Growth Plans of Chennur Tea

Prem Shaw sat up with a start. He was listening to his wife who had just returned from visiting their son in Chicago. She said, "The only thing I didn't like was his apartment. He cooks, sleeps, eats, and even studies in that room. How can you get focus? I wonder if he will get his degree in the midst of all this."

Prem felt a similar confusion. Everything was somehow linked to his company's new business plans. Chennur Tea, the Rs 400-crore Chennai based Tea Company where he was the head of corporate strategy, was contemplating change. And after last week's meeting with his consultant, Riaz Latif, the change seemed even bigger. For not only was Riaz suggesting moving away from the tea business but even redefining the business structure. Chennur had been looking at growth avenues but couldn't decide between improving its existing tea business with packaging innovations and convenience (alternative 1), or investing in ready-toeat foods like microwaveable dais, curries and vegetables (alternative 2).

"The question is what kind of growth we are seeking?" asked Prem "We can innovate forever since 'drinking tea' isn't likely to go out of fashion." "Let's understand one thing, we are in the beverages business" said Anup Tondon, the marketing- head. Anup suggested that they innovate tea and take it beyond current blends and alter packaging to give more convenience. But Riaz wasn't convinced. "As long as you continue fulfilling the needs of your existing consumer set, you won't be able to pull Chennur out of the low performance trap it is in" said Riaz. "You have to start looking at real growth and that lies in anticipating future trends and slotting yourself into the anticipated future needs or lifestyle of customers. No doubt you will fine-tune your strategy in tea, innovate on packaging and project demand that will be up 15 times in five years. But what next? Attempts at packaging innovation etc., will, at best, help gain some market share and, perhaps, add to your sales, but not a quantum leap. If we want to take the company up many rungs, you must think of other areas also e.g. ready-to-eat foods."

Prem remarked, "Whatever future trends you may talk of, it must have some bearing on what the market has revealed. Where is the market for ready- to-eat foods apart from potato chips and namkeen?" "But where was the market for potato chips when Lehar launched its brand?" asked Riaz. "I agree the concept will appeal to few initially and that sales will be limited. Was there a market for garlic paste when Dabur launched it? In many cases we have seen that the product does improve at a rapid rate and even replaces existing habits or perceptions of a category."

Staying close to the consumer's current needs could blinker a marketer from innovating, felt Riaz. He agreed that there would always be scope for improving the current needs of consumers, but to see that as an investment for growth is where he disagreed. "So, you could continue tweaking your packaging, and offering multiple blends. But look at the bigger picture: there is a discernible shift in lifestyle and aspirations. Decode that correctly and anticipate the shape of things to come. So, why not ready- to-eat foods?" he said.

"But there has to be a market and a felt demand," said Anup. "We have to fit ourselves to consumer needs. There has to be felt need and demand. But something whose need has not been felt, doesn't even exist - how do we justify an investment on that?"

"Of course," said Riaz, "a maverick new category which is futuristic will not offer attractive financial yields. And yes, costs will be huge. But that is the price you have to commit to for real growth. "But tell me," continued Riaz, "what kind of information about the market did Reebok have when it entered India? Was there a market for technically engineered shoes to begin with? Who knew? But there was aspiration; there was an interest in fitness. If Reebok had stayed close to the existing consumer need of functional shoes at a cheap price, there wouldn't have been a market for its technically engineered shoes! Reebok developed market by actually putting its shoes on the shelves, believing in the compatibility of its value delivery with the aspirations and trends in consumer lifestyles and thinking that consumers were aspiring to improve the way they lived. It redesigned its shoes, did some spectacular value engineering and adapted its product to the evolving mindset of consumers in India. That naturally brought down costs and, hence, the price. At that point, Reebok started setting targets and calculating budgets. Not before it entered the market.

The following two days, Prem and Atul were involved in intense debate. The idea of entering ready- to-eat foods seemed less daunting now, although they felt the typical anxiety that preceded a vital move. "If Reebok or say Kellogg's succeeded in breaking the myths behind their expected failure, I'd think it was also because they were multinationals with deep pockets" remarked Prem.

"Wrong," said Riaz, "Because they were both start-ups and not divisions of an existing company. And that is the other aspect of a new business. If you have decided to enter ready-to-eat foods, understand that success will depend on the business model too. Because a new product category, one that is path-breaking or different from the mainstream product category of an existing company, needs an environment where there are no benchmarks, no history, where small wins create energy and don't invite ridicule, and provide focus and drive. So if you decide to enter the ready-to-eat foods business set-up, let it be a separate firm and don't run it through a division of Chennur,"

That led to a fresh 'round of agitation and anxiety in Prem's mind. "Where is the need for that?" he asked. "As it is entering a new category, it's going to strain our bottom-line; we hardly need additional costs to render the idea unviable."

Riaz said: "It is difficult for established firms to undertake new ventures and sit patiently through the startup stages. Mind you, the new business is not going to reap revenues in a year or two. It is going to be a slow process. The tea division will not sit back and watch quietly. There will be the tug and pull of resource allocation and you will unwittingly expect the same financial performance standards from your new business, which apply to the more successful tea business. What will happen in the process is that you will set tough targets for the new business, harass its every move and curb its independence."

"Maybe," said Prem "But setting up a separate company doesn't make sense. Firstly, we do not even know if the new business is going to pay for its upkeep. If it is a division, it can readily use our existing market research and financial services facilities, the administration and even the sales team. Those are huge costs it does not make sense to duplicate these services and costs."

The advantage of starting alone, felt Riaz, was the ability to develop a distinctive vision for the new business without the tedium of constant referrals to the mainstream business. "A division 'divides vision' and splintered visions don't guarantee success," he said. "Your new business will have lower profit margins than your mainstream business, a different consumer set to cater to, maybe a different distribution strategy. Left alone, it will develop the initiative to look at the market from a zero-base." Ready-to-eat food was a completely different business with different consumer needs, felt Riaz, which demanded a separate organization.

"Does that mean that each time we want to enter a new business we have to float separate companies?" asked Prem "Well, I suppose as long as they are strategically different from the mainstream business," suggested Riaz.

This was one big move. The choice of business was no more an issue. The consensus was in favor of readyto-eat. What worried Prem was Riaz's suggestion that if it was a business clearly distinctive from the core business, it should be handled out as a separate organization.

1.In the light of the concept of business definition, discuss the possible expansion strategies for the company. Which of them will be a better option for Chennur?

2.If Chennur decides to enter the ready-to-eat segment, do you agree that a new business should be handled out as a separate organization? Describe the desirable organizational structure.

3.What will be the functional implementation dimensions vis--vis the new strategy?

4.Discuss the strategic leadership role, which the CEO must adopt to align vision to results.

5.Highlight the aspects of change vs. continuity for this organization.