PROJECT REPORT

ON

ITC FOODS

1

INDEX

Sr. No. Contents Page No.

1. Executive Summary 4

1. Introduction 5

2. Background 7

3. Market & Competition Ready to Eat Confectionary Staples Biscuits Snacks

8

4. Financial Data 14

5. Strategy 19

6. Structure 22

7. Culture Vision Mission Core Values Philosophy Design

25

8. Effectiveness 27

9. Contribution 29

10. Bibliography 30

2

EXECUTIVE SUMMARY

ITC was established on Aug 24, 1910 as the Imperial Tobacco Company of India Ltd in Kolkata and its name was changed to I.T.C. Limited in 1974 and finally they changed it to ITC Ltd in 2001. ITC has diversified presence in tobacco, foods and confectionery, apparel, paper boards, packaging and hotel businesses. The Foods Division is the most recent diversification of the ITC group. They entered in this business in 2001. They launched KoI brand under Ready to Eat segment .They expanded with brand launches in the Confectionery, Staples and Snacks Food segments.

ITC has fulfilled all needs and requirements of the people. If the company maintains its standard or increases it in the near future it surely will attain the no. 1 position in the market.

Here, through our report we have tried to study the environment in which ITC foods operate. We have also analyzed the market of ITC foods and the competition involved. We have also studied the various strategies adopted by company to achieve its goals and the structure and the culture developed within ITC to support its objective. Also, an effort has been made to project ITC’s future prospects, sales and profits.

3

INTRODUCTION

ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since June 2002 with brand launches in the Confectionery, Staples and Snack Foods segments. For ITC, the packaged foods is an ideal business to utilize ITC's proven strengths in the areas of hospitality, branded cuisine, contemporary packaging and sourcing of agricultural commodities. ITC's world famous restaurants like the Bukhara and the Dum Pukht, nurtured by the Company's Hotels business, demonstrate that ITC has a deep understanding of the Indian taste and the expertise required to translate this knowledge into delightful dining experiences for the consumers. ITC has stood for quality products for over 98 years to the Indian consumer and several of its brands are today internationally benchmarked for quality.

All products of ITC's Foods business available in the market today have been crafted based on consumer insights developed through extensive market research. Apart from the current portfolio of products, several new and innovative products are under development in ITC's state-of-the-art Product Development facility located at Bengaluru. ITC has over the last 98 years established a very close business relationship with the farming community in India and is currently in the process of enhancing the Indian farmer's ability to link to global markets, through the e-Choupal initiative, and produce the quality demanded by its customers. This long-standing relationship is being utilized in sourcing best quality agricultural produce for ITC's Foods business.

The Foods business is today represented in 4 categories in the market. These are:

1. Ready To Eat Foods 2. Staples 3. Confectionery 4. Snack Foods

In order to assure consumers of the highest standards of food safety and hygiene, ITC is engaged in assisting outsourced manufacturers in implementing world-class hygiene standards through HACCP certification. The unwavering commitment to internationally benchmarked quality standards enabled ITC to rapidly gain market standing in all its 6 brands:

4

1. Kitchens of India 2. Aashirvaad 3. Sunfeast 4. mint-o

5. Candyman 6. Bingo!

Recently, on Aug 1, 2008, ITC Foods has drawn up plans to extend its Kitchen of India brand to frozen foods.

ITC’s Branded Packaged Foods business continues to expand with sales growing by 23% over the previous year. Apart from the development costs of new products, the business has had to contend with the recent economic slowdown and severe cost increases in input commodities including wheat, vegetable oil, maize and skimmed milk powder, in addition to the soaring fuel prices. Having acquired reasonable scale in a relatively short span of time, the business is progressively focusing on consolidating the portfolio in certain categories, improving market servicing and driving supply chain efficiencies.

5

BACKGROUND NOTE (ITC)

ITC was established on August 24, 1910 as the Imperial Tobacco Company of India Limited in Kolkata. Initially, the company was involved in the trading of imported cigarettes. In 1925, in a backward integration move, the company started a packaging and printing business.The name of the company was changed to India Tobacco Company Limited (I.T.C. Ltd.) in 1974.In 1975, I.T.C. Ltd., through ITC-Welcomgroup, tied up with the US-based Sheraton Corporation to enter the hospitality industry. It acquired its first hotel in Madras (later renamed Chennai) in Tamil Nadu and called it the Welcomgroup Chola Sheraton.

