itc corporate strategy analysis

Smok

ing

Kills

A Case Analysis by

• Ashok Kumar 13AC06• Raveen Selvan 13AC28• Revathi Priya 13AC30• Stanley Jebakumar 13AC36• Vinoth Kumar 13AC44

ITC - Introduction

• An Indian Conglomerate (103 years old)• Has Five Diversified Segments (FMCG, Hotels,

Paperboards, Paper & Packaging, Agri Business)• 2012-2013 Revenue – US$ 8.31 Billion• One of Forbes 2000 list• Only company in the world to be Carbon Positive,

Water Positive, Solid Waste Recycling Positive

ITC’s Vision

Sustain ITC's position as one of India's most valuable corporations through world class performance, creating 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 globalising environment, delivering superior and sustainable stakeholder value

Corporate Strategies

• Continue to focus on their existing portfolio• Ensure that their business is world class and

internationally competitive• Enhance competitive power of the portfolio• Create distributed leadership within the

organization• Continuously strengthen & refine Corporate governance process

Developed Vision

To make ITC as the world’s most valuable corporations through developing technology, many more new innovative products that add value to the customers and the company’s stakeholders

Developed Mission

To enhance the wealth generating capability of the enterprise in a digital environment and create a new superior digital way to reach the customers, delivering sustainable stakeholder value

Porter’s Five ForceModel

Rivalry Among CompetitorsAttractiveness

RemarksLow High1 2 3 4 5

No of Competitors Large Small Competitors like HUL, Cadbury, P&G

Industry Growth Slow Fast FMCG sector grows 17.3% every year (IBEF)

Fixed Cost High Low Economies of Scale avoids most of the fixed costs

Differentiation Low High Not much differentiation is found unless they

have varietiesSwitching

Cost Low High No cost involved

Openness in terms of sales Secret Open The process is known

Excess Capacity Large Small Demand is always high in FMCG sector

Strategic Stakes High Low FMCG sector is stable, so people invest

more

Barriers to Exit

Attractiveness

RemarksLow High

1 2 3 4 5

Asset Specialization High Low Hold-up is bilateral

Cost of Exit High LowMarket Demand

almost nullifies their cost of exit

Government restrictions High Low

There is no restriction and no need to pay

any cost to the government

Barriers to EntryAttractiveness


Economies of Scale Small Large Large Scale Production

Product Differentiation Low High Market Expansion

Brand Identity Low High Consumers are brand conscious

Switching Cost Low High No cost for preferring a different brand

Access to Channels of Distribution Easy Limited Planned Distribution

Capital Requirement Small Large Demand is high, so more investment is needed

Access to Technology Easy Restricted Faster access to information

Access to Raw Material Easy Restricted Raw material are easily available

Government Protection None Substantial No Restriction

Threat from Substitutes

AttractivenessRemarksLow High

1 2 3 4 5

Availability of close

SubstitutesHigh Low Plenty of Substitutes

Low Attractiveness

Switching Cost Low High Not much switching cost is

involved

Substitutes' price value Better Worse Comparatively better price

Profitability of the

producers of substitutes

High Low If they lose customers once, it’s tough to retain them back

Bargaining power of BuyersAttractiveness


No of Buyers Small Large Fourth Largest sector in Indian Economy(IBEF)

Availability of Substitutes Many Few Many local producers have similar products

Switching Cost Low High Almost all variants are of same price

Buyer’s Threat of Backward

IntegrationHigh Low Customers long for these products in market

Industry’s threat of Forward Integration

Low High No Dominant Suppliers

Contribution to Quality Low High Customers are highly concerned about quality

Contribution to Cost High Low Buyer has no involvement in cost

Buyer’s Profitability Low High Customer Delight is relatively high

Bargaining power of SuppliersAttractiveness


No of Suppliers Small Large Many Players are there in this industry

Availability of Substitutes Few Many Many local players are there to produce similar

products

Switching Cost High Low Almost all variants are of same price

Supplier’s Threat of Forward Integration

High Low Chances of Forward Integration for suppliers is less

Industry’s threat of Backward Integration

Low High Buyer’s do not threaten to integrate backward

Contribution to Quality High Low Suppliers are highly concerned about customer

retentionContribution

to Cost High Low Suppliers always minimize the cost to gain their edge in market

Industry’s Importance to

SuppliersLow High If they lose suppliers, they won’t be able to

satisfy customer needs

Government Actions

Attractiveness

RemarksLow High

1 2 3 4 5

Industry Protection Low High

Government extends its hand to protect an industry by exempting tax

and through other policies

Industry Regulation High Low Government encourages new

entrepreneurs of FMCG products

Customs and Tariff

Restrictions Abroad

High Low Export duties are less to encourage more exports from India

Overall AssessmentAttractiveness


Barriers to Entry Barriers to entry is almost less

Rivalry Among Competitors Competition is moderate

Barriers to Exit Barriers to exit is low

Power of Buyers Power of Buyers is moderate

Power of Suppliers Power of Suppliers is moderate

Threat of Substitutes Threat of Substitutes is high

Government Actions Government has many supportive policies

Overall Assessment Ultimately it’s a good sector to do

business

External OpportunitiesAnd Threats

Opportunities

• Untapped Rural Markets• Mergers and Acquisition• Increasing Buying Power of Customers• Rapid Growth of Media• Growth of New Customers• Growth of E-Commerce• Brand Consciousness of People

