Strategies For Sustainable Turnaround of Indian Steel Industry
Strategies For Sustainable Turnaround of Indian Steel Industry
Strategies For Sustainable Turnaround of Indian Steel Industry
The challenges that confront Indian steel industry in the age of globalisation are complex in nature. The secret of
sustainable turnaround lies in how Indian steel industry faces the challenges and develops combative and anticipatory
prowess. Problems and solutions may vary with organisations but there is more a commonality than initially meets the
eye. A two-step strategy is suggested for the sustainable turnaround in the industry. These stages, aimed to ensure
survival and growth have been termed survival strategy and growth strategy. The survival strategy provides a founda-
tion upon which a potent growth strategy could be formulated. While the survival strategy would ensure the survival
of the ailing steel industry, the growth strategy would simultaneously take care of its total transformation towards a
better future. Both stages, to be implemented through an integrated plan, are essential to enable the industry overcome
the present imbroglio.
TURBULENCE IN INDIAN STEEL INDUSTRY pricing practices have distorted the global market dynamics.
The last decade of the twentieth century will go down as one Ironically, it is predicted that capacity that is capable of
of the most turbulent phases for Indian steel industry. The delivering quality products is not so much; eg, the World Steel
period witnessed sweeping changes in the steel arena Dynamics (WSD)2 has claimed that only 60% of the global HR
transformation of self contained national markets into linked coils capacity can satisfy the high end demand. Quality
global markets and consequent fierce competition; oversupply demand will continue to rise over time and the excess capacity
of most kinds of steel resulting in no real appreciation of steel that is seen today, producing common grades, will be rendered
prices and simultaneous rise in input cost; and most useless in the market unable to find buyers. According to
importantly, rise in customer expectations. The problem was WSD, by 2005, the world will see pure liquidation of 45 Mt of
compounded by a slowdown in growth of steel intensive crude steel capacity much of which will be due to obsolescence
industries like consumer durables and capital goods leading to of technology3. However, in the same period there will be an
negligible growth in demand. All these came as a shock since estimated capacity addition of 81 Mt4 resulting in a net addi-
for decades Indian steel industry operated under a protective tion of 35 Mt.
environment. Consequently, Indian steel manufacturers are in
Since 2001, while growth has been negative in most mature
need of an effective forward-looking strategy that would
markets, Asia has maintained a steady growth rate. The Asian
ensure their survival, sustenance and growth. Formulation of
production growth has mainly been driven by the surge in
an effective strategy that would successfully take on the
steel demand and production in China.
market forces and would provide sustainable competitive
advantage requires an effective understanding of the steel The huge Chinese appetite for steel has led the 10.2% surge in
scenario in the international arena, the trends of the Indian output (Table 1). The growth in Chinese steel demand,
market and responses of the Indian steel industry. generated mainly by demand from infrastructure sector is a
beacon for Indian steel since both the nations are comparable
STEEL: A GLOBAL PERSPECTIVE on many counts.
Recent years have witnessed unprecedented turmoil in the
global steel market. The crisis in the international steel market
might be attributed to the disbalance between capacity,
demand and production and consequent drop in prices.
Throughout the world there is an apparent over capacity
(estimated to be between 100 Mt-150 Mt)1 in the steel sector.
According to the IISI, the companies have been selling their
products below costs to survive in global competition. Such
S Mitra Mazumder is with EL Group, R&D Centre for Iron and Steel,
while T Ghoshal is with Management Training Institute, SAIL, Doranda,
Ranchi 834 002.
This paper (revised) was received on August 27, 2003. Written discussion on he
paper will be entertained till January 31, 2004. Figure 1 Crude steel production and apparent consumption in China
64 IE (I) JournalMM
Table 1 World crude steel production by region (1998-2002), Mt global trade. After passing through the initial phase of
stabilization following the economic reforms and liberalisation
Region 1998 1999 2000 2001 2002 4 4 Yearly
Years Years Growth,
initiated by the Government of India in 1991, the steel
Difference Growth, % industry experienced an average growth of 22% and 14%
% during 1994-1995 and 1995-1996, respectively. The year
China 115 124 127 151 182 67 58.4 14.6 1996-1997 however, witnessed a drastic transformation in the
domestic steel scenario. A slowdown in economic activity
Other Asia 193 193 213 210 220 27 14.2 3.5
engulfed almost all the industrial segments, leading to a steep
EU (15) 160 155 163 159 158 2 0.9 0.2 drop in the growth rate of steel consumptionabout 4% in
1996-1997 and remaining almost flat in 1997-1998 and 1998-1999.