I.T.C. Ltd established ITC Bhadrachalam Paperboards Ltd. (IBPL) in 1975. The company started production at its integrated pulp and paper/board manufacturing facility at Bhadrachalam, Andhra Pradesh, in 1979.

In 1990, I.T.C. Ltd. set up an International Business Division (IBD) for export of agricommodities.I.T.C. started a greeting cards business under the brand name Expressions in the year 2000. In the same year, I.T.C. also entered the fashion retailing business by extending its well known cigarette brand Wills. The retail outlets were called Wills Lifestyle and offered premium leisure wear for men and women under the Wills Sport brand.

In September 2001, the company was renamed ITC Ltd (without full stops, and with no meaning attributed to the alphabets).

In 2001, ITC made an entry into the foods business.In 2002, the company launched another clothing brand, John Players, which targeted the urban youth. In 2004, ITC was one of eight Indian companies to make it to the “Forbes ‘A’ List”8 which featured 400 of “the world’s best big companies”. In Oct 2005, ITC has launched an exclusive line of prestige fine fragrances and personal care products under the Essenza Di Wills brand.

6

In late 2007, ITC launched Fiama Di Wills soaps and shampoos following the success of Essenza Di Wills.

In Dec 2007 ITC launches ECF (Elemental Chlorine Free). ITC is the first and only Company in India using the ECF technology.

Market and Competition

Indian Foods market is a monopolistic market. There are many competitors in all the categories and although they all have similar products available at similar prices, they are trying to prove themselves different through their marketing strategies. However, entry to this business is easy and ITC has utilized this fact very efficiently to their benefit as they entered into the several categories among this Foods business.

READY TO EAT

ITC entered into the branded and packaged foods business in with the launch of Kitchens of India brand. In 2004, the company launched KoI brand fruits and spice conserves and cooking pastes. The fruits and spice conserves, were developed jointly with Karen Anand, a food expert. Priced at Rs. 70, these were targeted at the premium segment. The KoI cooking pastes, which were priced at Rs.30 for a 100g pack, also targeted the high-end market. Multi-purpose cooking pastes were also launched under the Aashirvaad brand and these were priced at Rs. 10 for 80g pack. The manufacturing of these products was outsourced to contract manufacturers for saving the operating cost.

ITC entered the branded spices market in 2005 and the Instant Mix segment in 2006, both under the Aashirvaad Brand. As on April 2006, the total turnover in the Indian ready-to-eat and ready-to-cook segments was only around Rs. 700 million, but it continued to post an annual growth of 20%. By early 2006, though ITC had captured a 35% market share in the ready-to-eat segment, MTR was the clear market leader with close to 60% in market share. ITC exported 40-50% of KoI brand products (in terms of volumes) to the US, Canada, the UK, Switzerland, and Australia.

In May 2006, ITC planned to introduce ten more varieties under the KoI brand within a price range of Rs. 35 to Rs. 98. In 2007, some new products have been launched under Ready To Eat category like chutneys, curries, conserves, biryanis (Noor Mahal, Bhori

7

Biryani and some new range of products under Gharana (Paneer Malai, Keema Mutter). After launching all these products ITC FOODS is looking to share 50 to 60% of market by 2008-2009.Following are the major competitors ITC is competing with in Ready to Eat category:

Brands Description

GitsGits produces the selected range of popular ready to cook and instant foods that cover a range of ethnic Indian cuisine-and where the recipes have "Global pallete acceptance".

HaldiramsOffers packaged Bhel puri chats such as Sev Puri, Chana Masala, Samosa, Pakoras, Alu Tikki, Pao Bhaji, Gol Gappa, Dhokla among others

Ethnic Kitchens

Offers packaged sweets,syrups,namkeens, cookies, pickles, aloo Masala, Bhujia, Bhelpuri, Chana Dal, Kajui Ladoo and many more items.

MTRMTR foods currently comprise twenty-two delicious and completely authentic Indian curries, gravies and rice.

