Leading Strategic Change - Mittal Steel Company - Essay Example

LEADING STRATEGIC CHANGE The current essay is an attempt towards applying studying and applying well-known theories and principles for the analysis of the strategic changes that have taken place in a company in the recent past. Therefore, the essay will not speak about strategic principles in detail, but will instead work towards explaining about the outcomes of having applied those principles. Under the current essay, the company that has been chosen as the central theme of the study is ‘Mittal’, which was making the headlines until recently due to a major change in its organization and merger with the Arcelor group, a rival firm. Mittal Steel Company is regarded as the largest producer of steel in the world in terms of the production volume. The company, however, is placed second in terms of the annual turnover behind Arcelor, its closest rival. The company is headquartered in Rotterdam, and is owned by Lakshmi Nivas Mittal. The company started during the late 1970s an early 1980s and has since grown on to become one of the most powerful steel conglomerates by owning steel plants in all the continents. The company was recently in the news over its attempt to merge with Arcelor steel, the deal being finalized on 25th June, 2006. The merger, when completed, will catapult the new company (which will thereafter be known as Arcelor-Mittal) to the position of numero-uno with a global share of nearly 17% in the steel production arena (Financial Times, June 23, 2006). The reason for choosing this company has been multi-faceted given the fact that the position achieved by the Mittal group under Mr.Mittal’s leadership has been something phenomenal over the last decade, which has seen it grow from nowhere to commanding the largest share in one of the most profitable industrial sectors in the world (Research and Reports, 2006). These will become clearer as the essay progresses. The first aspect that will be discussed under this section will be the use of PEST analysis to study the various factors that have been contributing to noticeable changes in Mittal Steel over the years. This analysis will take into consideration the internal as well as the external changes that have contributed to the growth of the company to the position it enjoys today. The analysis will also need to perform an analysis of the micro as well as the macro environment, which have been known to play a role. In terms of the internal changes, Mittal steel is known to adopt a very well-known procedure that has contributed to its growth both in terms of size as well as in terms of capital. Since 1992, when he made his first major acquisition, Mr. Mittal has adopted the sole technique of acquiring loss making steel units usually at throwaway prices (with the majority of them being made in the transitional countries of eastern Europe and Central Asia, which had come out of communist rule during the last decade). These loss making units were then converted into profitable ones through the use of cost cutting strategies that primarily consisted of removing excessive staff and layoffs (Wikipedia, 2006). These measures have been so drastic that in one of the company’s steel plants in Ireland, the workers were given just a day’s notice before they were relieved of their services as the unit was found to be a wasteful investment by the company’s management. Mr. Mittal has also been known to use his political influence well for his personal gains. This can be judged from a newspaper report, which stated that in bid to acquire a steel plant in Romania, Mr. Mittal donated nearly £250,000 to Mr. Blair’s party. The next day, it was reported in the media that the British prime minister had written to the Romanian prime minister that his country could be better placed in its bid to et membership of the EU if it allotted the steel plant to the Mittal Group. The media and many industry experts believe that both these incidents are well connected given the sequence in which all events took place (macro environment) (Moneycontrol, 2006). If one were to look at the macro environment, Steel is a commodity that is in so much demand, which is one of the prime reasons for driving Mittal steel to acquire more and more plants and increase production volumes. Mittal steel has also been known to have made significant changes to the supply changes of all the plants that it has acquired by ensuring that it has a good understanding with the government of the region (wherever the steel plant is located) so that it receives help in the from of easy availability of raw materials and resources such as power and cheap human labour. The company’s top management has also worked towards improving the socio-cultural factor in the region by undertaking development activities by enhancing the standard of living of its employees wherever they are. This has helped in improving worker efficiency by serving as a form of motivation. This is because almost the areas where the company has been acquiring plants have largely been economically areas, which is why these plants were loss making originally. For example, in the company’s steel production facility in Karaganda, Kazakhstan, the company has been known to have made huge investments towards developing the social infrastructure of the region. The town of Temirtau, which is the township of the company’s working population, now boasts of a sturdy healthcare system, schools and educational institutions as also a better transport system. The company acknowledges this to the fact that it is its social commitment towards improving the living standards of its employees. Thus, from the PEST