Company Strategies - SAIL

Chapter – 5 Company Strategies 5.1 Introduction Johnson and Scholes (Exploring Corporate Strategy) define strategy as follows: "Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a cha...

Chapter – 5 Company Strategies 5.1 Introduction Johnson and Scholes (Exploring Corporate Strategy) define strategy as follows: "Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations". Corporate strategy highlights the issues vital to the organization, measures corporate performance and envisions the competencies required for future sustenance. Such issues are of great importance for SAIL, as we navigate the competitive, fast changing, and highly global steel business. The need of the hour is to adopt rigorous and appropriate strategies to realize the full potential in the coming decade. SAIL is one of the largest industrial entities and the leading steel producer in India today. Its main strengths include diverse range of quality steel products, large pool of technical and professional manpower, 100% integration in iron ore and a nationwide distribution network. Being one of the few companies in India with multiple plant locations, it has the unique advantage of being able to grow to a scale of around 48 million tonnes of crude steel by expansion at existing locations. Steel sector in the past 2 decades has experienced challenging periods interspersed with opportunities for growth and wealth creation. The evolution of steel business environment and corporate strategy responses of Indian Steel Majors fall into two distinct stages Key Reforms for the steel Sector —first, during the ‘Planned Self-Reliance’ oriented economy till the 1980s — second, during the transition decade of the 1990s and the ‘Post Libelization Era’. Various aspects of these stages, have left a distinct imprint on the business profile, mindsets and behavioural characteristics of the Indian Steel sector. Post 1990s,the dramatic changes in the Indian economy made it critically important to understand how the steel sector and in particular individual steel producers are moving into the global economy. Therefore, 48 Iron and steel removed from the list of industries reserved for the public sector Licensing for capacity creation and investment removed Provision for automatic approval of foreign investment through equity up to 100% Pricing and distribution controls removed Steel put on OGL – it has become imperative to for imports take note of various operational choices available to SAIL for decision making, the constraints imposed by the external environment, as well as the outcomes in terms of firm performance, profitability, growth, and competitiveness. 5.2 Strategy formulation This approach has been followed by SAIL for analyzing business environment and then charting a future course of action. The approach is based on a system of continuous improvement where the result of one analysis becomes the input for the next. The stages involved are as follows : 1. Vision and mission – any business strategy is guided by the vision and mission of the company for direction and priorities. Various factors and conditions are examined to ensure that they are in line with what is envisioned for the Organization. 2. Opportunities and scenarios are then analyzed for feasibility according to position and condition of the organization. This includes analyzing the internal position (strengths and weaknesses ) as well as external factors (outside opportunities and threats) related to the company 3. Based on such analyses strategic options are formulated, which project several possibilities. The best option among these, is selected after careful 49 consideration and a broad business strategy is prepared which illustrates the overall direction of action 4. This business strategy is now broken down to the individual components (Operational, Finance and Marketing) which enumerate detailed action plans for each section This approach has been used for the formation of a series of corporate plans for the company which has been based on the changing scenarios in the Indian steel industry. 5.3 SAIL’s tryst with Corporate Plans Steel Authority of India Limited (SAIL) has always believed in structured planning for the Company, percolating down to the units. The planning culture has contributed not only to SAIL’s growth, but also - given the steel sectors strong backward and forward linkages - to that of the nation. The formal long range planning process, initiated in 1986 in SAIL saw publication of two corporate plan documents, one in 1987 and second in 1992. Both the earlier Corporate Plans had a perspective of around 15 years with 5 year mile stones, five yearly reviews. However the exercise of drafting a new Corporate Plan in late nineties was not under taken, as by then it has become apparent that changed business environment necessitated fundamental changes in Company’s business. This called for a detailed restructuring plan rather than traditional long rage growth plan. Corporate Plan -2000, May 1987, up to 2000 AD This was the first corporate plan of the company which was envisioned for 15 years with 5 year milestone. This was aimed at retaining the 60% market share that SAIL enjoyed in those days It focused mostly on modernization and technological up gradation in all plants thereby improving capacity and productivity of production units. The plants to be modernized in the initial phase were DSP, RSP & BSL Corporate Plan - 2005, Feb. 1992, up to 2005 AD It was drafted when the steel market had transformed