Priyafoods

Priya has a range of popular traditional recipes starting from Dal Makhani, Navaratan Kurma to Palak Paneer, Paneer Butter Masala, Punjabi Chhole and Rajma Masala along with true southern delicacies like Andhra Veg Pulav, Mango Dal, Gongura Dal.

8

Market Share - Ready To Eat

48%

35%

8%

9%ITC Ltd.

MTR

Kohinoor

Others(Gits, PriyaFoods etc.)

as on June, 2008

CONFECTIONERY

Confectionary market in India is about Rs.2500 crore. It is loosely divided into seven categories:

1. Hard boiled candies2. Toffies3. Eclairs4. Chewing gum5. Bubble gum6. Mints7. lozenges

ITC has currently in market with its two brands “Mint-o” and “Candyman”. ITC’s Mint-O fresh secured a 17% share of Indian cough lozenges market ahead of former leader Perfetti which only achieved 14.3% with chloromint. The Indian giant marked the confectionary sector in 2002 and has only two brands “mint-o fresh” and “Candyman”. But in overall confectionary market they are lagging behind having just 3% market share as compared to market leader Perfetti with more than 37% market and providing larger number of brands.

Perfetti van melle ITC Ltd. Nestle Cadbury

Alpenliebe Alpenliebe Creamfills Alpenliebe

CandymanMinto

. Kit Kat

. Kit Kat Lite

. Milky Bar

. Munch

BubbalooDairymilkEclairs% Star

9

Lollipop Big Babol Center Fresh Center Fruit Center Shock Chatar Patar Chlor-mint Chocotella Cofitos Fruittella Happydent White Protex Happydent Marbels Mentos Chocoliebe

. Milk Chocolate

. Fun Bar

. Polo

. Polo Power mint

. Munch Pop Choc

. Éclairs

GemsPerkHalls

Market Share - Confectionery

3%

37%

11%7%

42%

ITC Ltd.

Perfetti Van Melle

Cadbury

Nestle

Others(Parle,Joyco, HUL etc.)

as on June, 2008

STAPLES ITC entered the staples market in 2002 with wheat flour under the Aashirvaad brand. In 2003, ITC extended the Aashirvaad brand to edible salt. By early 2006, ITC had a 40% market share in the Rs. 6 billion packaged flour business. Its closest competitor HLL’s Annapurna brand was trailing behind with a market share of 18%. The market was growing at 12%. Under its Aashirvad brand ITC FOODS also launched salt, mixers, ready to cook pastes. In the Rs. 4 billion organized salt market (as of 2006), Tata Salt was the market leader with a 28% market share. ITC had only a 5% share of the market. Other players in this business are HLL (Knorr Annapurna), Nirma (Shudh), Marico Industries (Saffola), etc.

10

Market Share - Staples

42%

21%

13%

24%

ITC Ltd.

HLL

Pillsbury

Others(Sri LalMahal, LocalBrands etc.)

as on June, 2008

BISCUITS:

Indian biscuit market is estimated to be around 5000 crore. Biscuit industry in India in the organized sector produces around 60% of the total production, the balance 40% being contributed by the unorganized bakeries. ITC with its premium product, SUNFEAST, is acquiring a big share of market. Within few years, they are able to get 12% share of the market.

Britannia ITC Ltd (Sunfeast)

Parle Priyagold

TigerNutrichoice JuniorGood Day,50 50,TreatPure Magic,Milk Bikis Good Morning.

MarieDream creamMilky MagicFit kitChoco NutButter Nut

Parle-gKrack-JackMonacoKreamsHide and SeekMilk Shakti

Butter BiteClassic CreamButter LiteBig BossMarie LiteMagic Gold

11

Market Share - Biscuits

12%

10%

38%

32%

8%ITC Ltd.

Priyagold

Britannia

Parle

Others(Bonn,Anmol etc.)

as on June, 2008

SNACKS:

Snacks industry overview

Snacks industry in India is worth 1800 Crores of Rs. and growing at 10% is one of the largest markets in the world, out of which potato chips holds the major market share of around 85%.