Other Europe 47 43 47 46 48 1 1.6 0.4
At the same time, the availability of steel in the market grew
CIS 74 86 99 100 101 27 35.7 8.9 rapidly with the commissioning of fresh capacities, leading to
NAFTA 129 129 134 118 122 7 5.1 1.3 declining trend in the price of steel. Figure 2 gives a glimpse of
post-liberalisation supply demand scenario in India. Increased
Others 59 58 65 66 71 12 19.1 4.8 volume of imports pulled down the domestic prices and
World 777 788 848 850 902 125 16.1 4.0 eroded the bottom line of domestic producers. The problem of
cheap imports was further increased by the quantum rise in
Source : IISI/Iron and Steel Review, June 2003
the imports of seconds and defective grades of steel at the cost
of imports of prime quality steel.
INDIAN STEEL INDUSTRYAN APPRAISAL
While there have been progressive and substantive
Indian steel industry mainly consists of three distinct groups 5. improvements in the operating parameters of Indian steel
The first group comprises the integrated steel producers and industry as a whole since 1996-1997, these have not been
includes Steel Authority of India Ltd (SAIL), Tata Steel sufficient to overcome the adverse factors discussed hitherto.
(capacity 3 Mt) and Rashtriya Ispat Nigam Ltd (RINL) (3 Mt). Besides, the industry is also plagued by the problems of low
SAIL has four integrated steel plants at Bhilai (4 Mt), productivity both in terms of equipment and labour, frequent
Bokaro (4 Mt), Durgapur (2 Mt) and Rourkela (1.8 Mt). The price enhancement of inputs such as power tariff, railway
group of secondary majors consists of the Ispat Group, Jindal freight rate and coal prices etc which continue to be under the
Group, Lloyds and Essar. Their capacities range between 1 Mt administered price regime.
and 2 Mt using a mix of technologies, with much lesser degree
of backward integration. These two strategic groups together The Ninth Five-Year Plan had projected the demand for steel
hold around 70% of the mild steel capacity in the Indian steel by the terminal year of the Plan period (March 2002) at 38 Mt.
industry. The third group of tertiary producers are mini-steel This saw new investments in the sector, mostly by new
plants, using electric arc or induction furnaces and are very generation steel companies in the private sector, of over Rs 25 000
small in size. crore during the last five years. Consequently, the installed
capacity of the industry has gone up to around 35 Mt but steel
Together these sectors make India the 10th largest steel consumption has stagnated. The consumption of finished steel
producer in the world, but with only a 2% share in the has gone up only marginally over the last five years. The
revised estimation (Table 3) shows the demand (29.5 Mt) to be
Table 2 Regionwise production share in global steel output well short of installed capacity.
(1991 and 2001), %
Industry Performance
Region Share in Global Crude Steel Production The performance of Indian steel industry has been analysed in
1991 2001 the medium term from 1997 to 20011. The sample for analysis
includes data from SAIL and Tata Steel among the ISPs and
China 9.6 17.6 JVSL, Ispat, Essar and Lloyds among the secondary majors7.
Japan 14.9 12.1
Structural 2500
Plates 2250
Figure 4 Performance index (1997-2001): Net sales to total assets ratio
HR coils/skelp 6600
HR sheets 500 These four indices taken together show that the steel industry
had been passing through a difficult phase characterised by
CR coils/sheets 3300
increasing debt, low asset utilisation, industry wide losses
GP/GC sheets 1930 (except Tata Steel) and intense competition. The present
dismal financial performance of Indian steel industry cannot
Electrical steel sheets 200
just be explained by the liberalisation and globalisation of
Tin plates 325 Indian economy. Given the strategic nature of the Indian steel
Pipes 850 industry and its over all importance in the economy, there is a
need for an in-depth analysis.
