Abstract
The Indian Railway Catering and Tourism Corporation Limited (IRCTC), a public sector enterprise under the Ministry of Railways, was established to commercialize Indian Railways. Since its establishment, catering services became its key source of business. In July 2010, the Ministry of Railways announced a new mandate. The mandate was a serious jolt for IRCTC. Besides losing a major revenue source, IRCTC was also directed to revamp itself completely. The case majorly focuses on the strategy adopted by it to revamp and recover the loss occurring from the revised policy of the ministry. The case also describes the strategic initiatives taken by IRCTC while discharging the new mandate of the year 2010.
Discussion Questions
What is the strategic outlook of IRCTC behind establishing base kitchens and targeting corporate for its catering service?
Discuss the resource-based view model Mr Rakesh Kumar Tandon adopted in revamping the IRCTC post-2010 mandate.
What is the significance of leadership in designing and implementing the turnaround strategy of a subsidiary company?
On 7 July 2010, Rakesh Kumar Tandon, the CMD of the Indian Railway Catering and Tourism Corporation (IRCTC), sat in his office at the headquarters in Delhi, perusing the new mandate from the Ministry of Railways. Tandon was concerned about his company, which had experienced a severe setback as it had to withdraw the catering services, its most significant vertical. Struggling to devise a turnaround plan (Hofer, 1980) to overhaul IRCTC, Tandon sought a solution (Pancholi & Chaudhary, 2018).
The Indian Railways, commonly known as the backbone of the Indian economy and the nation’s lifeline, was a transport network that had been in operation for 150 years. It had been responsible for managing the fourth largest network in the world in terms of size, operating over 13,000 passenger trains and 9,200 trains in the freight segment across 7,349 stations on a daily basis. The Indian Railway, the largest state-owned enterprise in India, had also been the country’s biggest employer. It held major stakes in sixteen public sector undertakings (PSUs) associated with rail transport in India. Indian Railways was functioning under the Ministry of Railways. In 1998, the Ministry of Railways realized that to capitalize on domestic and international opportunities, it was essential to upgrade its services. The major areas where the upgradation of services was expected were catering, ticketing and hospitality.
IRCTC was established on 27 September 1999 as a subsidiary of Indian Railways. In addition to commercialization through ticketing, catering and tourism, IRCTC also had the responsibility of exploring new revenue-generating opportunities for Indian Railways by focusing on the public–private participation (PPP) model. A directive was given to ensure that IRCTC embraced technology and innovation in the production, marketing and vending of quality products with a commercialized approach. With this objective in mind, IRCTC set up its corporate office in New Delhi, led by a Managing Director, whom three Directors supported (Singh & Khan, 2012).
Furthermore, IRCTC established five operational units, each headed by a senior professional, in order to infuse professionalism, innovation and commercialization into the system. To achieve this, a team of passionate professionals from diverse backgrounds, such as human resources, information technology and hospitality & tourism, were recruited through direct and campus placements.
Three Verticals of Commercialization
The primary objective of IRCTC was to commercialize railway services through three key verticals: catering, ticketing and railway tourism. In 2002, it introduced the concept of e-ticketing for both domestic and international travellers. Passengers were able to directly book their e-tickets through the IRCTC website. To accommodate passengers planning last-minute journeys, tatkal services were introduced, albeit at a premium price. To enhance services, the Passenger Name Record system was introduced, allowing passengers to check their ticket booking status through SMS on their mobile phones. Initiatives like Live Train Status were implemented to make railway services more customer-friendly, all made possible through the application of technology.
In a short span of time, IRCTC became a pioneering company in internet-based ticketing in India, starting with a few hundred online ticket bookings per day in 2002 and eventually reaching over 800,000 tickets booked daily by 2009. Alongside e-ticketing, IRCTC expanded its catering services, serving over 300 trains every day. Catering services gained strategic significance and generated substantial revenue. Additionally, IRCTC began promoting railway tourism services to global travellers through PPP. As a result, the number of travellers and the demand for railway catering witnessed a steady increase.
Over the years, catering services had emerged as a significant revenue source for IRCTC. In July 2010, the Ministry of Railways implemented a new catering policy, which resulted in the division of catering responsibilities among several small divisions within the Railways. As a result, IRCTC had to discontinue all its mobile catering services. This decision marked the end of IRCTC’s catering business and resulted in the loss of a major revenue stream. The mandate caused a revenue loss of ₹3690 million out of a total business of ₹7650 million. Furthermore, the mandate required IRCTC to undergo a complete overhaul.
The 2010 mandate introduced a series of measures that fundamentally impacted IRCTC’s business model. Additionally, the management of fast-food units and food plazas was to be handed over to the zonal railways due to contract expiry. Consequently, IRCTC was left without any catering business. Mr Rakesh Kumar Tandon expressed his concerns to the Railway Minister, saying, ‘But sir, we were performing exceptionally well in the catering business, and now this mandate?’ The Railway Minister responded, ‘We have made our observations, Mr Tandon, and we are firm in our decision’.