point of view, it can be concluded that all the above-mentioned factors have worked collectively towards helping the company to acquire and expand into newer regions. The introduction of Mittal’s unique business model that has been discussed above has worked well for the company allowing it to reach its present position within a short span of a decade (business week, 2006). Prior to the merger with Arcelor, Mr. Mittal owned as much as 88% of the Mittal group, which allowed the company to take its own decisions without facing any major problems from its shareholder base. In fact, it was the same pressure from the shareholders of the Arcelor group (who were offered as much as £50 per share by the Mittal group in their offer for merger) who collectively own a larger share of the company that compelled the management of Arcelor to turn down the bid from Severstal, and choose to stay with Mittal instead (Financial times, July 24, 2006). The introduction of layoffs has also been achieved through the use of modern technologies. The company has been known to replace all obsolete machinery subsequent to an acquisition with more sophisticated ones in their place, which is attributed to be one of the reasons for the cut in the number of employees on a comparative basis (i.e. before and after an acquisition). There is no information available on the internal working of Mittal steel, which is the reason why the company is known to the general public only through Mr. Mittal and his son, Aditya. Therefore, there is not much evidence about any kind of strategic drift. Ever since, the business model adopted by the Mittal group has known to help it grow at a rapid pace (Mittal, 2006 & Financial Times, 2006). Therefore, it can be concluded that the change in the company’s strategic position has been a result of the cost cutting and layoff strategy coupled with the use of political influence as well as requisite forms of employee motivation in addition to the introduction of modern machinery and manufacturing techniques. From an analysis of the history of the company and the manner in which it has grown over the years brings forth the point that the growth of the company has been strategic in nature and has proceeded with the help of a well-defined plan in place. In this context, an analysis of the various strategic principles has shown that strategies implemented by the Mittal group have been based on the principle of Porter’s generic strategy. This is due to the following points, which fall perfectly into place when compared with the strategies of the Mittal group: Cost leadership: the strategies adopted by Mittal have been based on the approach of cost cutting upon acquisition. Thus, the prime consideration has been to concentrate on costs primarily so as to bring the plant that has been acquired back on track (Answers, 2006). The company has maintained the standard policy of segregating its plants that are spread out in the world into groups. The groups are primarily known as Mittal-America, Mittal-Europe and Mittal-rest of world. This segmentation of the plants has divided the role of the management if the company into their individual responsibilities, and is a fact that is acknowledged by the company itself. The existing literature in the form of news articles and journal descriptions does not describe any form of differentiation focus based strategy that may have seen any directed focus on the part of the company towards emerging as a unique business entity within its sector, whereby this variant of porter’s generic strategy may not be applicable to the case of the Mittal group. From the analysis of the case scenario on the lines of the 7-S framework of McKinsey, it can only be concluded that the strategic growth has been an incremental one. This is understood from the following points: Shared Value: The company’s aim to be able to reach out to every customer can be understood from the following philosophy that the company states: “To be able to deliver the range and quality of products customers demand the modern steel maker must have the scale and worldwide presence to do so competitively. (Mittal, 2006)” Strategy: Mittal group’s strategy, as has been mentioned before, has been to acquire ailing steel plants at throwaway prices and turn them into profit making units by the use of cost strategies and layoffs. The categorization of the company’s plants into regions has ensured that all decisions are properly communicated and arrangements have always been made by the company to ensure that all the required resources are procured locally and this has been achieved through help from the local administration in various forms. Style: Most of Mittal group’s management comprises highly qualified and well trained professionals and their major tasks are to ensure that every plant is performing to its optimum levels. This is achieved by ensuring that managers allocated to a particular region for a specific period of time are constantly on the move in order to ensure that in addition to performance all the decisions and changes are communicated personally and monitored effectively as well (Mittal, 2006). Structure: Owing to the large size of the Mittal group in addition to its global extensivity and the large number of plants that it maintains and operates, the company has divided its operations into three major regions that have been discussed in the preceding paragraphs. In this context, the company has been seen to operate under a decentralized architecture that fits well for larger organizations. The financial management architecture of the company has been discussed all along in the preceding paragraphs. Staff: The personnel in