itc leaf business division analysis
DESCRIPTION
ITC Leaf Business Division Analysis - Organization StructureTRANSCRIPT
ITC’s Leaf Business Division
Organizational Structure Analysis
By
GROUP 4
OBJECTIVE
“Creating an effective organization structure is one of the most difficult challenges faced by any top level executive”1
We have analyzed the organization structure at the ITC’s 100+ years old Leaf Business Division using the Tool Kit “Do you have a Well-Designed Organization” as proposed by Michael Goold and Andrew Campbell and attempted to figure out the kind of structure which will best enable the ILTD manage its work in order to meet its strategic objectives.
The study comprised of two phases.
Phase 1: Run 4 Fit Tests as initial screening for design alternatives and to check if structure supports strategy, talent pool, and business scenario.
Market Advantage Test
Parenting Advantage Test
The People Test
The Feasibility Test
Phase 2: Attempt to refine the current design by addressing problem areas to be identified by using the 5 Good Design Tests.
The Specialist Cultures Test
The Difficult Link Test
The Redundant Hierarchy Test
The Accountability Test
The Feasibility Test
Considering the fact that organizational change is a long term process and has high costs associated to it, we plan to make recommendations based on the following lines :
Modify without changing Units
Redefine Skill Requirements and Incentives
Shape Informal Context
1 Adapted from “Do you have a Well Defined Organization” – Harvard Business Review
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INDEX
Industry Overview………………………………………………………………...…3
Company Overview……………………………………………………....................3
Methodology ……………………………………………………………..................4
Organization Structure…………………………………………………....................6
Market Advantage Test…………………………………………………...................9
Parenting Advantage test………………………………………………...................10
People Test……………………………………………………………....................12
Feasibility Test…………………………………………………………..................13
Specialist Cultures Test………………………………………………….................14
Difficult Links Test……………………………………………………...................16
Redundant Hierarchy Test ………………………………………............................17
Accountability Test ………………………………………………..........................19
Flexibility Test ………………………………………………………….................21
Recommendations …………………………………………………........................22
Acknowledgments ……………………………………………................................23
References………………………………………………………………………….23
Transcript of Interview ………………………………….........................................24
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INDUSTRY OVERVIEW
Tobacco leaves agricultural production is an ever growing industry in the world. From 1947 to 1997, tobacco production increased by 40% from 4.2 million tons to 5.9 million tons at global level. US, China, Brazil and India are major traders and producers of tobacco leaves. China is largest and India is second largest producer, while India is second largest exporter too after Brazil. Total production share are China (36.9%), India (8.3%), Brazil (7%) and US (4.6%). Tobacco crop is cultivated in an area of 0.45 M ha (0.27% of net cultivated area) producing 750 M kg of tobacco leaf.2
Tobacco consumption in any form is always targeted by government as a tax generating instrument. In China, fixed market price resulted to lower income generation for farmers than some other crops. In India, government increased tax on some of cigarettes from 11% to 72% in 2014. Excise tax increased by 25% and 15% respectively for less than 65mm long cigarettes and for more than 65mm long cigarettes.3 This increment in tax falls majorly on consumers. This may affect the demand. Thus government regulations are major challenges in this industry, and hence a need for unique organization structure arises.
Major tobacco leaves cultivator in India are ILTD (ITC) and Philips Morris.
COMPANY OVERVIEW
ITC (Imperial Tobacco Company) is one of the oldest private sector companies in India with market capitalization of 45 billion USD and turnover of 7 billion USD. Cultivation and development of tobacco leaves in India by (ITC) dates back to 1910. The company rechristened itself as I.T.C. Limited in 1974. ITC realized the varying needs of Indian market and forayed in to wide range of business like FMCG, apparel, stationery, hotels, agri-business, tobacco products, and personal care among others while enjoying the status of being one of the largest private sector export houses in the country.
2 The Indian Mirror : http://www.indianmirror.com/indian-industries/tobacco.html
3 Hindu Business Online
3
ITC Limited or ITC is an Indian conglomerate headquartered in Kolkata, West Bengal. Its diversified business includes five segments: Fast Moving Consumer Goods (FMCG), Hotels, Paperboards & Packaging, and Agri-Business & Information Technology.4
Indian Leaf Tobacco Development (ILTD) is a subsidiary of ITC involved in procuring and producing Agro-commodities. It revolutionized tobacco production Participative technology transfer from lab to farms. It has export of 60Mkg across 70 destination. It has infrastructure of combined capacity of 600 TPD. It claims to be the largest integrator of producers, suppliers and exporters of tobacco leaves in India.