Product Price (ITC Ltd)

Product Price (Frito Lay)

Product Price (Haldiram)

Bingo Rs. 5 Rs. 10 Rs. 20

Lays Rs. 5 Rs. 10 Rs. 20Lehar Namkeen Rs. 5 Rs. 20Kurkure Rs. 5 Rs. 10 Rs. 20

Namkeen Rs. 5 Rs. 10 Rs. 20

12

Market Sahre - Snacks

16%

45%

27%

12%

ITC Ltd.

FritoLay India

Haldiram's

Others

as on June, 2008

FINANCIAL DATA

ITC Ltd. started their food division in the year 2001. Since then the growth has been fantabulous. Their investment has increased year by year considering the scope of food market. However, they could not sustain the constantly increasing profit margins, mainly because of their valuable investment in market research, surveys, R&D, costly advertisements and expansion plan. Moreover they entered in a whole new market of food, but for this market they already had strong distribution market, which they are using for their tobacco product. So considering all these factors and short span of time period, surprisingly they did good job, particularly in snacks, biscuits, Ready to Eat and staples market.

Annual Results (ITC) - In Rs. Crores

  Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04

Sales 13,947.53 12,369.30 9,790.53 7,639.45 6,470.44

Operating profit 4,403.94 3,956.41 3,327.38 2,792.56 2,360.59

Interest 4.61 3.28 11.93 42.43 24.79

Gross profit 5,010.23 4,289.62 3,601.53 2,985.94 2,560.68

EPS (Rs) 8.28 7.18 5.95 8.79 6.43

Annual results in details

13

  Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04Other income 610.90 336.49 286.08 235.81 224.88

Raw material 4,639.35 5,644.34 4,124.90 2,837.40 2,572.78

Employee expenses 733.32 630.15 541.40 467.26 416.48

Other expenses 4,176.61 2,397.88 1,938.52 1,610.08 1,310.04Provisions made - - - - -Depreciation 438.46 362.92 332.34 312.87 241.62Taxation 1,451.67 1,226.73 988.82 836.00 726.21Net profit / loss 3,120.10 2,699.97 2,235.35 2,191.40 1,592.85

Rate of Increase Sales  Operating profit

 Net profit / loss

AC

TO

RS

AF

FE

CT

ING

NE

T

PR

OF

IT

raw material

employee cost

interest

200518.07   18.30   37.58 10.29% 12.19% 71.16%

200628.16   19.15   2.01 45.38% 15.87% -71.88%

200726.34   18.90   20.79 36.84% 16.39% -72.51%

200812.76   11.31   15.56 -17.81% 16.37% 40.55%

Projection for 200921.3

3   16.92   18.98 18.67% 15.21% -8.17%

The selling of 13544 crores, with net turnover at 3900 crores registered a growth of 18.4% driven by the non-cigarette business, which grew by 29% due to new investments in FMCG market. Overall projection for the year 2009, for sales is projected to be at growth rate of 21.33%.

SALES OF FOOD SECTOR AND ITS PROJECTION:

14

2006 2007 2008 2009(projected)Sales (crores) 1230.54 1698.53 2526.60 3410

The foods business is expanding rapidly with sales growth of 35% in the year 2007. This range of product includes more than 150 different products. The growth of this sector in terms of product categorization is as follows.

Sales in biscuits category grew by 55%.Sales in staples category grew by 52%Sales in confectionary grew by 51%.Sales in RTE grew by 35%

ITC Food is looking to expand its RTE category to maximize its profit.

ITC’S NEW CHALLENGES:

This food industry is the industry with very less profit margins. So low operation cost is the key. Also, Indian middle class is price sensitive. In this area international, national and also regional competition is very tough. With that wheat, petrol and labor cost is increasing day by day. Different types of restrictions imposed by the government are also playing a vital role in reducing profit margins. For example, exporting non-vegetarian foods out of India is restricted. To cover this up, ITC is trying to reduce cost of its biscuits by acquiring mass production of wheat directly from farmers through its E-chaupal initiatives. Also in this way ITC is able to reduce the price of its staples. As far as Confectionary market is concerned, ITC is looking to launch its brand of chocolate in collaboration with an American company. After analyzing the food sector, one can say that it is one of the toughest market to compete in as all the market giants are already there.

