ITC is one of India's foremost private sector companies

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Company Profile:

ITC is one of India's foremost private sector companies and has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. It has also entered into the life style retailing business with the lunch of the 'Wills Sports' range of relaxed wear.

ITC has a market capitalization of around US $ 4 billion and a turnover of over US $ 1.8 billion. It employees 12,000 employees at over 60 locations across India, and nearly 1,50,000 shares holders.

Over the years, ITC has evolved from a single product company to a multi-business corporation. Its businesses are spread over a wide spectrum, ranging from cigarettes and tobacco to hotels, packaging, paper and paperboards and international commodities trading.

HISTORY

ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited'. The company has its roots in Kolkata, and it's headquarter building, 'Virginia House', is one of Kolkata's most venerated landmarks. The Company's ownership is progressively Indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In September 2001, the full stops in the company's name were removed and it was rechristened as 'ITC Ltd' to recognize company's presence in a diverse range of industries.

Figure 1: Timeline showing ITC's expansion strategy

  • 1901: Setup of Indian Tobacco Company
  • 1925: Setup of Packaging & Printing Business
  • 1975: Venture into Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'
  • 1979: Enters Paperboards business with ITC Bhadrachalam Paperboards Limited.
  • 1985: Set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture and its name was changed to Surya Nepal Private Limited (Surya Nepal).
  • 1990: Acquisition of Tribeni Tissues Limited, a Specialty paper manufacturing company and later merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002.
  • 1990: Set up the Agri Business Division for export of agri-commodities.
  • 2000:Initiative of e-Choupal with soya farmers in Madhya Pradesh.
  • 2000: Forays into the Greeting, Gifting and Stationery products business with the launch of Expressions range of greeting cards.
  • 2000: Enters the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women.
  • 2000: Setup of IT division, ITC Infotech India Limited.
  • 2002: Launch of premium range of notebooks under brand 'Paperkraft'
  • 2003: Enters biscuit segment with Sunfeast biscuits.
  • 2007: Enters the fast growing branded snacks category with Bingo!

Problem Statement

The purpose of this paper is to establish the links between HRM and sustainable competitive advantage. To do this, we will first consider the definition of sustainable competitive advantage as developed in the resource-based models of the firm. We will then illustrate its connection to the HRM system by recounting some of the specific actions of ITC in response to industry regulation. One of the major Indian industries that is at the receiving end of government dislike is tobacco. Like elsewhere in the world, the Indian government sees tobacco as a 'bad' industry and, therefore, penalizes it with ever-rising taxes. Yet, it's unwilling to shut it down because tobacco fetches as much as Rs 8,000 crore in central taxes, or 8 per cent of the total Excise tax collections. The challenge for cigarette manufacturers such as ITC is to ensure that the increase in taxes is low enough to allow profitable survival. Since the tobacco industry is license driven and the government has not issued a license in the recent past despite market demand.

Sustainable Competitive Advantage

Sustainable competitive advantage is the unique proposition for their customers that helps to outperform their competitors consistently. Customers perceive as a differential buying criteria.

Three categories of firm-specific resources are available for sustainable competitive advantage: (1) Physical resources are those tangible elements; (2) Organizational structure and processes; and (3) Human resources.

According to this model, the HRM system, in a manner similar to information processing and strategic planning, possess the potential to become a source of competitive advantage. Examination of the vital HR processes reveals that the HRM system also has considerable influence over other potential advantages.

According to VRIO framework, the HRM process must meet four conditions: (1) it must be valuable; (2) it must be rare; (3) it must not be imitable; and (4) it must lack strategically equivalent substitutes. Following a brief recounting of ITC's regulation issue, we will draw upon examples to show how each of these conditions relates to the skills and resources resident in the HRM system.

The ITC case

In spite of the external factors and regulatory bodies hampering company's well-being, evidence gathered from interviews with ITC executives yield evidence of the linkage between ITC's competitive advantage and its HRM system.

The HRM system made its contribution by developing valuable organizational skills and HR relationships that cannot be imitated by competitors, and therefore no close substitutes.

HRM and Sustainable Competitive Advantage

Building Valuable Skills and Resources

Enhancing a firm's ability to cope with environmental circumstances, such a resource improves organizational efficiency and/or effectiveness.

ITC has long understood the value of human resources as a means of increasing productivity, as well as the costs associated with the poor management of human resources. Over the years, personnel managers have been involved in every stage of the HR process. As a result, the organization can operate more effectively than its competitors.

General Managers have the responsibility to make things happen. Personnel managers, on the other hand, traditionally have defined their role more passively: they study, analyze, understand, and recommend; seldom do they act.

This approach to integrate HRM concerns into decision making at the executive level has helped ITC to respond rapidly and effectively to changes in the business. Access to the top office tells the whole organization that HRM concerns are considered critical in practice, not only in word.

In practical terms, the value of ITC's approach to HRM concerns in top-level decision making expressed itself by allowing itself to overcome a potential threat from the regulatory environment. The threat came in the form of cost measures, central taxes etc. Cutting operational as well as employee wages became an immediate measure to cater the rising tax levels.

The HRM policies and practices at ITC helped create and imbibe the trust among employees, and thus demonstrated their value with respect to the wage adjustment efforts.

Developing Rare Skills and Resources

Valuable skills and resources cannot lead to the creation of sustainable competitive advantage if they are shared by numerous firms within an industry. A firm will gain an advantage only when it implements a value-creating strategy not simultaneously implemented by large numbers of competing.

ITC's success in this venture into new products from FMCG, stationery, hotels, food processing etc can be attributed to the aggressive approach taken by ITC and its HRM managers and to the unique decisions flowing out of that style. ITC decided to make the new employees feel welcome. It promised job security and higher wages for existing employees.

Developing HRM Skills That Are Imperfectly Imitable

Aspects of ITC's HRM system can be viewed as valuable and rare--providing the organization with a competitive advantage. These advantages cannot as sustained, though, unless they are difficult to imitate.

The Absence of Close Substitutes

The final specification that must be met in order for a firm's resource to be a source of sustained competitive advantage is that there must be no close substitutes for the resource which can be used to conceive and implement the same strategies.

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