METHODOLOGY
SerialTest to be Performed
Test Description Methodology
1 Market Advantage
Check if design directs sufficient management attention to competitive market advantage sources
Identify sources of competitive advantage by secondary research/ interviews
2Parenting Advantage
Does the design help corporate parent add value to the organization
Evaluate role of senior management at ILTD
3 People’s TestDoes the design reflect strengths, weaknesses and motivation of people
Identify skills sets of key players
Check if the design provides appropriate responsibilities and reporting relationships
4 Feasibility TestIdentify constraints that may impede organizational design
Study ILTD’s constraints on design government regulations information systems inter-unit co-ordination
5Specialists Culture Test
Does the design protect the units that need distinct culture
Identify units which have specialist culture and are at risk. Recommend ways to protect them
6Difficult-Links Test
Does the design provide coordination solution for the unit-to-unit links that are problematic
Identify difficult unit linkages.Refinement to basic structure/ substantial redesign may be suggested.
7Redundant Hierarchy Test
Does the design have too many parent levels and
Examine parenting proposition (each parenting level should
4 ITC Official Website : http://www.itc-iltd.com
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units
improve reporting unit’s performance by at least 10%).
Identify skills and resourcesRequired by parenting level.
8Accountability Test
Does the design support effective controls
Identify Units with shared
responsibilities Units whose performances are
difficult to measure.Suggest remedies for units with blurred responsibilities or fuzzy measures.
9 Flexibility Test
Does the design facilitate the development of new strategies and provide the flexibility required to adapt to change
Interview 2-3 of ILTD’s top level managers having deep product & market knowledge.
Identify top 5 opportunities, not anticipated in current strategy but are likely to be encountered in future.
Check if current design will support or obstruct these opportunities.
The tests are iterative and need to be applied repetitively for further organizational changes.
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ORGANIZATION STRUCTURE
Currently ILTD has a Hybrid Structure in place, which has been crafted over the years as the business has grown exponentially. Like most large organizations, a pure organizational form would be insufficient to support the needs of the business. Moreover in the real world, the growth of large organizations is often unstructured or non-systematic. Therefore, putting in place a pure form is practically not possible.
The hybrid structure at ILTD currently is a mix of functional, divisional & geographic structures.
Structure of Top Management/ Direct Reporting Lines into CEO’s Office: The direct reporting structure follows the Functional Form with the Spices business organized as separate divisional unit. This is so because the spices business was recently added to the portfolio in 2004, and is currently managed as a separate entity. Here the role of CEO’s Secretary has centrality in the network and is responsible for coordinating all of CEO’s appointments.
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Figure 1: Reporting Structure, CEO’s office5
Structure of Exports and Supply Chain Division: We have purposely decided to illustrate the structure of the Exports division for 2 primary reasons: First it represents the use of Geographic Form and second, because this division represents the output dependent arm of the business, since the local supply of tobacco is utilized internally at the ITD factories.
5 Organization Structure of ILTD – Shared by HR Manager, ILTD
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Figure 2: Reporting Structure, Export Division6
The ILTD organization structure has the following dimensions and contingency factors :
Dimensions
1. Centralized Structure
2. Highly specialized tasks and roles
3. Strict Hierarchy of Authority
4. Decentralized Decision Making
Contingency Factors
1. Bureaucratic Culture in most units; Adaptability Culture for Boundary Spanners
2. Stable – Complex Environment; Number of Heterogeneous Factors is high, but factors remain consistent over time
3. Large Organization Size in the Formalization Stage of its lifecycle
6 Organization Structure of ILTD – Shared by HR Manager, ILTD
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4. Long Linked Technology due to sequential interdependence of tasks
5. Low cost leadership strategy; Defender Status
Figure 3 : Organizational Dimensions and Contingency Factors7
FIT TEST 1: MARKET ADVANTAGE TEST
The tobacco produced out of the units at ILTD is either exported to International cigarette brands or utilized internally at the parent company’s cigarette manufacturing division ITD. This represents the market for ILTD’s products. ILTD produces different blends of tobacco based on the toasting and fermentation levels as per as the exact requirement for each brand of cigarette.
