareholders, but you can sack a CEO," Mr. Deveshwar says, clinching the argument. Has he ever sacked any CEO? Mr. Deveshwar deflects this question: "We don’t follow the American style." But he admits that some have been shifted around, albeit not sacked

ITC at present has a three-tier management structure: At the top is Mr. Deveshwar and his board of directors, responsible for "strategic supervision". Next comes the corporate management committee, for which the key word is "strategic management". At the third level is the executive management team, which consists of the divisional CEOs of each business assisted by their own divisional management committees.

"So the board of directors is responsible for strategic supervision as trustees of shareholders, without being burdened by day to day management," Mr. Deveshwar says. Core competency, as Mr. Deveshwar sees it, is for developed countries. For an emerging economy like that of India, the question is one of management competency, not of restricting activities to a few products. ITC’s results statements put this in some wonderful jargon: "The company’s corporate strategy aims at creating multiple drivers of growth anchored on its core competencies. The company’s organisational structure and governance processes are designed to support effective management of multiple businesses while retaining focus on each of them."

Mr. Deveshwar cites the example of General Electric of the US under Jack Welch to explain how ITC expects to make a success of all its diverse businesses. "There is one difference: while he said GE has to be either the No. 1 or No. 2, ITC will get out of it cannot be the number one," says Mr. Deveshwar. For Mr. Deveshwar, it is not a question of following any theory blindly. He points out that a recent Boston Consulting Group study has shown that there is no difference between focussed companies and conglomerates when it comes to failure.

"As many focused companies fail as conglomerates," Mr. Deveshwar notes with glee. "The conglomerates that failed, did so because they did not use their assets cleverly." ITC’s case in point was ITC Bhadrachalam Paperboard Ltd, now merged with the company and the PPP division. When Mr. Deveshwar took over in 1996 and proposed to actually spend money on revamping it, even his board members questioned his decision. But when he explained his plans, the board backed him to the hilt. Now, the PPP division is not only a money spinner, but compliments ITC’s forays into other areas. On the ground, it thrives on a huge social forestry programme, providing income for farmers who were sitting on otherwise barren land. "Every three or four years he can cut and chop down the trees for our factory," Mr. Deveshwar says.

As he points out, ITC has created a value chain that is internationally competitive. On the external front also, ITC is a responsible corporate. The PPP division has already won awards for its good work in keeping the environment clean. Another grand project that has taken ITC into the heart of India is the e-choupal work, which involves setting up internet kiosks manned by trained farmers/ local people at villages in three states. Here also, while ITC spends up to Rs 3 lakh setting up each kiosk, the paybacks are enormous, both in terms of capturing a rural population as a market, and in sourcing farm produce for its food division.

"The farmer takes the lowest risk, but it will transform rural India," he says. Incidentally, the e-choupal project was prompted by ITC’s old involvement with agricommodities. "We were trading in agricommodities, so we figured that we needed to buy better stuff to give our customers quality," he says. As Mr. Deveshwar sees it, the PPP division’s work and the e-choupal project are defences that ITC has built up against any multinational that plans to take on the company in India. Both create an invaluable ally at the grassroots level, and a corporate identity that few can match.

"No multinational will do the sort of work we have done at the PPP division or for the e-choupal project. The PPP’s social forestry project as well as the e-choupal work have one thing in common- in both, it is the weakest farmer who gets the benefits," he points out.

"I am very proud that 60,000 people are doing all this [the social forestry] and every year it is growing. If every company does something the way we are doing, with just two villages per company, then the nation will be transformed," he says proudly. Mr. Deveshwar’s pride at being involved deeply with rural India is underscored by the belief that its British parent, BAT Industries, would never have done things this way if it had succeeded in gaining management control of ITC following Mr. Chugh’s exit. "Our BAT fellows have got their mouths open," he says, referring to ITC’s success in capturing a huge chunk of the mint market from multinational Nestle, while also growing the market.

At another level, ITC has been tying up with the small-scale sector for sourcing many of its new products like matches and agarbathis, in return for technology and design transfer on a scale that no Indian company has attempted so far. "I cannot make these things with the efficiency of a small-scale unit," Mr. Deveshwar says candidly. At the same time, the product that emerges has none of the shoddiness typical of the SSI sector. "It has my quality and research & development," he says. "We will outsource whatever we can, while helping them to become world class," Mr. Deveshwar says.

ITC’s foray into branded garments reflects another aspect of the rural linkage as well as outsourcing tactics. "From fibre to fashion", as he likes to put it. "You have to go beyond the market to show your commitment," he says. After all, he notes, if ITC just wants to make money, it can easily pick up stuff cheaply in China and sell it in India, like many Indian companies and trading companies are doing. "I can go to China, buy pens, sell them here and throw rivals out of business. But then I will be exporting shareholder value, since Indians will not gain anything," he says.

"We have to think as though India belongs to us, and not as though the shareholder belongs to us. The aim is to create wealth here for our economy," Mr. Deveshwar says.