Indian Telephone Industries Ltd. Reluctance to Change
- Length: 1346 words (3.8 double-spaced pages)
- Rating: Excellent
ITI Limited is India's pioneering venture in the field of telecommunications. Born in 1948, this premier PSU has contributed to 50% of the present national telecom equipment. With state-of-the-art manufacturing facilities spread across six locations and a countrywide network of marketing/service outlets, the Company offers a complete range of telecom products and total solutions covering the whole spectrum of Switching, Transmission, Access and Subscriber Premises equipment.
Secure communications is the Company's forte with a proven record of engineering strategic communication networks for India's Defence forces. Extensive in-house R&D work is devoted towards specialized areas of Encryption, NMS, IT and Access products to provide complete customized solutions to various customers. The competitors of ITI have been Tata Telecom., Shyam Telecom Ltd., Krome Communications Ltd., Himachal Futuristic Communications Limited. and Bharti Telecommunications.
1.2 PROBLEM FACED BY COMPANY
Since ITI ltd was one of the most prominent companies of its times, the decline of the company was a gradual process and not an impulsive one. ITI, on September 31, 2003, sought consent from its shareholders to inform the Board for Industrial and Financial Reconstruction of the fact that heavy losses had more than halved the company's net worth. For 2002-03, the company had suffered a loss of Rs. 375 crores with a net worth of Rs. 452.32 crores. The net worth per rupee of the company's Rs. 388 crore paid up capital was minus 10 paise.
1.3 METHODOLOGY OF RESEARCH
The methodology we have applied to analyze the problems prevailing in the industry , is that we have done
• Literature study of background of company, and problem faced by it.
• Study and understanding the product characteristics and market structure.
• Trend analysis between the sales, expenditure and PAT.
• Particular instances of problems faced by ITI ltd that demonstrates its incompetence and coordination problems within its officials and outside the company. That was a major contributor in its decrease of profits over the years.
• Analyzing declining Marginal Productivity of labour.
• Suggestions and proposals
1.4 PRODUCT UNDERSTANDING AND MARKET STRUCTURE ANALYSIS
ITI produces electronic equipment pertaining to telecom sector. ITI’s wireline equipment is its major product. Being a product for usage for wireline provider, it is a complementary product for the telecom service provider. Thus its demand rises, if demand for wireline rises, and falls if demand for wireline falls. This indicates that ITI’s sales are dependent on demand in market for wireline connections (DOT).
So while DOT was operating in a monopoly market, ITI was operating in non-collusive oligopoly.
Both these complementary products have undergone change over the years. Later due to technological changes, followed by deregularization, entry of private players in the market and consequent changes in the tastes and preferences of consumers, the service provider sector converted from monopoly to oligopoly, while equipment market changed from oligopoly to monopolistic competition. Herfindahl Index is found to be 0.2037.
As the ITI’s production house did not catch up with the change in the market to which ITI’s products were complementary, it declined as wireline service declined. It did not diversify into wireless equipment. Hence the main cause of demise of ITI was resistance to change.
1.5 TREND ANALYSIS
The trends of ITI’s performance can be depicted from the charts drawn between various attributes as:
The chart depicting the trend of sales turnover, total expenditure and the reported PAT:
The trend is very impulsive one.
o The sales as well as the expenditure are very low in the first three quarters of each year and suddenly increase in the last quarter. This is mainly because of inefficient work processes in three quarters in negligence in supplies, quality and services.
o The sales figures and the expenditure moves hand in hand, which shows the inefficiency appearing in the execution of the operations.
o Moreover there is almost no control on the expenditure incurred or no appropriate measures have been taken to reduce it and the hence the company is facing losses for all these years.
1.6 PROBLEMS FACED BY ITI
The major loophole is the inefficiency in supply to the customers. This has manly led to the ineffectiveness in the operations carried out by the company. Few are the basic problems that ITI is facing since few years:
• INEFFFICIENCY IN EXECUTION OF THE STRATEGIES AND OPERATIONS: ITI Ltd. still continue to work in watertight compartments. Employees usually do not honour the commitments given to customers. This lead to delayed completion of technical and commercial requirements of a project at different stages.
• FINANCIAL CRISIS : Another major problem is the financial constraints that the company usually face for continuing its operations. As the financial statements depict, the health of the company has dipped exponentially in recent years. As a result, it was listed in the BIFR cases under the Sick Companies of 2003.
• EXTENSIVE CUT THROAT COMPETITION: ITI’s reluctance in innovation and change in the competitive market and government negligence has also led to the decline of this industry.
• STILL BANKING ON THE EXPERIENCE OVER YOUTH AND DECREASING EMPLOYEE STRENGTH: Almost negligible flow of fresh blood and increased employee turnover is also a cause.
• GOVERNMENT POLICIES: The changing government policies are a hurdle in the progress of the company.
Analysing the recent years, it is observed that the company faced some avoidable expenses which could have been reduced, had the company worked on streamlining its processes and operations
1.7 Analyzing declining Marginal Productivity of labour
As can be seen from the graph one reason for the decline in the productivity of employees is excessive employment.
1.8 INEFFICIENT WORK PROCESSES: ILLUSTRATIONS
1. ITI entered into a deal wish BSNL for supply of telecommunication equipment. A mandatory clause said that ITI must get approval certificate for all material supplies from BSNL before commencement of supplies.ITI made a huge delay in placing the order for antenna for equipment which led to delay in approval and hence supply of equipment to BSNL, who levied damages upon ITI and reduced the provisional price of the sale.
2. ITI failed to provide complete testing infrastructure to MTNL for its supplies for which MTNL levied damages. Certain tests required live environment through assistance of a service provider like MTNL which ITI was in no position to provide. It committed to provide these facilities without due feasibility analysis.
3. Company continued to pay higher electricity charges than necessary for its Rae Bareli plant because it failed to segregate its industrial consumption from residential for a prolonged period of time. It also failed to follow up with senior UPPCL officials in this matter.
4. Company outsourced supplies of Network Management System (NMS) which it was to deliver to RCPO, Ministry of Defense, to an outside vendor without credentials verification. The vendor wound up its business without completing the supplies. Also, the company was unable to recover full payment excluding the undelivered components.
Conclusions: The given examples can be used to infer a great deal of inefficiencies that existed in ITI Ltd that came in the way of dispatch of work, approval of orders, flow of activity information within organization, follow up of important contractual and financial activity with suppliers and client base of ITI. We have seen that ITI was unable to follow up to retrieve payments even when the other party was obligated to pay. It was unable to enforce action on the part of UPPCL officials to heed to its demand of separation of facilities which resulted in overpayment continued over a period of time. This lack of coordination between departments opened up new gates of inefficiencies which ultimately lead to ITI Ltd’s demise.
• Efficiency in management and in operations. With increasing competition companies cannot survive with inefficiencies.
• The company needs to diversify into production of cell phones and more modern equipment in face of betterment of technology and increase in competition.
• The above will involve increase in R&D expenditure.
• The employee efficiency is reducing due to over employment and no accountability; the employees need to be made more accountable for their work.
• Excessive employment caused the productivity to decline, hence in the current scenario excessive employment should be avoided.