7 Understanding Theory and Design of Organizations, Richard L.Daft
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For example, low cost cigarettes such as Wills Navy Cut which are targeted at the Indian diaspora, require a unique blend. On the other hand, premium cigarette manufacturers such as Dunhill use only finely refined tobacco as per their blending standards.
As per our conversation with executives at ILTD, we can confirm that their Market Advantage is “Variety of Tobacco” and “100 year Experience in the industry”. To validate the above assertion we looked into the following sub topics :
1. Procurement at the Factory/Unit Level - The backward integration with the farmers forms the backbone of the procurement function. ILTD has minimized its Resource Dependence by developing long term close relationships with farmers from different geographic parts of India, using “Collaborative Inter-organizational Linkages”. They provide seeds and fertilizers at extremely low/negligible costs to farmers and conduct free training sessions to educate farmers on efficient methods. ILTD uses the concept of fair dealing with its suppliers and uses local procurement teams as mechanisms for close coordination. The procurement team often travels to farms in secluded areas to personally assist farmers in conflicts with local authorities, often going beyond the definition of professional relationships. This has created a loyalty factor among the farmers and has shifted the power implications in the favor of ILTD.
Therefore ILTD has been successfully able to design its organizational structure and linkages to provide a large variety of blends of tobacco.
Figure 4 : Inter-Organizational Framework8
2. Export Division as part of Divisional Management Committee – By reserving a place for the Exports Division on the Divisional Management Committee, ILTD ensures that all the latest trends, developments and requests from the international customers are
8 Understanding Theory and Design of Organizations, Richard L Daft
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communicated effectively to the senior management and policies can be framed keeping these requests in mind.
Test Result : 5/5
FIT TEST 2: PARENTING ADVANTAGE TEST
ILTD uses the concept of “Distributed Leadership” to decentralize the decision making process at unit level and limit the role of the senior management in the day to day operations. Thus by empowering the middle level management, the apex management Team can focus on Organizational Policy and Effectiveness Measurement Approach.
The Divisional Management Committee forms the upper most level of hierarchy and its focus is on establishing the organizational governing policies in the areas of Exports, HR, and Finance etc. The Divisional management committee also acts as the “Vertical Information Linkage” which passes along data to the ITC headquarters. The line director reviews the “Executive Dashboard” on a monthly basis.
From our conversation with the ILTD Team, it was very apparent that the role of senior management revolves around control and benchmarking. But according to our analysis of the organization structure, we believe that the design does not give sufficient attention to the value adding tasks of “Reporting, Benchmarking and Business Intelligence”. The lack of a central BI/CI and Analytics Team/Manager as part of the apex management verifies our point.
The organization also has a “Balanced Score-Card” Control system in place which attempts to balances financial, operational, Customer Centric and Employee Learning goals.
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Figure 5: Balanced Scorecard9
From the mapping we observe that the pillars of customer, financial and internal business process are adequately measured by ILTD. However, metrics for learning and growth are not properly measured and tracked. In fact the parameter tracked in the learning and growth pillar is actually productivity (which is more suited to internal business processes classification).
Therefore ILTD has only been partially successfully in clearly demarcating the value addition of the senior management and can improve on this aspect.
Test Result : 3/5
FIT TEST 3: PEOPLE’S TEST
Through this test, we are trying to assess whether the organization is matched to the skills and the attitudes of the current employees in terms of the organization’s appropriateness in assigning of responsibilities and reporting hierarchy allotted to them. Also, is the current hiring and retention policy of the organization in line with the requirements of the respective units?
In people’s test we tried analyzing the following parameters to arrive at the conclusion of how ILTD rates on this test :-
1. What is the core department or function which supports the business?
2. Do people who are hired for this position possess the appropriate skills?
3. How does the organization ensure the retention of the key players?
4. If the company has to attract people from external sources, it is able to successfully do so?
In the agriculture business which ILTD operates in, operations is generally the core part of the business that the company heavily relies on. Technology, exports & supply chain are also key divisions which contribute heavily to the business structure.