Threats

• Competitors in Market• FDI Interventions• Emergence of Local Players• Government Actions• No. of Substitutes

Competitive Profile Matrix

Factor ITC Limited Hindustan Unilever Limited

R&D Expenses 240 Crores 22.91 Crores

Product Innovation New varieties of Fiama Di Wills Knorr Soups

Revenue US$ 8.31 Billion US$ 3.6 Billion

Brand Awareness Very High High

Attrition Rate (Top Mgmt.) 0% for past 15 years About 5%

Products Varieties Few products Wide range of Products

Competitive Profile Matrix

S. No FactorsITC HUL

Weight Rating Weighted Score Weight Rating Weighted

Score

1 R&D Expenses 0.18 3 0.54 0.18 2 0.36

2 Product Innovation 0.13 2 0.26 0.13 4 0.52

3 Revenue 0.14 4 0.56 0.14 3 0.42

4 Brand Awareness 0.22 4 0.88 0.22 3 0.66

5Attrition Rate (Top Mgmt.)

0.18 4 0.72 0.18 2 0.36

6 Product Varieties 0.15 2 0.3 0.15 4 0.6

Total 1 3.26 1 2.92

External Factor Evaluation Matrix

S. No Key External Opportunities Weight Rating Weighted Score

1 Untapped Rural Markets 0.13 4 0.52

2 Mergers & Acquisition 0.06 1 0.06

3 Increasing Buying Power of Customers 0.08 2 0.16

4 Rapid Growth of Media 0.07 2 0.14

5 Growth of New Customers 0.09 3 0.27

6 Growth of E-Commerce 0.06 1 0.06

7 Brand Consciousness of People 0.07 2 0.14

Total 0.56 1.35


S. No Key External Threats Weight Rating Weighted Score

1 Competitors in Market 0.13 4 0.42

2 FDI Interventions 0.09 3 0.27

3 Emergence of Local Players 0.08 2 0.16

4 Government Actions 0.06 2 0.12

5 No. of Substitutes 0.08 2 0.16

Total 0.44 1.13


S. No Key External Factors Weighted Score

1 Opportunities 1.35

2 Threats 1.13

Total 2.48

Internal Strengths AndWeaknesses

Strengths

• Brand Name• Quality• Market Share• Good Top Management• Product Diversification• Big Supply Chain• Marketing Team• Low Price• R&D Department

Weaknesses

• Negative Notion on Tobacco• High Taxation• Unrelated Diversification

Internal Factor Evaluation Matrix

S No Key Internal Strengths Weight Rating Weighted score

1 Brand Name 0.06 4 0.24

2 Quality 0.1 2 0.2

3 Market Share 0.06 4 0.24

4 Good Management 0.07 4 0.28

5 Product Diversification 0.1 2 0.2

6 Big Supply Chain 0.07 4 0.28

7 Marketing Team 0.07 4 0.28

8 Low Price 0.13 1 0.13

9 R&D Dept 0.08 3 0.24

Total 0.74 2.09


S No Key Internal Weaknesses Weight Rating Weighted score

1 Negative Notion on Tobacco 0.09 2 0.18

2 High Taxation 0.07 3 0.21

3 Unrelated Diversification 0.1 1 0.1

Total 0.26 0.49


S. No Key Internal Factors Weighted Score

1 Strengths 2.09

2 Weaknesses 0.49

Total 2.58

SWOT MatrixStrength1. Strong & experienced management2. Trusted brand in India3. Diversified products and service portfolios4. Excellent R&D facilities5. One of the most liquid script in capital market

Weakness1. Diversification into various fields would be risky if there s no knowledge in that2. Largely Dependent on cigarette revenues3. Low market share in hotels segment

Opportunity1.Increase reach in rural markets2.Mergers and acquisitions to strengthen the brand3.Increasing purchasing power of people4.Good source of foreign exchange is available from the export of agri products

SO StrategyWith its strong brand image it

could extend its markets in rural regions (S2,O1 )

WO StrategyWith the mergers and

acquisitions it can improve its hotels segment (W3,O2)

Threat1.Negative publicity for smoking could affect its cigarette segment2. Competition from unbranded products3. Intense competition from other FMCG and hotel chains4.Monsoon failures could affect the agri exports

ST StrategyFinding alternatives to

overcome monsoon failures with its organised R&D

facilities (S4,T4)