Total finished steel 29500
The rejuvenating performance of the industry is reflected in
Important performance indices such as Debt-Equity Ratio (D/E), the rising share prices of Indian steel companies. As can be
Return on Networth (Post tax) (RONW), Net Sales/Total seen from the Figure 6, all steel makers have now been able to
Assets and Net Profit/Net Sales have been calculated and perform consistently and the share prices have remained above
depicted in the Figures 3-6. Rs 100 (face value Rs 10) defying the industry trend. All others
Figure 3 depicts the rising trend of D/E from 2.13 to 2.90 in are trading above par value.
the last four years. This shows that the industry is shouldering INDIAN STEEL INDUSTRYMAJOR PROBLEMS
an increasing debt burden and becoming more leveraged. AND CONCERNS
Figure 4 shows an improvement in Net Sales/Total Assets
The Indian steel manufacturers are faced with some major
(Asset Turnover Ratio) from 0.42 to 0.52, although this figure
problems and concerns, which work as inhibiting factors to
lags behind international standards. (This ratio for the US steel
their effort towards gaining the competitive edge. A few of
industry was 1.2 during the period 1975-1993)8. This
these are:
improvement indicates that the industry is utilising its assets
more efficiently and/or is shedding assets. Unremunerative Prices
RONW (Post-Tax), as depicted in Figure 5, has plummeted Stagnating demand, domestic oversupply and falling prices
from a + 3% return in 1997-1998 to 9% before making a in the last four years have hit Indian steel makers. Barring
partial recovery to 3% in 2001-2002. This indicates that the the sporadic rise in demand in the recent months, it has
industry, in general, is eroding its networth, losing money and suffered from unremunerative prices to the extent that
thus, becoming unattractive to the equity investors. companies have been finding it difficult to maintain capital
In Figure 6, the ratio of Net Profit/Net Sales exhibits the costs.
decreasing profit levels, from + 2% in 1997-1998 to a low
Stagnating Demand for Steel
of 6% and to somewhat recovered position of 2% in 2000-2001.
This indicates losses and heightening competition in the According to Mckinsey and Co the domestic steel industry
Indian steel industry. is set to witness a 33% over capacity in the hot rolled coil
Figure 3 Performance index (1997-2001): Debt-equity ratio Figure 5 Performance index (1997-2001): Return on net worth (post tax)
66 IE (I) JournalMM
Weaknesses
Endemic Deficiencies
These are inherent in the quality and availability of some of
the essential raw materials available in India, eg, high ash
content of indigenous coking coal adversely affecting the
productive efficiency of iron-making and is generally
imported. Advantage of high Fe content of indigenous ore are
often neutralized by high basicity index. Besides, certain key
ingredients of steel making, eg, nickel, ferro-molybdenum are
also unavailable indigenously.
Figure 6 Performance index (1997-2001): Movement of share prices Systemic Deficiencies
However, most of the weaknesses of the Indian steel industry
sector by the year 2003 when the domestic capacity can be classified as systemic deficiencies. Some of these are
currently at 45%, in long products and semis is expected to described here.
drop at 22% by that year. The non-flat products are also
High Cost of Capital
likely to face an over capacity of over 21.4%.
Steel is a capital intensive industry; steel companies in India
Lower Consumption are charged an interest rate of around 14% on capital as
Steel consumption in India over a period of time has compared to 2.4% in Japan and 6.4% in USA.
exhibited a strategy correlation to GDP growth Low Labour Productivity
(correlation coefficient of 0.9855 between 1960-1961 and
1996-1997) and gross domestic capital formation (0.981). In India the advantages of cheap labour gets offset by low
The correlation with GDCF has been 1.0 for the period FY labour productivity; eg, at comparable capacities labour
1994 to 1999. As investments declined from 1996-1997 productivity of SAIL and TISCO is 75 t/man year and 100 t/man
onwards, steel consumption also decreased. year, for POSCO, Korea and NIPPON, Japan the values are
1345 t/man year and 980 t/man year.