But, the key department which distinguishing itself from others is the procurement and marketing as it very niche to the sector in which ILTD operates in and thus, the company relies heavily on it.
9 Balanced Scorecard prepared as per KPIs calculated at ILTD
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Fig 6: Core Transformation Process for a Manufacturing Company10
In recent changes people from technical background were brought into procurement function of the organization. The prime objective of the organization strategy was that it now wants to move towards database approach and synchronize the necessary analytics aspect into the current procurement system. Company feels that presently people from agriculture background in the procurement division were lacking in the analytic portion and therefore, it recruited technical graduates to leverage upon the analytical ability they bring in to the team which in turn also resonates with the current employees from non-technical backgrounds and upgrades their skills.
In ensuring retention, the company is very carefully in picking the right people to its organization at first. Also, it has developed a robust career development and growth plan to match the aspiring needs of the employees. The company strives hard to ensure a good working culture within the organization. Based on ILTD’s past two years data it was seen that the attrition rate in the organization was 8.85% month to month.
In terms of recruiting people from outside, ILTD is able to a good job while bringing in people with a technical background but, struggles finding proper matches for the leaf division.
Test Result : 4/5
FIT TEST 4: FEASIBILITY TEST
Companies tend to have certain constraints which impact them in a way that they may have to improvise in order to optimize the efficiency levels of the current processes by finding a way around those constraints.
Analyzing ILTD in this regard brought about the constraint that Government regulations pose on the day to day operations of ILTD and in turn upon their organizational design and structure.
10 Core Technology, Understanding Theory and Design of Organizations, Richard Daft
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Figure 7: Framework for assessing Environmental Uncertainty11
Ever since the Union Budget levied a hefty increase in excise duty on cigarettes, the ITC stock has dropped 13%, emerging as the worst performer in the 12-member BSE FMCG Index. There has been an over 30% decline in the analysts' buy recommendations on the stock due to this factor. VAT increase by state governments is another challenge being faced by the company. Analysts have estimated 5% to 10% decline in cigarette volume this year. The growth of lobbying against the cigarette businesses is also compelling countries across the globe to step up efforts to curb smoking. This is likely to reduce the investment appeal of the tobacco sector among investors. At a market cap of $41.2 billion, ITC is the sixth most valuable cigarette company stock globally after Philip Morris, British American Tobacco, Altria Group, Japan Tobacco and Imperial Tobacco.12
To deal with such constraints ILTD has setup a standalone Industry affairs department which looks into the matters related to the government regulations and other extraneous factors. This has been done in order to prepare the business react responsively and in a positive way to these factors. Essentially the industry affairs is playing the role of a boundary spanner for ILTD in this regard.
11 Environmental Uncertainty Framework, Understanding Theory and Design of Organizations, Richard Daft12 http://articles.economictimes.indiatimes.com/2015-03-30/news/60644228_1_itc-stock-cigarette-business-cigarette-volume
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Fig 8: Contingency Framework for Uncertainty and Organizational Responses13
Test Result : 4/5
GOOD DESIGN TEST 1: SPECIALITY CULTURES TEST
ILTD being different to traditional companies working in ultra-competitive market places, owing to its special product, large market share (greater than 75%) and 100 + years of experience tends to have bureaucratic culture as a company. The environmental factors demand stability and the strategic focus is on internal processes.
The aim of the organization is to ensure that the culture is homogenous across all the functions, and that no department is given special priority to establish and maintain its culture. There is a specific set of rules which each function has to follow. Even a very special function: Leaf Procurement follows certain protocols common to all functional units.
But each unit of ILTD is has its own leadership and the Divisional CEOs have the freedom to run their own show, there is change in culture of various units owing to the change in personnel managing them and therefore a specific subculture might develop. Each unit is given some freedom to decide its course of action and thereby setting up of certain specific rules for efficient and viable functioning of the particular unit is inevitable. As a matured organization ILTD realized this and thus it does not interfere in this aspect, as long as the core values are the same.
13 Environmental Uncertainty Framework, Understanding Theory and Design of Organizations, Richard Daft
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From our conversation with the HR Team at ILTD, we were able to identify the fact that the Crop Development and Buying Team, which is a part of the Leaf Operations Function is a specialized task within the organization which requires differentiated expertise as compared to the other functions. This team deals with the farmers and crop management issues and therefore needs to work and plan activities differently than the prevailing organizational norms and hence needs to maintain an “Adaptability Culture”. Hence it can be classified as a “Specialist Culture”.