WT StrategyCould increase the market

share of hotels chain through vigorous marketing

(W3,T3)

BCG Matrix

MARKET SHARE

GROWTH

Star• Agri Business• Hotels• Paperboards & Packaging

Question Mark

• FMCG (Food Products)

Cash Cow• FMCG (Cigarettes)

Dog• ITC - Infotech

IE Matrix

1 2 3

4 5 6

7 8 9

IFE Matrix Score

GROW AND BUILD HOLD AND MAINTAIN

HARVEST OR DIVEST

Strong Average Weak

High

Medium

Low

1

2

3

4 3 2 1

2.48

2.58

EFE

Mat

rix S

core

Grand Strategy Matrix

Quadrant 1Market and

Product Development

Market Penetration

Forward/Backward

IntegrationConcentric

Diversification

Quadrant 3Retrenchment

Related/Unrelated DiversificationConglomerate DiversificationLiquidation/Divestiture

Quadrant 4Related/

Unrelated Diversification

Horizontal/Vertical

DiversificationConglomerate DiversificationJoint Ventures

Rapid Market Growth

Slow Market Growth

Wea

k Co

mpe

titive

Pos

ition

Stro

ng C

ompe

titive

Pos

ition

Space Matrix

S.No Factors Ratings

Industrial Strength1 Viral Marketing & Promotions 5

2 Brand Image 3

3 Diversification 2

Total 10

Competitive Advantage1 70% Market Share in Indian Cigarette Industry -1

2 0% Attrition Rate in Top Mgmt. for the past 15 years -2

3 Spends nearly 240 Crores for R&D Projects -3

Total -6

Space Matrix

S.No Factors Ratings

Financial Strength

1 Net Profit has increased by 17% during 2012-2013 5

2 Phenomenal increase of ROC from 28.4% to 45.7 4

3 Has a liquidity ratio of 1.27 2

Total 11

Environmental Stability

1 High Inflation rate in India -4

2 Low Switching cost in FMCG industry -2

Total -6

Space Matrix

• ES Average is -6/2 = -3• IS Average is 10/3 = 3.33• CA Average is -6/3 = -2• FS Average is 11/3 = 3.66

• Directional Vector Coordinates• X-axis : -2+3.33 = 1.33• Y-axis : -3+3.66 = 0.66

Space Matrix

1.33

0.66

AggressiveConservative

Defensive Competitive

QSPM Matrix

Strategy 1 Tapping the rural market

Strategy 2Increasing the market share of Hotels

QSPM Matrix

S. No Key External Opportunities Weight

Strategy 1 Strategy 2

AS TAS AS TAS

1 Untapped Rural Markets 0.13 4 0.42 - -

2 Mergers & Acquisition 0.06 - - 1 0.06

3 Increasing Buying Power of Customers 0.08 2 0.16 2 0.16

4 Rapid Growth of Media 0.07 2 0.14 2 0.14

5 Growth of New Customers 0.09 3 0.27 3 0.27

6 Growth of E-Commerce 0.06 - - 1 0.06

7Brand Consciousness of People

0.07 2 0.14 - -

Total 0.56 1.13 0.69

QSPM Matrix

S. No Key External Threats Weight


AS TAS AS TAS

1 Competitors in Market 0.13 4 0.52 4 0.52

2 FDI Interventions 0.09 - - - -

3 Emergence of Local Players 0.08 2 0.16 - -

4 Government Actions 0.06 2 0.12 - -

5 No. of Substitutes 0.08 - - 2 0.16

Total 0.44 0.8 0.68

QSPM Matrix

S. No Key Internal Strengths Weight


AS TAS AS TAS

1 Brand Name 0.06 4 0.24 4 0.24

2 Quality 0.1 2 0.2 2 0.2

3 Market Share 0.06 - - - -

4 Good Management 0.07 - - 4 0.28

5 Product Diversification 0.1 2 0.2 - -

6 Big Supply Chain 0.07 4 0.28 - -

7 Distribution channel 0.07 4 0.28 - -

8 Low Price 0.13 1 0.13 1 0.13

9 R&D Dept 0.08 - - - -

Total 0.74 1.33 0.85

QSPM Matrix

S. No Key Internal Weakness Weight


AS TAS AS TAS

1 Negative Notion on Tobacco 0.09 2 0.18 - -

2 High Taxation 0.07 - - 3 0.21

3 Unrelated Diversification 0.1 1 0.1 - -

Total 0.26 0.28 0.21

QSPM Matrix

S. No Key Factors WeightStrategy 1 Strategy 2

TAS TAS

1 Opportunities 0.56 1.13 0.69

2 Threats 0.44 0.8 0.68

3 Strengths 0.74 1.33 0.85

4 Weaknesses 0.26 0.28 0.21

Total 2 3.54 2.43

THANK YOU

itc corporate strategy analysis

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