GROWTH AND INVESTMENT PLANS:

This food sector is the most promising field and has already overtaken IT and PHARMACEUTICALS Sector of India. Even Indian Government is looking to develop this sector. That’s the reason central Government has already passed several projects for food parks. In this way FDI in this sector is possible. Also government in its 2006 budget has reduced custom duty from 16% to 8% on packaged food and also excises duty on instant food mixes. This will help ITC to be competitive in the market. Recently ITC has started exporting packaged food from its Bangalore plant. It is also planning to open one more new plant in Calcutta for Indian market. They are looking to add several products in

15

their RTE list which will be exported as well. Also in late 2007 ITC has acquired one Australian Plant and seed technology industry. Through this they will provide highly valuable seeds and other solutions to farmers in India, which ultimately will increase the productivity and cost effectiveness for their staples and biscuits business. Its turnover in the foods business was around Rs. 8 billion in 2005-06 which further increased to Rs. 10.2 billion in year 2006-2007.ITC has decided to make an investment of 300 crores over a period of 5 years. ITC Foods has also decided not to make heavy investments in manufacturing unless volumes pick up. As of today ITC has invested 20 crores in R & D and planning to invest further 15 crores to produce new products in different categories.Thus looking at all the strategy of ITC future investment and planning. The future investment plan is as follows

Rate of Increase Sales Operating Profits Net Profit/loss

2005 18.07 18.30 37.58

2006 28.16 19.15 2.01

2007 26.34 18.90 20.79

2008 12.76 11.31 15.56

2009(Projected) 21.33 16.92 18.98

16

17

Major Strategies Adopted by ITC Foods

Entering the foods business was itself a strategic decision for ITC. While ITC’s core business, tobacco, was under pressure owing to several factors like government bans on advertising and on smoking in public places, hikes in the excise duty for cigarettes, and anti tobacco campaigns, ITC planned to deploy its surplus in the packaged food business where it saw huge business potential. Following are some of the strategies that ITC adopted to make its food business a success:

Entering into less competitive or unexplored markets (Ready to eat, Staples, Wafers): When ITC entered into the foods business in 2001, it focused on unleashing the areas where the competition is very less or there is no competition. It started with packaged ready to eat food and later extended that to Aashirvaad brand of edible salt and Atta. Recently ITC has announced its desire to forge in the frozen foods category in the domestic market. Players in this category are limited and ITC hope to exploit this fact. Also, in Bingo, although the competition is tough but there is only one player with whom ITC has to compete i.e. Frito Lay. This strategy has helped ITC to quickly establish itself in the above mentioned businesses.

18

Distribution Network: ITC already had a huge distribution network due to its tobacco business. ITC used this network to distribute their biscuits and wafers. This not only provided a good launch to their products but also helped in boosting sales. Today, ITC’s Bingo and Sunfeast are available at nearly 1.8 million outlets whereas Parle is available at only 1.5 million outlets.

Market differentiation (Ready to eat, Biscuits): ITC started packaged foods business with the KoI brand of ready-to cook products. They were positioned as premium products with target groups including tourists, NRIs, etc. In Biscuits also, ITC launched differentiated products in each and every segment. For e.g. it introduced an Orange Marie, a butterscotch cream biscuit, chilli flakes in a biscuit and even honey flavor under the Sunfeast brand.

In March 2005, ITC Foods launched Sunfeast Pasta, a whole wheat based product targeted at children. It was expected to compete with products like Nestle’s Maggie noodles. With this strategy ITC built for itself new markets.

Cost control strategy (all products): When ITC started the foods division, its main challenge was to compete with the players who were already there. To overcome this challenge, ITC realized that they have to offer products at a price which is either equal or less than what the competitors are offering. To do this, they planned to capitalize by leveraging the strength of the group’s other businesses. ITC’s printing and packaging business provided high-quality, cost-effective, and innovative packaging. ITC also enjoyed cost advantages over its competitors owing to its electronic procurement system called e-Choupal. This helped ITC to compete with the best.