The organization was filled with speculations and unrest due to the significant setback and uncertain circumstances. The young professionals who had joined IRCTC from esteemed institutions were particularly affected. Tandon recognized a lack of integration between the verticals and a lack of strategic thinking among the employees (Fayyaz & Syed, 2020). Determined to address these issues, he took the initial step of motivating the employees. He called for an emergency meeting with his subordinates and team members, assuring them, ‘I believe that we can achieve even greater things if we remain positive. Trust me on that’. Tandon shared numerous past success stories of Indian Railways with the young professionals, aiming to inspire them. He also discussed his idea of strengthening the organization through other verticals, seeking their input and motivation (Kudryavtsev, 2014). The team of young professionals displayed great enthusiasm and attentively listened to their leader’s plans (Economic Times, 2010).
It was a time for IRCTC to navigate the complexities of the situation with strategic vision and effective leadership (Henry, 2020). Rakesh Kumar Tandon began exploring constructive approaches to formulate short- and long-term plans focused on leveraging the corporation’s strategic advantages and capabilities (Neill, 1986).
Turnaround of IRCTC
Niche Segment
IRCTC, at the corporate level, underwent a significant transformation in the field of catering, carving out a distinctive position for itself. As the licensed catering business was discontinued, IRCTC shifted its focus to providing catering services to corporate houses, educational institutions, PSUs and ministries. In 2010, the company targeted and successfully served major events such as the Commonwealth Games and the convocation ceremony of Indira Gandhi National Open University in Delhi. Additionally, IRCTC took on e-ticketing and related activities for the Commonwealth Games 2010. It also established kiosks at Delhi’s Metro Railway Stations. While e-ticketing revenue reached ₹1200 million, the tourism division generated a turnover of ₹670 million, helping to compensate for the loss incurred.
Central Kitchens
IRCTC eliminated all traditional non-profit approaches to conducting business, recognizing the importance of maintaining a strategic focus on core competencies to gain a competitive edge (Porter, 1987). In 2012, a state-of-the-art central kitchen was established in Noida, Sector 65. Spanning an impressive 40,000 square feet, the central kitchen had a production capacity of 25,000 meals per day (Business Line, 2018). IRCTC prioritized serving hygienic, high-quality food to its clients at affordable prices. Stringent measures were taken to ensure food quality, including thorough checks on the quality of raw ingredients and the implementation of processed food technology to extend the shelf life of food products. The introduction of the hazard analysis and critical control point system played a vital role in ensuring the safety of processed and manufactured foods (Kumar, 2016).
Regular food and hygiene audits were conducted by outsourcing third-party quality control personnel and utilizing advanced automated machines from both domestic and international sources. The first in, first out system was introduced to ensure smooth food delivery. To maintain safety standards, IRCTC conducted routine laboratory tests to analyze the chemical composition and microbiological activity of food products. Notably, prominent corporate entities such as Samsung, HCL Technologies, Supertech, Tata McGraw Hill, Jaipuria Institute, Lava International and Ameriprise Financial became clients of IRCTC for a period of time. Encouraged by the successful launch of the initial kitchen, IRCTC went on to establish seven additional kitchens in major cities across the country. Furthermore, in 2017–2018, IRCTC upgraded thirteen kitchen units alongside the existing eight base kitchens (Exhibit 1). To expand its catering services further, IRCTC established green field base kitchens (Exhibit 2) at nine locations in different states. In 2018–2019, IRCTC set a budget target of ₹150 crores for expansion and the establishment of new kitchen units.
Technology for Transformation
The time had come to embrace e-ticketing services and utilize technology as a tool for success. Passengers were increasingly opting for e-ticketing due to its time-saving nature, flexibility and convenience. To enhance the railway booking system and make it more customer-friendly, technology played a crucial role in the service revamp. Initially, there were concerns about the feasibility of e-ticketing, primarily due to limited internet penetration in the country. The new ticket booking system required robust technical support to expand booking capacity and encourage customers to engage in cashless transactions. Developing a reliable, secure and fast online payment system presented significant challenges. To address these issues, an investment of ₹1800 million was allocated to the information technology department to enhance bandwidth and implement technology upgrades. This investment proved instrumental in increasing the number of tickets that could be booked per minute. In 2015, IRCTC achieved its highest record of ticket bookings. On 1 April 2015, a staggering 13.45 lakh tickets were booked in a single day, with 284 thousand tickets booked within a single hour on the same day.
