ITC LIMITED: DIVERSIFICATION STRATEGY
CASE STUDY SOLUTION
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CASE SYNOPSIS
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Present-day ITC Limited (ITC) is a well-diversified company with a presence in various businesses,
including fast-moving consumer goods (FMCG), hotels, agribusiness, paperboards and paper, and
packaging. The 113-year-old India-based company has de-risked its portfolio and also remained relevant
and competitive. This case chronicles the transition of ITC from a cigarette major to a conglomerate,
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aspiring to become the number one FMCG player. The creation of a strong brand portfolio coupled with an
adept brand extension strategy spelled rapid growth for the company’s FMCG business. ITC’s successful
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diversification, led by the FMCG business, can be attributed to its corporate parenting advantage that
accrued to the various businesses housed as divisions or strategic business units (SBUs) under a single listed
company.
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Fiscal year 2023 had drawn to a close. ITC faced numerous questions. Was the millet-based business a
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good fit in the company’s parenting matrix? Would the food business benefit from the structural advantages
that ITC had created as a corporate parent? What strategic initiatives could ITC take to gain further traction
in the FMCG market?
OBJECTIVES
• Understand the concept of diversification.
• Assess a company’s economic and social performance.
• Understand the concept of corporate parenting.
• Create a parenting matrix.
The Case Solution Starts From page 6
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ASSIGNMENT QUESTIONS
1. Discuss the evolution of ITC as a conglomerate.
2. Explain ITC’s triple bottom line approach to business.
3. As a corporate parent, how does ITC advantage its different businesses?
4. Is the millet-based business a good fit in ITC’s parenting matrix?
5. What strategies should ITC adopt to gain further traction in the FMCG market?
The Case Solution Starts From page 6
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ANALYSIS
1. Discuss the evolution of ITC as a conglomerate.
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The cigarette and tobacco business remained ITC’s mainstay for many decades. The tough regulatory stance
(high taxation and restrictions on advertising) for this business was one of the biggest forces that compelled
ITC to diversify.
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ITC evolved from a focused company to a conglomerate. Richard Rumelt posited three different types of
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diversified companies: dominant business companies, related business companies, and unrelated business
companies.1 ITC was established in 1910. Even though the company started its packaging and printing
business in 1925, entered the hotel business in 1975, and started the agribusiness division in 1990, it
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remained a dominant business company (defined as a company with 70–95 per cent of revenue from a
single business) until the turn of the century. Even in the year 2000, ITC’s market offering was primarily
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cigarettes and tobacco products (FMCG–Cigarettes), which accounted for more than 87 per cent of the
company’s sales. Its foray into the retailing business in 2000 and the foods business in 2001 was aimed at
The Case Solution Starts From page 6
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5. What strategies should ITC adopt to gain further traction in the FMCG market?
So
ITC can gain further traction in the FMCG market through adjacency strategies. Adjacency strategies have
three features. First, their significant size leads to related adjacency moves and thus generates considerable
growth. Second, the adjacent move draws from the strength of the core and reinforces and defends it. Third,
they entail a step up in risk as compared to typical organic growth. Adjacency moves may take many forms,
as discussed below.
Venture into A New Product Arena Building on the Strengths of a Core Business
ITC’s FMCG business is being led by the foods division. It is ITC’s biggest and fastest-growing business with
a contribution of nearly 23 per cent to the company’s top line in 2023. The company has grown with the help of
The Case Solution Starts From page 6
, EXHIBIT -1: EXAMPLE OF ITC LIMITED’S LEVERAGING OF SYNERGIES ACROSS BUSINESSES
Leaf
Tobacco
Agri Business FMCG
(Leaf tobacco) Cigarettes
Ingredients
Agribusiness
(Wheat, potato, etc.)