Diversification of products (Biscuits, Wafers, and Ready to Eat): One of the ITC’s successful strategies has been the method of diversifications among its various products. If we talk just about Bingo, ITC has come up with 16 flavors in comparison to its competitor ‘Lays’ of ‘Frito Lay’ which has only 4 major flavors. Same is the case with Ready to Eat food category and Biscuits.

This strategy has helped ITC to attract a wide range of market.

Extensive advertising (Biscuit, confectionary, wafers): Just like a Bollywood movie needs good publicity to be a super hit, every new product launched in the market needs to be known to the consumers before it is launched. Advertising is

19

where ITC made the difference in comparison to its competitors. They hired the best professionals and the best ambassadors in the country to make their products famous. This is evident form the award winning marketing campaign for Bingo and Minto Fresh. The tagline "Jab Laila ko karna tha impress to majnu ne khayi mint o fresh" has stood the test of times and is still widely known and remembered. Hiring the best people from the film industry and sports (Sharukh Khan and Sachin Tendulkar for Biscuits, Rakhi Sawant for Minto Fresh) showed ITC’s urge to be the best.

On television, the company booked 10 to 15 spots per channel per day on youth channels such as MTV and Star World, mass Hindi channels like Zee and Star TV, and news channels. It also had around 20 spots on a variety of radio channels and advertised in most leading national dailies. In the top-30 cities, over 1,000 outdoor hoardings advertised the product. According to industry estimates, ITC spent close to Rs 100 crore on marketing.

This kind of promotion of products helped ITC to make its products known to everyone and now it was not difficult to attract consumers.

Regular introduction of new products (all products): Having acquired reasonable scale in a relatively short span of time, ITC realized that, to remain in the competition it had to introduce new products regularly. ITC has been expanding its distribution network aggressively and also their product range. In biscuits and wafers range, it is launching new products or flavors week after week. Same is the case with Ready to Eat and Kitchen of India.

Innovation (all products): When the need to introduce new products arrived, ITC shifted its focus on to the innovation. Also, ITC was innovative in identifying the market or niche for all its products.

Maintenance of freshness and hygiene (all products): ITC positioned its wheat flour on the health & hygiene and value for money terms. Success in the staples business, especially in the branded and packaged wheat flour business, depended on two factors – an effective distribution network and the quality of the product. Therefore, ITC attempted to ensure that the supply chain was responsive, and laid emphasis on making accurate sales forecasts using inputs from distributors, sales personnel and a well-managed MIS system. To maintain freshness of the product, the company strove to minimize the transit time by regulating the shippers to maintain company-specific transit norms. The physical aspects of the supply chain like warehouses and trucks were closely monitored to maintain cleanliness.

20

From Analyzers to Prospectors (Biscuits): When ITC entered the biscuits market with Sunfeast in 2003, with three varieties of biscuits - glucose, marie, and cream, they did what any new player in the market does, imitating and emulating the leader that was Britannia. Their strategy was to manufacture those products which are already a success in the market. But, as ITC got hold of the market, it started to manufacture flavors which were never heard of. This was the result of ITC’s desire to exploit new product and market opportunities.

All the above strategies and with the help of launch of Bingo in 2007, ITC finally tasted success in its food business in 2008 when it became a profitable business for the first time since its launch in 2001

Structure

ITC has a three-tier management structure.

21

At the top are Chairman and Board of Directors, who are responsible for the strategic supervision of ITC, its wholly owned subsidiaries and their wholly owned subsidiaries. The ITC board is a balanced board comprising Executive and Non-Executive Directors. The Board ensures that the Company has clear goals relating to shareholder value and its growth. It sets strategic goals and seeks accountability for their fulfillment. There are four board committees, namely, the Audit Committee, the Nominations Committee, the Compensation Committee and the Investor Services Committee.

At the second level is the Corporate Management Committee, which is responsible for the strategic management of the company's businesses within Board-approved direction/framework. It comprises all the Executive Directors and three or four key senior members of management. Third level consists of divisional CEOs of each business assisted by their own divisional management committees. Corporate Functions of the Executive Management Team includes Planning and Treasury, Accounting, Legal, Secretarial, Human Resources, Communications, Internal Audit and Information Technology.

