An IT Bet Pays Off

What is common between the following products–Gold Flake, Classic Milds, SunDrop, John Players, Mint-o, Grand Maratha and Aashirvad? This brain-teaser does really merit a place in BBC Mastermind, if you take into account that while the first two are cigarettes, the rest are edible sunflower oil, lifestyle apparels, peppermint toffees, a five-star Mumbai hotel and table salt respectively. The answer is that all these are brands of ITC Limited, India’s largest FMCG conglomerate at Rs 11,025 crore, and before the meteoric rise of the Reliance Group, the country’s largest foreign exchange earner for years.

This also shows that the ITC story does not start and end only with tobacco–its reach encompasses a host of other FMCG product lines like edible oil, atta, biscuits, toffees, lifestyle apparels, besides other diversified businesses like agri-products, paperboards, paper, packaging, hotels and even software development and BPO. In addition, it has also launched the e-Choupal initiative, one of the country’s largest IT-based b2c initiatives in rural India.

It is IT that glues together the operations and processes across business domains

V V R Babu, CIO, ITC

With the Rs 35,000-crore FMCG segment being one of the largest implementers of IT in the country, no wonder ITC has been one of the pioneers for India Inc. in this respect. Besides being one of the early implementers of information systems (1982 onwards), as well as positioning itself as a “vendor” of IT services (through formation of ITC Infotech), ITC has invested significantly in IT (in excess of Rs 100 crore y-o-y for the last few years) and developed expertise to meet its internal requirements. Some of the prominent areas where ITC is harnessing the power of IT include supply chain management, dealer management, customer relationship management and sales force management. Another unique IT success story from ITC is its e-Choupal venture–combining a broad set of online resources and a network of around 2,500 kiosks, this private initiative of ITC reaches rural farmers in about 15,000 Indian villages in four states. Asserts V V R Babu, CIO, ITC: “IT plays a powerful transformational role in bringing together diverse business models and is a key enabler for positioning our business enterprise for seizing new and emerging opportunities.”

Birth of ITC Infotech

The different IT initiatives of ITC are attached by a strong umbilical cord to its different businesses. Understanding the proper significance of this attachment cannot be realized, feels Babu, without studying the genesis of its IT subsidiary, ITC
Infotech.

“ITC, in its diversified businesses, has top-class IT talent for engaging in challenging initiatives leveraging IT to enable businesses achieve sustainable advantages. In order to leverage the deep domain expertise built in the diverse businesses ITC has presence in, we formed a new business subsidiary ITC Infotech in 1999.” The date of its formation points towards the veracity of Babu’s comment. During the peak days of body shopping and onsite projects by Indian IT service companies, it would have been difficult, nay impossible, for ITC to hold back talent in its Indian development premises. Hence, ITC Infotech was mandated to function as an individual IT services company catering to clients in both the UK and the US.

Today, ITC Infotech has moved considerably up the value chain and is a Rs 48.96 crore company with blue chip clients like Abbey National, British American Tobacco, Pharmacia, PTC and Sony. However, its success as an IT company has not deterred it from its original agenda of catering to the IT needs of ITC. The parent company still contributes around 15% to ITC Infotech’s revenue. But Babu, who also dons the hat of senior vice-president, ITC Infotech, is prompt to inform that even the ITC contracts are bagged in the face of competitive bidding against the likes of TCS, Wipro, Satyam and PricewaterhouseCoopers (now IBM Business Consulting).

But what are these IT projects that compel ITC to spend in excess of Rs 100 crore every year and how do they enhance the dynamics of its different businesses? Babu identifies three key drivers for the IT initiatives in ITC (see box Catalysts for ITC IT Hungama). Nothing illustrates this better than the widespread use of IT in its FMCG business. Says Babu: “It is IT that glues together the operations and processes across the business domains by enabling the virtual cluster of specialists and process owners to interact and work together for achieving the business goals.” Some of these achievements would include the creation of extranets to capture market data and integrate business partners such as dealers to the Intranets to facilitate seamless movement of data across the enterprise, thereby enabling quick responses to customer requirements. Next, a business intelligence data warehouse is created to facilitate superior market analysis for customer segmentation and understanding, and lastly, various units of the organization are interconnected through a virtual private network for seamless data exchange.