Culinary
Insights
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Paper
Packaging
Sa
n
tio
lu
So
The Case Solution Starts From page 6
CASE STUDY SOLUTION
e
pl
m
CASE SYNOPSIS
Sa
Present-day ITC Limited (ITC) is a well-diversified company with a presence in various businesses,
including fast-moving consumer goods (FMCG), hotels, agribusiness, paperboards and paper, and
packaging. The 113-year-old India-based company has de-risked its portfolio and also remained relevant
and competitive. This case chronicles the transition of ITC from a cigarette major to a conglomerate,
n
aspiring to become the number one FMCG player. The creation of a strong brand portfolio coupled with an
adept brand extension strategy spelled rapid growth for the company’s FMCG business. ITC’s successful
tio
diversification, led by the FMCG business, can be attributed to its corporate parenting advantage that
accrued to the various businesses housed as divisions or strategic business units (SBUs) under a single listed
company.
lu
Fiscal year 2023 had drawn to a close. ITC faced numerous questions. Was the millet-based business a
So
good fit in the company’s parenting matrix? Would the food business benefit from the structural advantages
that ITC had created as a corporate parent? What strategic initiatives could ITC take to gain further traction
in the FMCG market?
OBJECTIVES
• Understand the concept of diversification.
• Assess a company’s economic and social performance.
• Understand the concept of corporate parenting.
• Create a parenting matrix.
The Case Solution Starts From page 6
, e
pl
m
Sa
n
tio
lu
So
ASSIGNMENT QUESTIONS
1. Discuss the evolution of ITC as a conglomerate.
2. Explain ITC’s triple bottom line approach to business.
3. As a corporate parent, how does ITC advantage its different businesses?
4. Is the millet-based business a good fit in ITC’s parenting matrix?
5. What strategies should ITC adopt to gain further traction in the FMCG market?
The Case Solution Starts From page 6
, e
pl
m
ANALYSIS
1. Discuss the evolution of ITC as a conglomerate.
Sa
The cigarette and tobacco business remained ITC’s mainstay for many decades. The tough regulatory stance
(high taxation and restrictions on advertising) for this business was one of the biggest forces that compelled
ITC to diversify.
n
ITC evolved from a focused company to a conglomerate. Richard Rumelt posited three different types of
tio
diversified companies: dominant business companies, related business companies, and unrelated business
companies.1 ITC was established in 1910. Even though the company started its packaging and printing
business in 1925, entered the hotel business in 1975, and started the agribusiness division in 1990, it
lu
remained a dominant business company (defined as a company with 70–95 per cent of revenue from a
single business) until the turn of the century. Even in the year 2000, ITC’s market offering was primarily
So
cigarettes and tobacco products (FMCG–Cigarettes), which accounted for more than 87 per cent of the
company’s sales. Its foray into the retailing business in 2000 and the foods business in 2001 was aimed at
The Case Solution Starts From page 6
, e
pl
m
Sa
n
tio
lu
5. What strategies should ITC adopt to gain further traction in the FMCG market?
So
ITC can gain further traction in the FMCG market through adjacency strategies. Adjacency strategies have
three features. First, their significant size leads to related adjacency moves and thus generates considerable
growth. Second, the adjacent move draws from the strength of the core and reinforces and defends it. Third,
they entail a step up in risk as compared to typical organic growth. Adjacency moves may take many forms,
as discussed below.
Venture into A New Product Arena Building on the Strengths of a Core Business
ITC’s FMCG business is being led by the foods division. It is ITC’s biggest and fastest-growing business with
a contribution of nearly 23 per cent to the company’s top line in 2023. The company has grown with the help of
The Case Solution Starts From page 6
, EXHIBIT -1: EXAMPLE OF ITC LIMITED’S LEVERAGING OF SYNERGIES ACROSS BUSINESSES
Leaf
Tobacco
Agri Business FMCG
(Leaf tobacco) Cigarettes
Ingredients
Agribusiness
(Wheat, potato, etc.)
Culinary
Insights
e
pl
m
Paper
Packaging
Sa
n
tio
lu
So
The Case Solution Starts From page 6