The company’s organizational structure and governance processes are designed to support effective management of multiple businesses while retaining focus on each of them." This three-tier governance structure ensures that: For and on behalf of the shareholders the company believes in incorporating strategic governance in its work culture so as to ensure that despite being free from involvement in

22

the task of strategic management of the Company, it can be conducted by the Board with objectivity, thereby sharpening and ensuring accountability of management;

With mundane tasks of everyday executive management being delegated the management remains focused on issues of immediate importance;

The Executive management of the individual businesses that are free of handling strategic management responsibilities of ITC as a whole is then able to channelize their energies and time in enhancing the effectiveness and overall growth of their individual units.

Corporate Governance as defined by ITC is a systemic process by which companies are directed and controlled to enhance their wealth-generating capacity. A company employs vast sums of societal resources during this process of wealth generation. ITC is of the firm belief that the governance process being followed should ensure that these resources are used optimally to meet the aspirations of its stakeholders and society. This is further reflected in the deep commitment of the company to contribute to the ‘Triple Bottom Line’, which is the development of the nation’s economic, ecological and social resources.

The company believes in empowering the executive management. But corporate governance ensures a system of checks and balances to ensure that these powers that are bestowed upon the executive management are used in a responsible manner so as to meet shareholder and societal expectations. The core strengths of ITC's governance philosophy are trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. The practice of each of these creates the right corporate culture that fulfils the true purpose of Corporate Governance.

Overall, the structure of ITC has high complexity because of horizontal differentiation within the organization. The most visible evidence is that of specialization and departmentation. Complexity also increases because of spatial differentiation.

The ITC Code of Conduct, as adopted by the Board of Directors, is applicable to all Directors, senior management and employees of the Company. This Code is derived from three interlinked fundamental principles, viz. good corporate governance, good corporate citizenship and exemplary personal conduct. The Code

23

covers ITC's commitment to sustainable development, concern for occupational health, safety and environment, a gender friendly workplace, transparency and auditability, legal compliance, and the philosophy of leading by personal example. Since non-adherence to the code is brought to the attention of the immediate reporting authority, formalization is also there in ITC.

Decision-making is decentralized, as the company believes in giving executive freedom to the management to drive the enterprise forward without undue restraints but this freedom of management should be exercised within a framework of effective accountability.

CULTURE

24

ITC's Vision

Sustain ITC's position as one of India's most valuable corporations through world-class performance.

Create growing value for the Indian economy and the Company's stakeholders.

ITC's Mission

To enhance the wealth generating capability of the enterprise in a globalizing environment

Deliver superior and sustainable stakeholder value.

ITC's Core Values

The company’s Core Values are aimed at developing a performance-oriented organization that is highly customer focused and also creates value for those holding stake in it. It fully understands that it has a commitment to its stakeholders to act as a guardian of the company from stakeholder’s point of view and deliver results in a manner that actualizes stakeholder’s interest on a long-term basis.

It also delivers on the commitment to its customers by consistently addressing their needs on product quality, value and overall satisfaction. It respects the values of people and also encourages individuals to pursue their dreams, values their differences and helps them to experiment in the pursuit of various opportunities.

ITC firmly believes in the concept of Excellence with their mantra being, “we do what is right, do it well and win. We will strive for excellence in whatever we do”. It is constantly in the pursuit of better and newer products, processes, services and management practices. Apart from the interest of shareholders they also address their commitment to the nation to generate economic value, at the same time ensuring that in achieving these goals no compromises are made whatsoever in complying with rules and regulations as specified by law.

ITC’s Philosophy

ITC believes in practicing ethical behavior among the corporate citizen. The company follows an HR policy that is regulated by Teamwork, Trust, Collaboration, Mutuality,Meritocracy, Objectivity, Collaboration, Self-respect and Human-dignity. It is also deeply committed to make the company a gender friendly place for each individual while also ensuring enhancement of equal opportunities for men and women, preventing sexual harassment of any form and the adherence to good employment practices. It is ensured

25

that the interest of the company is foremost and in this context acceptance of any kind of gifts or payments from suppliers or customers is viewed as a serious breach of company discipline. And such acts are also considered as damaging to the reputation of the company.