E-Commerce
IRCTC successfully entered the e-commerce domain with its ventures into e-catering, e-tourism and online flight booking. It also aimed to provide integrated solutions to passengers, including options for hotel and cab bookings. Collaborations were established with online travel companies like Yebi.com, providing a platform for sellers and buyers who relied on the IRCTC website for their bookings. To enhance user-friendliness, dedicated websites for tourism and e-catering were introduced to efficiently manage online traffic. In order to cater to corporate employees, mobile apps were developed, granting them quick access to catering and ticketing services. The introduction of the ‘Food on Track’ facility allowed passengers to order food from renowned brands of their choice while onboard.
User-Friendly Integrated Solutions
IRCTC successfully constructed and commissioned executive lounges at nine railway stations. Furthermore, it dedicated special international lounges equipped with upgraded facilities exclusively for foreign tourists. In 2016, IRCTC introduced the concept of bed rolls, providing clean and hygienic disposable bed rolls to rail passengers. The e-bed roll scheme was launched at seven major stations in February 2016, allowing passengers to book bed rolls at affordable prices through the IRCTC portal. The initiative garnered a positive response, with a total of 877 bed rolls sold in the first month. Additionally, IRCTC implemented an ISO-certified customer complaint handling management system.
To enhance the passenger experience, IRCTC introduced special domestic and international air packages, installed water vending machines and offered pick-and-drop facilities at selected railway stations. The company also pursued unconventional business strategies, such as co-branding with Amazon and Google, as part of its marketing initiatives. These efforts reflected IRCTC’s intention to explore innovative approaches to business.
Railway Tourism
In order to bolster railway tourism, IRCTC actively promoted ‘Bharat Darshan’, a cost-effective village-on-wheels experience that encompassed significant pilgrimages and tourist destinations across India. The introduction of special luxury trains like the Buddhist Circuit and Maharajas’ Express further enhanced the railway tourism offerings. Additionally, IRCTC collaborated with respective State Governments to operate ‘state special tourist trains’, which emerged as a major revenue generator for the company. In a bid to attract more tourists, IRCTC expanded its tourism packages beyond conventional options to include adventure tourism, encompassing activities such as water sports, wildlife treks and other adventurous pursuits. Special benefits, including dedicated quotas and the option for foreign tourists to make online bookings 365 days in advance, were made available.
IRCTC faced significant setbacks in terms of earnings and profits during FY 2011–2012 (Exhibit 3). However, from the subsequent financial year of 2012, both earnings and net profits began to rise. In fact, net profits witnessed a substantial growth of 44% in the financial year 2015–2016 compared to the previous year (Exhibit 4). The company’s net worth reached an impressive ₹7784 million in 2017. Additionally, IRCTC received an ‘Excellent’ rating from the Department of Public Enterprises in 2016–2017. According to the World Travel and Tourism Council (WTTC), the tourism sector contributed ₹14100 million to the country’s GDP in 2016, positioning it as the seventh largest contributor worldwide. International tourism experienced a growth rate of 7% in 2017, with India welcoming 9 million international arrivals in 2016. Revenues generated from tourism witnessed a remarkable 41% increase in FY 2016–2017 compared to the previous year. IRCTC tourism portal won the ‘National Tourism Award’ in 2008 and the Website of the Year award for three consecutive years in 2014, 2015 and 2016 by ‘Leisure and Travel’ magazine. Maharajas’ Express had been winning the World Travel Award in the ‘World’s Leading Luxury Train’ category since 2012 (Exhibit 5).
In a bid to promote online ticketing, the central budget of 2017 permanently and completely abolished the service charge. While this decision had a direct impact on IRCTC’s profits, the company sought to compensate by placing increased emphasis on strategic partnerships. One such partnership was with ixigo, which aimed to offer convenient and affordable accommodation options to both domestic and international customers. These partnerships were geared towards enhancing service offerings to railway customers.
The Road Ahead
IRCTC’s journey was punctuated by numerous awards and recognitions, underscoring the effectiveness of the strategic flexibility adopted by the company in its commercialization strategy. The Railway Ministry’s new catering policy in 2017 superseded the previous policy of 2010, allowing IRCTC to assume responsibility for catering services across Indian Railways (Exhibit 6). As part of this plan, IRCTC intended to differentiate between food production and food distribution, establishing sixteen base kitchens at new and strategic locations by 2018 (Business Standard, 2017). In addition to managing the existing 228 food plazas and fast-food units, IRCTC set up an additional 50 food units. The transition of catering services from Indian Railways to IRCTC was implemented gradually, recognizing the substantial resources required for a complete takeover. To effectively implement the revised policy, IRCTC reallocated its resources to establish and manage catering services, as well as to develop an efficient monitoring system. As a result, IRCTC successfully provided food services to 343 trains. Catering facilities on specific trains, such as Duronto, Rajdhani, Shatabdi and Mail Express, were directly monitored by IRCTC through dedicated staff aboard these trains.
Footnotes
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.