the company as a whole has grown from a few hundred (in the first plant that the group has owned in Indonesia since 1976) to the present 129,000 (Answers, 2006). Skill: the preceding paragraphs have mentioned that the company has been in the process of keeping in tune with modern technology and has additionally been in the constant process of adding new and better placed steel products to its product range. All this requires that the working staff of the company have a high degree of technical skill, which goes to show that the company has been performing upon analysis using the 7-S model. To the question of the use of the appropriate model for the purpose of determining the change brought about in the structure by the company, it must be noted that in addition to initiating changes to the structure of the company, Mittal group has also made significant changes to the structure of the acquired plant as well. Therefore, in comparison to reconfiguring, the group has initiated strategic change in the direction of restructuring and this is evident from the introduction of new machines and techniques and new production strategies over the years (Heather Timmons and Anand Giridharadas, 2006), 2006). The company has also made significant to improving the condition of the working environment by ensuring that workers are provided with good ventilation and cooling facilities. In addition, the improvement in the housing facilities of the working staff and the production of basic civic facilities have been acknowledged by industry experts as being the main contributors to the success of the company (Mittal, 2006). The management of the company including Mr. Mittal himself are known to be constantly on the move and have been described as working for improving the performance of every unit under their flagship at all times. Thus, there is evidence that suggests that the communication mechanisms existing within the company have been extremely transparent with the bosses taking personal care to ensure that all processes proceed smoothly at all times. The Mittal group’s performance over the years has grossly sidelined the pints that have been outlined by Kotter’s Eight top-down steps and this can be judged from the fact that the company happens to be one among very few who have been able to achieve and manage successful changes subsequent to acquisitions. How the group will perform upon the merger with Arcelor will need to be seen in the future. Instead, the group’s performance can be closely associated with the Crescendo model of Rejuvenation wherein the four key stages listed under it has been seen to be largely implemented effectively and successfully by the company. Primarily, Mittal has worked its way towards eliminating the unnecessary complexities in the working of its plants. Secondly, it has added new capabilities and added more infrastructures to the company’s existing facilities. The constant maintenance of momentum with respect to production in addition to stretching the product range over the years has been in perfect conformance to the crescendo theory (The Economist, 2006) It can be seen from the Kotter’s result table and upon analysis of the company’s history that the company has been achieved huge amount of success and has always maintained that this has been a result of a vision. Therefore, from the Kotter’s table, it can be said that the company has been proceeding in the direction of sustainable success and the recent merger with Arcelor can be regarded as a consolidation of its fast growth. When it comes to an assessment of the man who has been leading the Mittal group to glory, the only fitting word that can be attributed to him is ‘Visualization with a mission’. Mr. Mittal has always acknowledged that he always wanted to grow to the maximum and had a vision for ensuring that the Mittal group prospered to such an extent. His ability to bring in highly-qualified and skilled people into a group has ensured that the management of the company is in proper and able hands. Mr. Mittal has always been a very intellectual person right from the days of his schooling and therefore, his climb through the ladder of success cannot be acclaimed or attributed with something that happened by accident. Mr. Mittal’s performance and the trend of his company over the years have shown to the world that his plans are dynamic such that they are always on the constant lookout for greener pastures with a vision of global expansion in every possible manner. Therefore, his style of leadership perfectly falls into the category of participation/collaboration (Moneycontrol, 2006). Fig: Kotter’s result table REFERENCES 1. Mittal (2006), Information on Mittal Group. Found at: www.mittalsteel.com 2. Research and Reports (2006), Company profile: Mittal Steel. Found at: http://www.researchandmarkets.com/reports/326682 3. Financial Times (2006), Mittal-Arcelor merger. Dated: June 23, 2006. 4. Wikipedia (2006), The Mittal Steel Company. Found at: www.wikipedia.org 5. Financial Times (2006), Arcelor compensates Severstal: Mittal-Arcelor merger. Dated: July 24, 2006. 6. Business Week (2006), Mittal: Blood, Steel and Empire Building. Found at: http://search.businessweek.com/Search?searchTerm=mittal+steel 7. Heather Timmons and Anand Giridharadas (2006), Capitalism & Nationalism: The Mittal-Arcelor case. New York Times. Dated: 25th June, 2006. 8. The economist (2006), a steel maker that broke the mould. Dated: Jan 8th, 1998. 9. Moneycontrol (2006), LN Mittal: the undisputed sultan of steel. Found at: http://www.rediff.com/money/2006/jun/26mittal4.htm 10. Answers (2006), Information on the Mittal Steel Company. Found at: www.answers.com 11. Read More