High standards of house keeping and hygiene are followed to ensure excellent physical working conditions. It is understood that all the directors, senior management and employees shall conduct themselves in an honest manner and avoid any conflict of interest.

The top officials and employees of ITC believe that ITC provides them freedom at work and resources to experiment. Employees take pride in working for ITC for its work culture, environment, and the way people are treated. They are consulted before a new project\system is introduced and their concerns and suggestions addressed. ITC also gives a lot of input to develop their skill and career. They give utmost importance to equal opportunities, better work environment.

DESIGN

Looking at the structure and culture of ITC, we can say that its design is based more or less on the Divisional Structure. ITC has a diversified presence in different industries and each of its businesses act as an autonomous unit which are coordinated by the top level, i.e. the board and corporate management committee. The divisional managers are responsible for performance and hold complete strategic and operating decision-making authority. The top management provides support services to the divisions. It acts as an external overseer, evaluating and controlling performance. Hence the top management is free from being concerned with the day-to-day operating details so they can pay attention to the long term. Big picture, strategic decision making is done at the top level

26

Effectiveness

 Organizational Effectiveness criteria Rating Remarks

1 Flexibility 9

Entered into food business because of the various constraints in cigarette industry.

Launch of various new products in diverse categories in accordance to the demand of the consumer market.

2 Acquisition of resources 8

Outsourcing manufacturing of confectionary items, acquisition of an Australian firm for new improved seeds, set up new plant in Haridwar, where there is no tax for first 5 years.Expanding size of work force by expanding target market

3 Planning 7

Goals are clear and well understood as they are clear about the markets they want to enter in and the markets they do not want to enter.(they didn’t enter into chocolates, milk products)

4Productivity and efficiency

8

Combining various facilities to improve efficiency (manufacturing along with printing and packaging)

Prices of almost all the products are at par with the competitors. Also their selling has increased considerably at an average rate of 20-25% in last 6 yrs. In 2007, At their Haridwar plant they are able to get the more production with the limited technology and machine utility which they had in 2006.

5Availability of information

8 Employees are always consulted before a new project/system is introduced.

6 Stability 9 Timely operations are carried out to maintain freshness of the inputs (Transporters are fined in case of delay)

7 Skilled work force 9

ITC leverage human capital for competitiveness by nurturing knowledge, entrepreneurship and creativityIt has a no. of training programs which helps the employees gain exposure to the latest technologies and developments.

27

Competing Values Framework

Environment Culture Design Structure Leadership Leader’s role

Uncertainty Intensity        

High High

Developmental Adhocracy Idealistic Prime mover

   

RationalMarket-oriented Rational Expert

Current Framework

Favorable Framework

Environment in which ITC foods division is operating is highly uncertain because of the immense competition that they are facing in each category and due to the launch of new products and flavors in each category every other day. It is also highly intense as the organization’s main strategy to achieve their goals is through extensive marketing and for that they need to know how their products are received in the market. To do this, they are conducting various surveys and also they are launching their products only after a brief research of the market and trials.

ITC Foods’ aggressive effort to capture market share and heavy investments in manufacturing and infrastructure suggests that they are focusing mainly on both of their short and mid term goals. Thus, the current design of their organization is rational but as the environment is highly uncertain and intense, they need to move towards a ‘Developmental’ design. The structure of the ITC Foods’ division is ‘market oriented’ because of the same reason that they are focusing into the market deeply; but again as the environment is highly uncertain and intense, they need high flexibility within the organization and hence should move towards an adhocratic structure. Leadership in ITC foods division is rational as the leader is functioning logically in accordance to the market forces. Also, he is an expert as he has made optimal use of ITC Ltd’s resources in ITC Foods’ division. For example, ITC’s distribution network.

28

Bibliography:

www.itcportal.com www.wikipedia.org www.moneycontrol.com www.economictimes.indiatimes.com www.moneycontrol.com www.google.com www.bseindia.com www.perfettivanmelle.in www.cadburyindia.com www.nestle.in www.rediff.com www.thehindubusinessline.com www.kitchensofindia.com www.aashirvaad.com www.bingeonbingo.com www.mycandymanclub.com www.sunfeastharabanao.co

29