Figure 9: Organization Structure of Leaf Operations Division14
The sister unit of the Crop Development Team, Utilization and the parent unit, Leaf Operations share the bureaucratic culture ; officials of both these units are located at the factories and interact with blue collar officials. As the size of the crop development team is small as compared to the sister unit, there is a possibility that the bureaucratic culture might infiltrate the Crop Development Team. Hence the Crop Development Team is not properly insulated.
Concluding our analysis, we can say that ILTDs’ design does not pass this test, although leadership is bestowed to each unit. At the same time, it may give certain independence to certain functions as well, like Crop development so that it does not get dominated by operations team and can focus on achieving long term goals.
Test Result: 3/5
GOOD DESIGN TEST 2: DIFFICULT LINKS TEST
14 Organization Structure of ILTD – Shared by HR Manager, ILTD
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ILTD places a lot of emphasis on reviewing their procedures and promoting cross functional and cross unit collaboration. In almost all projects, cross functional teams are deployed. All these measure are taken for creating a strong platform for information sharing. Talent in each team and individually is identified and given importance to.
The company also has a “Shared Discussion Place” meeting where leaders of all units come forward and discuss their progress and challenges. This is a step taken towards collaboration at middle management level. Leaders of all the unit take collective decision over certain issues. These decisions are taken keeping in mind benefits of each unit and after being certain that interest of neither of the units is uncared for. In a nutshell an agreeable decision is taken for all units without affecting each other. This is primarily the way collaboration is practiced in ILTD.
As any large scale organization, various functions tend to have inter-organizational conflicts when participants identify with one group and perceive that other groups may block their group’s goal achievement or expectations.
From the interview we conducted with the executives from ILTD, we figured out that one of key sources of inter-organizational conflicts is the relationship between Marketing and Procurement Units. This is because procurement is prone to change with change in climatic conditions and marketing is prone to change with change in economic, social and political shifts. Although an Oracle ERP has been used as a technological horizontal linkage and cross functional teams comprising of members from both these units are formed to promote collaboration, Goal Incompatibility and Differentiation inhibit a smooth alignment.
Another two such difficult links arise between HR and Finance department as one is personnel intensive whereas other is profit intensive, as well as between the Quality department and Export department.
One way to measure the rating for this test is to know whether the processes relating to conflict resolutions are documented and whether steps are taken to prevent conflicts from escalating.
Unfortunately as of now, standardized resolution methodologies are missing and usually Confrontation & Negotiation and Workplace Mediation by the senior level managers is required to come out with an amicable outcome.
ILTD have taken up certain measures to deal with this conflict. The most important tools of solution were: clarity, priority and direction. Clear organizational goals were defined, priority was assigned based on this goal and direction was given to each of the conflicting unit, and they had to work in directed manner only. But this was restricting the creativity and independence of the units and did not present effective results. Pooled Negotiations was another strategy that was employed recently to tackle this situation.
Test Result: 4/5
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GOOD DESIGN TEST 3: REDUNDANT HIERARCHY TEST
Redundancy hierarchy of an organization is seen in two different perspectives. In one way, it is considered as a buffer level which can be helpful to tackle uncertainties. As quoted by W. Richard Scott, duplication serves as "a repository of needed variety and heightened responsiveness, and provides an important safeguard against system component failure."15
The second perspective is to look at redundant hierarchy as a sign of organization ineffectiveness.Redundancy hierarchy also means that employees are not utilized properly.
Large corporates have numerous parental units. Some of them may be quite small including only a line manager and an executive. It is recommended to decentralize decisions to ground units and retain decisions at upper layers only if those can add value. It is necessary to identify if the upper layers are adding value to ground units. We need to identify the parenting proposition of the upper layers (using parenting advantage test). The proposition of the upper layers should not be similar to the one below. If this is the case then one of the upper layers is redundant.
In our redundant hierarchy test, we first analyzed ILTD’s decision making levels & overlapping of levels (if any).
ILTD decision making levels are as illustrated below
Figure 10: Simplified Layout of Organization structure at ILTD
Each level exercise its decision making power within the boundaries. Decisions that involve more than one function or unit are taken at a level above the functions or units.