Failure to Develop Trade Especially International Trade High Cost of Basic Inputs and Services
The countries which have achieved major growth High administered price of essential inputs like electricity puts
including growth in steel industry, like Japan, China and Indian steel industry at a disadvantage; about 45% of the input
South Korea have largely used their trading houses to costs can be attributed to the administered costs of coal, fuel
develop their markets abroad. In India, we have singularly and electricity, eg, cost of electricity is 3 cents in the USA as
failed to do so. As a result, Indian steel industry does not compared to 10 cents in India; and freight cost from Jamshedpur
have a major presence even in the neighbouring countries. to Mumbai is $50/tonne compared to only $34 from
The reasons for the same include lack of profit motive, Rotterdam to Mumbai. Added to this are poor quality and
wrong scale of assets, little or no co-ordination between ever increasing prices of coking and non-coking coal.
plants and markets, inappropriate logistics/locations,
over-manning, poor investment decisions, lack of Other systemic deficiencies include:
innovation and inadequate investment in requisite areas.
l Poor quality of basic infrastructure like road, port etc.
INDIAN STEEL INDUSTRYA SWOT ANALYSIS l Lack of expenditure in research and development.
Strengths l Delay in absorption in technology by existing units.
India has rich mineral resources. It has abundance of iron ore, l Low quality of steel and steel products.
coal and many other raw materials required for iron and steel l Lack of facilities to produce various shapes and
making. It has the fourth largest iron ore reserves (10.3 billion qualities of finished steel on-demand such as steel for
tonnes) after Russia, Brazil, and Australia. Therefore, many automobile sector, parallel flange light weight beams,
raw materials are available at comparatively lower costs. It has coated sheets etc.
the third largest pool of technical manpower, next to United
States and the erstwhile USSR, capable of understanding and l Limited access of domestic producers to good quality
assimilating new technologies. Considering quality of iron ores which are normally earmarked for exports,
workforce, Indian steel industry has low unit labour cost, and
commensurate with skill. This gets reflected in the lower l High level taxation.
production cost of steel in India compared to many advanced
countries (Table 3). With such strength of resources, along Besides these Indian steel makers also lacked in international
with vast domestic untapped market, Indian steel industry has competitiveness on determinants like product quality,
the potential to face challenges successfully. product design, on-time delivery, post sales service,
Item USA UK France Germany India The Indian rural sector remains fairly unexposed to their
(Base) multi-faceted use of steel. The rural market was identified as a
potential area of significant steel consumption way back in the
Energy 24.1 19.8 22.1 23.4 32.9 year 1976 itself. However, forceful steps were not taken to
Iron ore 15.4 12.7 12.7 13.9 5.4 penetrate this segment. Enhancing applications in rural areas
assumes a much greater significance now for increasing per
Fluxes and
capital consumption of steel. The usage of steel in cost
ferro alloys 5.9 7.6 7.6 6.8 8.5
effective manner is possible in the area of housing, fencing,
Others 25.6 27.5 27.3 27.1 21.9 structures and other possible applications where steel can
substitute other materials which not only could bring about
Total material 71.0 67.6 69.7 71.2 68.8
advantages to users but is also desirable for conservation of
Labour 40.7 27.1 36.6 43.4 13.9 forest resources.
Misc taxes 1.9 1.9 4.1 2.4 6.6 Other Sectors
Works cost 113.6 96.6 110.5 117.1 89.3 Excellent potential exist for enhancing steel consumption in
Depreciation other sectors such as automobiles, packaging, engineering
and interest 9.1 6.6 2.4 12.2 10.7 industries, irrigation and water supply in India. New steel
products developed to improve performance simplify
Total cost 122.7 103.2 122.9 129.3 100.0 manufacturing/installation and reliability is needed to
Source : IE (I) Journal-MM, vol 82, April 2002, p 17 enhance steel consumption in these sectors. Main objective
here have to be improvement of quality for value addition in
use, requirement of less material by reducing the weight and
distribution network, managerial initiatives, research and thickness and finally reduction in overall cost for the end user.
development, information technology and labour Latest technology must be adopted by Indian steel
productivity etc. As is evident in Table 4, the weaknesses gets manufacturers for production of superior quality of steel for
reflected in Indias poor standing in the global competitiveness these applications. For example, pre-coated sheets can be used
as measured in terms of indicated parameters. in manufacture of appliances, furnishings, electric goods and
public transport vehicles. Production and supply of superior
Opportunities
grades of steel in desired shapes and sizes will definitely
The biggest opportunity before Indian steel sector is that there increase the steel consumption as this will reduce fabrication
is enormous scope for increasing consumption of steel in need, thereby reduce cost of using steel.
