Enterprise Risk Management (ERM) at The Indian Hotels Company Limited (IHCL) is integral to setting the organisation’s strategy and performance management process. ERM creates and preserves enterprise value and emphasises on managing risk within the organisation’s risk oversight. The ERM is exhaustive, dynamic, adaptable to current conditions, aligned to organisation’s strategic goals, including sustainability.
IHCL has a well-developed Risk Management Policy in place, which requires identification and mitigation of existing and potential risks in a structured manner, as also development of a “Risk Mitigation Approach” that enables all internal stakeholders to do so.
While this is true for all endogenous risks, regular scanning of environment is also carried out to gauge exogenous risks. Inputs from other agencies are also sought for gauging common external risks.
Such risks and related mitigants are discussed at senior leadership levels for optimum effect. All the strategic initiatives of the company were borne out of senior management discussions to develop mitigants for critical risks faced by IHCL.
IHCL has been responding with agility to the rapidly evolving environment. Various strategic initiatives were embarked upon prior to, during and after the pandemic to help the organization emerge stronger.
IHCL ERM program is aligned to its strategy for identification of key risks and their mitigation plans. IHCL’s performance during the pandemic and its resurgence in 2021/22 and 2022/23 is a testimony, or rather an interesting case study, of such alignment.
Drawing reference from the COSO ERM framework, the set of principles comprising five inter-related components, in the case of IHCL, is explained as under.
- Governance and Culture: Governance sets the organisation’s tone, reinforcing the importance of, and establishing oversight responsibilities for ERM. Culture pertains to ethical values, desired behaviour, and understanding of risk in the entity.
- At IHCL, the Tata Code of Conduct is the guiding force. There is an oversight from the IHCL’s Risk Management Committee for ERM. Culture is reinforced through various means and ways of communication.
- Strategy and Objective-setting: ERM strategy and objective setting work hand-in-hand in the organisation’s planning process. A risk appetite is established and aligned with strategy; business objective puts strategy into practice, while serving as a basis for identifying, assessing, and responding to risk.
IHCL has been setting and improving upon its strategy on a regular basis. It started with Aspiration 2022, but when the pandemic struck, IHCL launched R.E.S.E.T 2020, to help the organization emerge stronger from the impact of such pandemic.
IHCL then launched Ahvaan 2025, to enhance and grow our traditional businesses further with the help of various initiatives. This was necessitated by the multiple challenges posed like geopolitical situation and related economic recession, increasing fuel and energy prices, commodity inflation, to name a few. The initiatives continue into the second year of Ahvaan 2025.
- Performance: Risks that may impact the achievement of organisation’s strategy and business objective need to be identified and assessed. Risks are prioritized by severity in the context of risk appetite. The organisation then selects risk responses and take a portfolio view of the amount of risk it has recognized. The results of this process are then reported to key stakeholders.
- The recent geo-political disturbances and related economic recession was the top risk in the IHCL’s risk register. Risk appetite is defined in the risk management policy, and at the operations level, it is embedded in the Taj Positive Assurance Model (TPAM). Almost every operational transaction passes through the framework of controls.
- Review and Revision: By reviewing entity performance, an organization can consider how well the ERM components are functioning over time in light of substantial changes, and therefore, what revisions are needed.
- The Ahvaan 2025 strategy was formulated to enhance and grow our traditional businesses by sustaining revenue growth, stepping-up profitability, strengthening the balance sheet and excelling in service. This has come about after deliberations between the Senior Management on the risks faced by the organization and developing the mitigants therefor.
- Information Communication and Reporting: ERM requires a continuous process of obtaining and sharing necessary information from both internal and external sources, which flows down, and across the organization.
- At IHCL, the Risk Register is available on the intranet (myTaj) to employees to understand ERM and communication by senior leadership. This also allows for potential feedback from the employees.
- The operations team at the hotels are encouraged to understand and identify the risks
- The Integrated Annual Report is available on the Internet to all stakeholders
IHCL is a 120-year-old company with a very strong culture embedded in its DNA, inspired by the Tata Code of Conduct.
IHCL’s response to the pandemic demonstrates the maturity of its risk management. This resulted in resilient financial performance, which was appreciated by the investor community in terms of traded value. Various benefits were gained in the process, which included better revenue management parameters, profitability and margins, increase in fee income, scaling up and augmentation of new businesses, portfolio enhancement and strong owner-partner relationship.
Despite the negative impact of the pandemic on the hospitality sector, Taj – the iconic brand for the most discerning travellers – was ranked India’s Strongest Brand as per Brand Finance’s India 100 2023 Report, for the third time and two years in succession. The Taj brand was also rated as the World’s Strongest Hotel Brand in 2021 and 2022 by Brand Finance.
This was a recognition of IHCL’s better understanding of the risk environment and responding to such risks with appropriate mitigants.
Blog Author: S Y Raman, Vice President – Internal Audit, The Indian Hotel Company Limited & Advisory Board Member, IRM India Affiliate