15 W. Richard Scott, "Systems within Systems," American Behavioral Scientist 28 (1985): 603
CEO
Line DMC
Unit Head
Unit Head
Line DMC
Unit Head
Unit Head
Funtion Head
Function Head
Employee Employee
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Regarding hierarchy structure of the unit, ILTD believes in many-one reporting structure. For the last four years, ILTD have identified and eliminated many one-one reporting levels. The organization believes one to one relationship will not clearly identify the responsibility of individuals.
One to one reporting structure makes the reporter always depend on his/her superior for decisions. It is also possible that the superior delegates all the work to the reporter.
In case of many-to-one reporting structure, reporter will come to superior only for guidance & there are many reporters for a superior to delegate the work to. By this way, both superior and reporter are made to face situations & make decisions. Hence, ILTD consciously maintains many to one reporting structures.
The following key points are considered to limit redundancy hierarchy
Many to one reporting system
Clearly identified roles
Power delegation with boundaries
By clearing defining roles of each employee, measuring performance can become easy. This structure also mitigates the management’s effort to identify and recognize individual’s work. Clear role definition will also improve employee’s accountability.
Redundancy hierarchy test ensures that the hierarchy levels are based on knowledge and skills of the individual. This has more importance in higher levels where major decisions are taken.
Test Result: 5/5
GOOD DESIGN TEST 4: ACCOUNTABILITY TEST
The accountability test is performed to ensure each unit of the division has specified accountability for performance and the units, people etc. are empowered to achieve the performance. The managers should have clear understanding of their responsibilities. Key performance metrics should be defined and monitored. The managers should be enabled to achieve their targets. Course of self-correction should be available to managers through feed-back mechanism.
OrganizationalSub-Structure
Sub-units with shared responsibility/
Remarks
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unclear metrics
CE’s Office Divisional Manager (Stakeholder Mgmt.)
Metrics unclear
Structure for divisional
engineering
Entire unit Shared responsibility of leaf & spices business
Structure for New growth drivers
New product development Shared responsibilityMetrics unclear
Structure for supply chain
Manager, Strategy & Planning
Asst. Manager, Strategic planning
Asst. Manager, Operations planning
Metrics unclear
The above units of the organization have unclear metrics (based on preliminary understanding of the organizational structure). These positions would require a clearer understanding of the key responsibilities and performance. One of our team members who is an ex-employee of ILTD can testify to the fact that some amount of fuzziness exists in definition of goals and often members might have overlapping goals.
Test Result: 3/5
Figure 11: Example of Fuzzy Accountability Relationships16
16 Organization Structure of ILTD – Shared by HR Manager, ILTD
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Figure 12: Example of Fuzzy Accountability Relationships17
GOOD DESIGN TEST 5: FLEXIBILITY TEST
Pursuing innovation requires a suitable organizational design. The design should be adaptable to changes. This test is targetted to identify if the organizational design provides any obstacles in hindering innovation which happens organically.
Managers from ILTD from different functions were asked about one innovation/ change ILTD should undertake but the organizational structure hiders such an innovation.
Function Obstacle Desired Change
Sustainability (CSR) None The structrue reports to VP (Leaf)
which then reports to CEO. This allows
the innovations in sustainability to be
introduced & implemented without much
hinderance.
17 Organization Structure of ILTD – Shared by HR Manager, ILTD
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Leaf Procurement Several cost saving
projects (for ex. ICT)
are unable to be
implemented due to
extreme work load on
operations team.
A separate divisional projects team for
implementation of cost saving projects is
required
Supply Chain Construction of own
Warehouses requires own
Land which requires
Approval from DMC &
Corporate Mgmt.
Committee. The lead
time taken
For approvals is high
enough to lead to change in
prices making the whole
deal uneconomical
Number of layers in order to ensure
Faster approvals must be ensured.
Process &
Technology
R&D projects pertaining to
Technology are not
Implemented faster due to
lack of dedicated teams
A dedicated team to ensure faster R&D
Initiatives is the need of hour. This
Should be a part of each manbufacturing
unit.
Test Result: 3/5
RECOMMENDATIONS
Include a Business Intelligence Manager/Unit on the DMC. Since the role of the senior management revolves around controlling the operations and maintaining effective measurement techniques, this shall further clearly segregate the role of the apex management.