almost all sectors in India. Table 6 gives a glimpse of untapped
Few other perceived opportunities are:
potential of increasing steel consumption in India; eg, even to
reach the comparable developing and lately developed Export Market Penetration
economies like China and other Europe, a quantum jump in It is estimated that world steel consumption will double in
steel consumption will be required. next 25 years. Quality improvement of Indian steel combined
Item Unit India Brazil South Korea Canada USA Japan Germany
Labour productivity Ratio 6177 7724 9291 30034 44070 4667 38207
Training Index 36 37 47 40 48 79 69
Expenses in R&D % of GDP 0.91 0.38 1.63 1.32 2.66 2.85 2.79
68 IE (I) JournalMM
Table 6 Regionwise per capita consumption in the world, kg tend to exhibit price sensitivity and buy when there are
discounts. This volatility of demand often affects the
Region 1999 2000 2001 2002 2003 f 2004 f Five years integrated steel manufacturers because of their inability to
growth, tune their production in line with the market demand
% fluctuations. Some other threats are:
China 103 111 136 163 178 194 88
l Ever decreasing import duty on steel.
Other
l Dumping of steel by developed countries.
Asia 93 99 98 103 104 104 12
l High quality products from developed countries
EU(15) 368 383 371 364 370 379 3
available for import at very competitive prices.
Other
l Non-availability of capital from financial institutions
Europe 160 182 172 183 187 190 19
for iron and steel sector.
CIS 86 106 116 105 109 112 30
Strategic Restructuring A Comparative Analysis
NAFTA 349 361 311 306 308 308 12
The effect of globalisation on steel industries in different
Others 72 77 79 77 78 80 11 regions or countries has not been uniform. Each region is
World 133 142 143 150 155 160 20 unique in its own way in terms of raw materials availability,
technology adopted, market conditions, trading policies, etc.
Sources : IISI, Brussels, f = forecast
Consequently restructuring of steel industries in different
regions have been done in a manner that best suits the needs
with its low cost advantages will definitely help in substantial
and situations of the country or region (Table 7). The
gain in export market.
divergent strategies adopted for restructuring by steel
Threats industries in different countries/regions provide the right
perspective for building a turnaround strategy for Indian steel
Slow Industry Growth industry.
The linkage between the economic growth of a country and
the growth of its steel industry is strong. The Indian steel STRATEGIES FOR TURNAROUND
industry is no exception. The growth of the domestic steel The strengths, weaknesses, opportunities and threats before
industry between 1970 and 1990 was similar to the growth of Indian steel industry as well as experiences of other steel
the economy, which as a whole was sluggish9. This sluggish makers of the world form the basis of determining the
growth in the steel industry has resulted in enhanced rivalry strategic thrust for turnaround of the Indian steel industry in
among existing firms. As the industry is not growing the only the wake of the todays market scenario. The strategy aims to
other way to grow is by increasing ones market share. derive maximum benefit out of strengths, minimize or
Consequently, the Indian steel industry has witnessed spurts neutralize weaknesses, cash is on opportunities and combat
of price wars and heavy trade discounts, which has done the threats.
Indian steel industry no good as a whole.
A two-tier strategy is suggested for effecting and sustaining
Threat of Substitutes turnaround of Indian steel industry. While survival strategy
Plastics and composites pose a threat to Indian steel in one of would ensure industrys immediately survival, the growth
its biggest markets automotive manufacture. For the strategy would take care of transformation and sustainable
automobile industry, the other material at present with the growth of the industry in the long run. These strategies have
potential to upstage steel is aluminium. However, at present been integrated through an integrated plan of action that
the high cost of electricity for extraction and purification of comprises three sub-plans, ie, a short-term plan, a medium-
aluminium in India weighs against viable use of aluminium for term plan, and a long-term plan. While the survival strategy
the automobile industry. Steel has already been replaced in would be operated through the short and medium term plans,
some large volume applications: railway sleepers (RCC sleepers), the growth strategy may be implemented through the medium
large diameter water pipes (RCC pipes), small diameter pipes and long-term plans. The overview of the integrated strategy is
(PVC pipes), and domestic water tanks (PVC tanks). given in Annexure 1.