SAP success story

However, the IT project that takes the cake is the extensive implementation of SAP to drive the management of complex processes such as new product development, retail merchandising and shelf assortment. Not unexpectedly, the SAP implementation in ITC was fraught with challenges–the three most crucial were the complexity and sophistication of ITC’s business processes, stringency of regulation inherent to the cigarette industry and transitioning a large organization from 34 legacy IT systems to an integrated, centralized system such as R/3. According to Babu, who has been at the helm of ITC’s IT affairs from 1979, ITC was planning for some time to replace its existing legacy software systems with a comprehensive and integrated package to address current strategic business directions. Till 1998-99, ITC was using an ERP that had been developed in-house at its IS division and the MK8.0 RDBMS from CA-Ingres, which could only run on its VAX-VMS servers. It even used an in-house developed backup and restore utility called BRISK while its backup used to be taken in data-card readers in Jadavpur University RCC, since the Winchester hard disks being used were not very reliable.

The primary drawbacks of this existing legacy system included, among others, a lack of updated information due to non-integrated systems, difficulty in modification of current systems to address new information requirements related to product quality, impending technology obsolescence (existing VAX platform), and lastly, use of multiple technologies making integration and modification complex and cumbersome. After an extensive survey from 1995-98 followed by a proof-of-concept, ITC implemented an integrated ERP/SAP software system to replace the existing operational system in 2001 at a cost of around Rs 42
crore.

Prior to its full-scale implementation, a pilot study of the SAP “Sales & Distribution” module was conducted at the head office, district offices, branches and factories to avoid the risk of jeopardizing business operations in the event of a system failure. Till date, eight SAP modules–finance, controlling, sales and distribution, materials management, production planning, quality management, plant maintenance and human resources–covering the most critical business processes have been implemented. This ERP plan also includes the selection, design and implementation of the supply chain management tool and the data warehouse system. A couple of data centers have been set up at Kolkata and Bangalore with two central Sun STARFIRE servers in each, which provide high reliability and superior service levels and provide the flexibility to scale up without modifying the basic architecture. The ERP project went live simultaneously at 55 sites all over India, making it one of the largest SAP implementations in India. Currently, the ITC Infotech team supports the application with a central help desk located at Kolkata. Babu also lists out the benefits accrued to ITC following the SAP implementation (see box SAP to the Rescue).

Empowering the farmer

Apart from FMCG, IT is also playing a crucial role in other ITC businesses, of which the e-Choupal project, which is targeted at rural India, deserves special mention. The international business division arm of ITC, which is engaged in agri-exports, has drawn upon the competencies of ITC’s IT business to create a unique click and mortar capability christened e-Choupal.

The e-Choupal project, launched in June 2000, has today become the largest Internet-based corporate initiative in rural India.

e-Choupal’s network today reaches out to more than 1.3 million farmers in over 15,000 villages through 2,500 e-Choupal kiosks that ITC has set up across four states–Madhya Pradesh, Karnataka, Andhra Pradesh and Uttar Pradesh. The hurdles that ITC encountered while setting up and managing these e-Choupals relate primarily to infrastructural inadequacies in rural India: lack of power supply, telecom connectivity and bandwidth. Imparting computer usage skills to first-time Internet users in the remote areas of rural India proved to be another daunting proposition.

ITC has evolved several alternative and innovative solutions to overcome these challenges: for instance, arranging back-up power through batteries charged by solar panels, upgrading the rural telephone exchanges, installing VSAT equipment, introducing mobile choupals, local caching of static content, enhancing efficiency in streaming-in dynamic content, and setting up a distributed 24*7 helpdesk infrastructure. ITC, in fact, convinced 175 local telephone exchanges to upgrade their equipment to support data transmissions, initially at ITC’s expense. To overcome limited bandwidth, they cached static content locally so that only dynamic content needed to be streamed. Says Babu: “The strategic intent is to create a farming meta-market across India through e-hubs for servicing the information needs of clusters of villages. Besides, it also created the infrastructure to facilitate efficiency in purchase and sale of high quality inputs, farm produce and services such as micro credit, insurance, health and education services.

The international business division arm of ITC, which is engaged in agri-exports, has drawn upon the competencies of ITC’s IT business to create a click and mortar capability christened
e-Choupal

RAJNEESH DE in Mumbai