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For the procurement function in the leaf operations unit, recruit business graduates from tier 2 colleges who have some experience of living and interacting with local population nearby the concerned factory and train them further rather than hiring the crème de la crème from the top agriculture studies institutes. This would enhance the quality of supplier interactions. For the technical teams, try to retain the accumulated talent from IITs by offering them accelerated growth programs. Coopt the dissenters by making them part of the restructuring process.
Expand the role of the senior management in the industry affairs Department and increase level of lobbying activities.
Bunch the group of Leaf Procurement Teams and assign a senior level executive, for example the VP of Leaf operations the direct responsibilty of looking after the affairs of this unit. This shall ensure that there is no infiltration of bureaucractic culture and the Lead Procurement unit retains its identity.
For units facing difficulty in collaborating, create superordinate goals and link annual bonuses to these goals. Further also try to rotate members between these units, so that the develop a deeper understanding of the values, problems and goals of the other department.This would ensure a slow change in the underlying attitudes. The overall aim should be to attain Relational Coordination between the departments.
Define Measurable goals for each and every employee and link these goals to their annual incentives. Ambigiuity in definition of goals needs to be removed. Overlapping goals should only exist for cross functional teams.
ACKNOWLEDGEMENTS
We would like to thank the following people for their help and support:
1. Mukta Kulkarni, Professor, IIM Bangalore
2. Sanjeev Rangrass, CEO, ILTD
3. Subhashish Chakraborty, HR Head, ILTD
4. Srinath Ramakkrushnan, Leaf Operations Manager, ILTD
5. Vishal Chaudhary, Supply Chain Manager, ILTD
6. Vasant Sridhar, Sutainability Manager, Quality, ILTD
REFERENCES
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The group has made a conscious effort to use only primary data obtained from telephonic interviews with ILTD employees, ILTD’s organogram etc. to analyze the organizational structure design.
The references used are as follows:
Understanding Theory and Design of Organizations, Richard L.Daft
Harvard Business Review – Tool Kit – “Do you have a well-designed Organization” by Michael Goold and Andrew Campbell
Organization Structure of ILTD – Shared by HR Manager, ILTD
The Indian Mirror: http://www.indianmirror.com/indian-industries/tobacco.html
Hindu Business Online
ITC Official Website : http://www.itc-iltd.com
http://articles.economictimes.indiatimes.com/2015-03-30/news/60644228_1_itc-stock- cigarette-business-cigarette-volume
W. Richard Scott, "Systems within Systems," American Behavioral Scientist 28 (1985): 603
TRANSCRIPT OF INTERVIEW
We conducted telephonic interviews with the HR Head, Leaf Operations Manager, Supply Chain Manager and Sutainability Head to collect primary data regarding our research topic. We have saved the audio recordings of the same and they can/will be shared in case required. We have shared a brief summary of the interview questions below to provide an idea of the flow of the conversation.
Questions are mentioned in BLACK.
Interviewee Responses are mentioned in BLUE.
Interviewee: Subhashish Chakrabarty, ILTD
Interviewer: Utkarsh
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Market Advantage test
What are the sources of competitive advantage for ILTD?The sources of competitive advantages are:
A large varieties of tobacco dealt One stock shop, we deal with large varieties of tobacco - serving end-end which
no other company offers Professionalism 100+ years of experience of dealing with tobacco
Parenting Advantage
What are the channels via which business related information flows between ILTD & ITC HQ? How is decision making controlled by ITC HQ?We follow a model called Distributed leadership model. Each of the division has got its own management committee & chief executive who are taking differentiated decision. As per the corporate governance (for other than financial & HR issues) process procedure clearly clarifies till what level ILTD can approve decisions & from what level, corporate has to approve decisions. The whole process procedure is well laid down. It is the matter of putting up the requirements to the management committee. Management committee has the discretion to approve the proposals & after that the proposals are sent to corporate management committee for discussion. This procedure is like formal approval method process. Apart from that, the flow of information happens through dashboard initiated by Line director who is also representing the business in the corporate management committee. Line director gives regular dashboard updates & this helps to pass on the information.