Technological Change Survival Strategy
Technological changes often force the industry structure to The survival strategy aims to ensure immediate survival of
change. For a developing country like India where capital steel industry in India. The key goal of survival strategy is to
itself is costly, technological obsolescence is a major threat. ensure immediate financial turnaround that would provide
the industry with sufficient financial liquidity, necessary for
Price Sensitivity and Demand Volatility
running the operations effectively. Benchmarking as a
The demand for steel is a derived demand and the purchase strategic tool would be the key process to achieve the primary
quantity depends on the end-use requirements. The traders goal of financial turnaround for the steel industry.
70 IE (I) JournalMM
attempts should be made to achieve a favourable ratio of customer satisfaction model are established, it will be easier to
turnover to the net block. Revenue can be maximised by segregate various activities/units/processes, which would be
maximising collections not only in terms of quick recovery of capable to work as a profit centre. Once these profit centres
outstanding payments, but also in terms of maximising net are identified, the whole organisation may be divided into a
sales realization by offering as less discounts as is possible. chain of interlinked profit centres. The key objective of this
This would require meticulous planning, rigorous monitoring approach is all the activities would be divided into cost-
of outstanding dues, effective management of sundry debtors centres, as small as possible and each cost centre would strive
and efficient inventory management. The above should also be to work as a profit centre; in addition, each cost centre must
supplemented by aggressive order-book management too. strive to satisfy internal customers. The medium term plan
There should efforts to select products and markets that give would include activities for financial restructuring, business
maximum return. restructuring, operational restructuring and market expansion plan.
72 IE (I) JournalMM
settling claims, and helping customers to achieve better A AActivity :
productivity. Core Business Product R&D, Manufacturing,
Growth Strategy Activity Marketing, Sales etc
While survival strategy must ensure that the company should BActivity :
survive and sustain itself, it becomes necessary that effective Improving the organizations ability
long-term strategies should also be formulated that could go B
to perform A work,
beyond the immediate present and ensure the companys Improve As
eg, introducing IT applications,
future prospects. A carefully formulated growth strategy is Capabilities
Introducing quality processes etc
essential to managing change in a competitive market. Such a
growth strategy should not only envisage the competitive CActivity :
position of the industry but also foresee the comparative Improving the organizations ability
C
strengths of the industry. The elements of such a growth to perform B work,
Improve Bs
strategy should follow a systemic approach, where all its eg, identifying potential areas of
Capabilities
elements are unified to each other and synergise together for improvement, forming teams etc.
achieving the desired goals.
Figure 7 The continual improvement chart
Long Term Plan
minimize investment in new technology. The development
The long-term plan is formulated to ensure long term growth
of the industry. The key process to achieve long term growth process must cover all improvement aspects of process/
would be continual improvement. A key to the long-term product/serviceboth internal (steel industry) and external
(customers). A few such areas are:
vitality and competitive edge for an organization will be to get
better and better at improving itself. Continual improvement l Optimisation of existing process technologies for
could be in an area where quantification can be carried out maximization of productivity at minimum cost, (eg,
such as production, or it could be in an intangible area such as through simulation models and data-base management).
attitudes and commitment towards a certain objective. But
continual improvement cannot be directionless, there must l Maximising existing steel quality (even beyond
exist an approach by which it can be achieved. Organizations specifications) to attract and retain customers.
need to learn more effective ways of assimilating dramatic l Recommend remedial measures for cost saving
improvements on a continuing basis. They need to get better through energy conservation, elimination of low
at understanding requirements, surveying, evaluating, value steps of operation, minimising losses, (eg, yield
selecting, integrating, developing, testing, and applying the of liquid steel).
improvements. And they need to get better and better at
deploying the improvements into rapidly shifting organizational l Intense focus on product development activities,
targets. To improve this B-Activity improvement capability, specifically developing difficult-to-make and high
organizations will need to invest in an explicit on-going value steel grades to meet global challenges with
C-Activity. The continual improvement chart (Figure 7) shows continuously modified strategies, (eg, win back the
the interlinkage of these activities. auto-sector customers from aluminium, composite
materials, back to alloy steels).
