Against the Grain: Bucking the outsourcing trend

The painting says it all. Dominating Vazir Sultan Tobacco's boardroom is an original print of the erstwhile Nizam of Hyderabad inaugurating the company's formation in 1930. Even today, the company exudes an old-world charm that its name conjures up. It's stone walls are a throwback from another time. It's a company where tradition is respected.

As it turns out, that's not the only thing that gets attention at VST.

Underneath its distaste for chrome, glass and anything loudly modern, VST's been busy pulling off an IT feat few other modern companies have attempted.

In an era when outsourcing has become a stock-in-trade practice, when managements -- fed on a healthy dose of strategy-speak and cost cutting -- are salivating over what they can outsource next, to insource seems contrarian.

But it's making sense to VST. The bold decision has fixed nagging problems and created a more agile company. In fact, the arrangement has worked so well that its IT team has begun to contribute to the company's bottom-line.

Strangely enough, this was all achieved by an accountant -- not a career CIO.

Outsourcing Heyday

An affiliate of British American Tobacco, the Hyderabad-based Vazir Sultan Tobacco (today known as VST Industries) manufactures cigarettes in the small segment (less than 60 mm in length). Their best-known brands include Charminar, Charms, XL Filter and Shaan. While the major part of the Rs 340-crore company's revenues flow in from cigarettes, it also has a presence in the non-manufactured and cut tobacco market. (India is the world's second largest producer of tobacco and VST appears in all tobacco-related market research studies). VST's 1,100-strong workforce manufactures 33,000 million sticks of cigarettes a year.

When Ratnakar Nemani, a qualified Cost Accountant, joined VST in 1992, he was shown a solidly vintage office with white walls, clean lines and tall ceilings. From there he watched a company in the midst of a transition. VST, which has been conversant with IT since computers were first introduced, found IT sucking at its feet. Over time, as the company grew more dependant on IT, every department became its own IT expert. Soon, VST was running all its operation across 20 offices in isolation. "We were struggling to get [data] for financials or decision-making," says Nemani, who is today CIO and SAP Practice Head.

An ERP running across various business processes was in order. But, there were doubts within the organization whether they had the in-house skills to pull off such a complex project. "Before the ERP, we had 12 people with expertise in the old standalone business applications. It was tough decision to upgrade and integrate the standalone business apps with the current group -- or go ERP with new people," Nemani says.

At the back of their mind, what worried management was an attrition VST couldn't solve. The idea of running an ERP with an IT team whose numbers waxed and waned was frightening. N. Sai Sankar, Finance Director and Company Secretary, remembers thinking that outsourcing was a good idea since "we noticed that people kept changing and we needed to ensure that we didn't lag behind with our [ERP roll-out] schedule." Outsourcing would also allow VST to concentrate on business. Hiring a vendor, back then, made sense all around.