People's Test
What is the core department/ function which supports the business?At any organizational level if you look at (in ILTD), operations is the core part. Other functions are considered as support functions. For ILTD, Processing & Technology and Exports & Supply chain are core departments. And leaf tends to be non-rotating function & also limited to the division. Technologically, supply chains are also functions. Procurement & marketing are niche functions of ILTD.
Are the people hired for these positions having the appropriate skill sets?
Continued... (In recruitment) there was a shift from people with BSc Agri. background to technical people. And they have been inducted to leaf buying and associated functions. The move
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is purely a division’s call. In the light of appropriate skills set requirement, do you think that this is a proper shift?
What you think that the skill set that the technical field has & for BSc. may need to, for leaf functions?
Anaytical. I would say analytical skill is the difference. For a technical person, analytical skill is a bit high, for they are into numbers, problems & analysis.
Yeah. BSc. Grads do lag in analytical skills. Initial stage guidance to be provided.
How do you ensure employee retention in the core function?
As long as you recruit the right people, as long as they see growth & development, they would stick around. And when they like and enjoy the work, they continue. People have stayed with us when growth guaranteed.
Attrition rate is at one person per month for the last two years. Rate is 8.85% per yearly.
If you have to attract people from outside for these functions, will you be able to hire them?We tried earlier (to move people from outside to these functions). For leaf functions, matching the skill was difficult, for other functions, it is viable.
Feasibility Test (If you are trying to change org structure of company)
(i) Government regulations
(ii) Interest of company's stakeholders
(iii) Inter-unit coordination
(iv) Company's information systems
Feasibility is not about hindrance, it is about possibility. Change in government regulation can trigger a change in organizational structure. Change will be with concern on the interest of inter-unit coordination, to get approved. It is not on the interim's part, it is upon where it will add efficiency. For example. In the view of a lot of activism on tobacco, we are seeking upon industry affair cell.
Specialist culture Test
(i) Which function of the division requires a distinct culture, different from adjacent or reporting units?
(ii) How does ILTD ensure protection of that culture for the particular unit?
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As long as you want to have same culture or different culture in different functions, you can have it. It all depends on leadership, at what direction the leadership wants to take the function.Functional culture is a subset of divisional culture. Leadership decides what culture the unit gets.
Difficult -Links Test
(i) Which are different units in ILTD?
1) Leaf Operations
2) Finance & MIS
3) Product & Process Certification and Product Development
4) Human Resources & Administration
5) Processing & Technology
6) Exports and Supply Chain
7) New Product Development
8) Spices
9) Engineering
10) R&D
(ii) How do they co-ordinate and share information? How these functions collaborate to take decision for business?
Each of the unit roll upto one line DMC. There are regular reviews along with DMC across functions or across team bases, where in these information shared. Talent is discussed in forms (for L3 & above), like a shared discussion place. And more forums are created where these people come together, where the leadership discuss.
(iii) If there are disputes between units (difficult links) how are they resolved?
Generally the conflicts are between Marketing & Procurement, HR & Finance (HR seeks process, Finance seeks individual intervention). Quality & Production within units, Cross-development teams & Exports. Whenever there is a conflict, it is to seek clarity & set priorities.
Specialist culture & difficult links test help top management define unit responsibilities.
Redundant Hierarchy Test
(i) What are the various layers of decision making for each function of ILTD?
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.The decision making levels are individual level, HOD level, Function head level & unit level (when hybrid functions are involved), Line DMC (when units are involved) & CEO level
(ii) For each level above the operating core, what is the parenting proposition for that level?
Every parenting layer contributing to the function (>10%) must have appropriate skills and resources.
To avoid redundancy hierarchy - Structurally we believe that there should be no one-to-one reporting. In one-to-one reporting model, reporter will be dependent on his/her supervisor for decisions and supervisor will delegate his/her work to the reporter.
In the last three to four years, we have eliminated many one-to-one reporting structures. It has to be many-to-one reporting structure to ensure that there is no redundancy in the hierarchy levels
Example: Assume that you are a manager and there is one employee reporting to you. Any work, you will directly it to your subordinate. Similarly, for each and every step your subordinate will come to you for verification. This will result in to and fro of same information. This is not considered as a good structure.
It must be many-to- one reporting system, so that the subordinate is empowered and comes to you only for guidance. Manager can also do other works.
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