STEEL RESEARCHSTRATEGIC DIRECTION
l Devote on application engineering areas including
Figure 8 shows the relationship between competitive design and use, such that the product development to
environment and technological innovation. Therefore, marketing cycle is as short as possible.
strategic research will play a pivotal role in sustainable
l Maximum possible reduction in the specific
turnaround. There must exist a balance between generation
consumption rates of raw materials through quality
of new information (or knowledge) and better exploitation
upgradation and improvement of yield.
and extrapolation of existing body of knowledge (or
information) available. Steel R&D need to focus on new ways
of meeting user needs (both internal and external) in an
increasingly demanding market-place; more important, this
goal is to be met utilizing existing elements of resources, such
as available raw material, manufacturing capacity and
marketing capability.
The main objective should be improving R&Ds role in
overall business scenario both through incremental and major
improvements. This can be achieved by maximum possible Figure 8 The relationship between competitive environment and
exploitation and utilisation of existing technology to innovative technology. Source: POSCO
74 IE (I) JournalMM
Table 8 Proven technologies to be adopted Brand Equity of Steel
Technology Benefits Branding of steel as a futuristic product would provide suste-
nance to steel market. The reasons to given for this promotion
Mining
are:
High efficiency crusher Reduction in energy cost, quality
High efficiency magnetic separator improvement Excellent strength/performance characteristics
Coke-making Price/performance
Washing of indigenous coal Export substitution, uniform quality, Ease of fabrication and joining
Automation in coke ovens improvement in productivity,
Formability
Installation of state-of-the-art decrease in energy/operating cost
battery Recyclability
Quality Reinforcement
The objective is clearly optimizing three Cs (Cost, Customer,
Competition), centred on Q (Quality).
The importance of quality at the core of the objective cannot
be over emphasized.
In times of strong economic expansion and growth, major
business forces squeeze the profit structure of all Figure 10 Quality and profitability inter-relationship
organizations. Factors such as increasing customer
expectations, aggressive global competition, acquisitions and three factors in each of these aspects. What is the first aspect
mergers can cause more pressure on the expenses companies of the strategic process that signifies the essential factors that
incur in providing products and services. Therefore, it is need to be managed for successful sustenance. These include
essential for delivering the perceived quality value for todays the systems/structure, cultural synergy and superior values.
customers demand. This explains why quality has been kept at They are of crucial importance and must be managed in order
the centre. Figure 10 shows how overall quality improvement to manage change. How is the second aspect for effective
would affect profitability. management of change that works as prime instruments for
managing change. These include strategy, speed and
Organisational Reinforcement sensitivity. It is with these three factors that any turnaround
Effective organizational turnaround would require reinforcement management process could be successfully accomplished. The
of organizational strength. This is achievable through third aspect is the Who. This aspect signifies the stewardship,
maximizing the effectiveness of the nine intra-organizational supervision and self. It has been observed that it is the people
factors. These factors leadership, supervision, people, strategy, at all strata of the organizational hierarchy influence any
systems and structure, cultural synergy, sensitivity, speed and effective management of change. These three sets of factors
superior values provide the basic framework for successful each with three factors, hold the key to any effective
turnaround. The inter-relationship of these factors and their management of change.
cumulative effect would have a significant effect on the The inter-relationship of each of these elements has been
companys competitive edge. The mutual affinity of these explained in Figure 12.
factors and their relative impact on the change management of
the company is illustrated below with the help of a model Policy Reinforcement : Role of Government and Policy
termed as the Crystal Model. Makers
An effective strategic process requires the optimization of Government in general and policy makers in particular has a
these nine factors. Enumerated as Nine Ss, these nine factors pivotal role to play as enabling agency for implementation of
provide the What, Who and How of the strategic process for strategies for turnaround in Indian steel industry. Showing
effective management of change in an organization. There are due concern, government has already initiated steps for
formulating a new steel policy which include a road map for
the Indian steel industry. It is expected that the steel policy
COST (minimize)
will take into consideration all aspects of steel production like
demand and supply, quality of imported raw materials, trade
barriers in conformance with the World Trade Organisation
(WTO) etc. The new steel policy is expected to improve the
competitiveness of the Indian steel industry in the
76 IE (I) JournalMM
CONCLUSION
Ultimately strategies will viable if the business is managed to
achieve that viability. Experience suggests that the industry
today remains predominantly technically and production
driven. This must change. Today steel industry operate at high
levels business complexity. Today there is need that they
eliminate all unnecessary complexity and focus on selected
products and markets to achieve as in many other industries.
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ANNEXURE 1
SURVIVAL GROWTH
STRATEGY STRATEGY
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