under economic reforms introduced in 1991-92. CP – 2005 aimed at Financial target - PAT/NW ratio of 12% minimum It followed up a de-centralized planning approach with drafting of Unit Perspective Plans Chief Executives meeting resolved conflicting objectives across units’ viz. interplant investment allocation, product mix decisions, etc. 50 Some of the goals to be achieved were: SAIL to become a dividend paying company Exports identified as thrust area Highlights 1992-97 SAIL becomes a dividend paying company (maiden dividend 1992) Peak profit of Rs.1319 crore during 1995-96 New Areas such as Environment, by-products were introduced SAIL issues GDR which were listed in London Stock Exchange SAIL becomes a Navratna company Turnaround Plan - August 1998, up to 2003 AD SAIL’s financials after showing consistent profits from 1984-85 to 1997-98, came under strain during 1998-99 on account of number of reasons. During the period 1998-99 to 2002-2003, SAIL focused on a turnaround and restructuring plan. To overcome the adverse situation and attain a position of sustainable profits, SAIL successfully scripted the largest turnaround in the corporate history of India. To effect the turnaround SAIL took simultaneous initiatives in (i) Restoring financial foundation (ii) Organization restructuring (iii) Marketing initiatives (iv) Cost Reduction (v) Manpower Rightsizing By the last quarter of 2002-03. SAIL had turnaround and was well poised for a growth plan to tap the rapidly expanding steel market. Corporate Plan – 2012, July 2004, up to 2012 AD The turnaround and the buoyancy returning to the industry provided a fitting backdrop for SAIL’s long-term vision. It was incumbent upon SAIL to capitalize on emerging opportunity and improve further its profitability and market position by building a truly competitive organization at a global level. SAIL’s long-term strategic orientation is for building a robust organization with strong fundamentals. Corporate Plan-2012 was designed in the year 2004 as a medium- and longterm business strategy for SAIL. Initially, it set out the blueprint for increasing 51 the company’s production capacity of hot metal to 23 million tonnes and of saleable steel to 20 million tonnes, along with related/enabling business activities. In pursuit of these targets, a comprehensive company-wide Modernization -cum-Expansion Plan (MEP) was drawn up, encompassing investments in plants as well as mines. In the process of making Composite Project Feasibility Report (CPFR) it emerged that it would be possible for SAIL’s hot metal capacity can be increased to 26 million tones and saleable steel to 23 million tones. CAPACITY EXPANSION PLAN 5.4 Unit : mtpa 2016-17 (Actual Production) After Expansion Hot metal 15.7 23.5 Crude Steel 14.4 21.4 Saleable Steel 13.8 20.23 SAIL Vision 2030 SAIL Vision-2030 is designed as a medium- and long-term business strategy for SAIL. It sets out the blueprint for increasing the company’s production capacity of hot metal to 50 million tonnes and of crude steel to 48 million tonnes, along with related/enabling business activities to catapult SAIL into the top league of metals and mining companies at the global level. In a rapidly expanding domestic market for steel, Vision 2030 focuses on broadening the customer base, increasing exports as well as retail sales and de-risking the business by means of forward integration in steel intensive businesses. Based on the SWOT analysis of SAIL phase-wise strategies have been formulated in key strategic areas such as market leadership with a global orientation, production & product-mix aligned with current trends in the steel business, achieving complete integration of key inputs/raw materials with the entire steel making process, improvement in techno-economic parameters and efficient manpower deployment. SAIL over the medium term would plan to retain market dominance in infrastructure & construction sectors while developing a strong presence in the value added products arena. To expand customer base and explore new market segments several new products and mills have been envisioned. Further, hot metal production through alternate smelting process shall also be targeted. 52 New mines along with beneficiation units would be developed to meet the required production of hot metal. Pellets capacity of around 15 million tonne is being planned. Options like owning dedicated rail tracks and specialized wagons, developing new ports on the eastern coast and exploring inland waterways would help SAIL for seamless management of logistics for the incremental steel volumes. In its pursuit of excellence, SAIL would target continual improvement in areas of land utilization, steel making technology, manpower productivity, energy management, and sustainability. Further, HR strategy of SAIL focuses on re-structuring of company and synergizing employee engagement in line with the company’s growth plan. Over the years SAIL has also worked towards forming Joint Ventures / Strategic Alliances with domestic and International companies. SAIL’s Major Joint Ventures/Strategic Alliances FOCUS AREA ALLIANCE PARTNER OBJECTIVE International Coal Ventures Ltd set up as JV with CIL, RINL, NMDC and NTPC to acquire coal assets globally RAW MATERIALS JVs with NTPC and DVC for power plants for captive consumption ENERGY Bhilai Jaypee Cement Ltd. -Slag based cement plant of 2.1 million tonne per annum capacity with grinding unit at Bhilai & clinkering unit at Satna CEMENT WAGON MANUFACTURE JV for manufacture of specialized wagons JV with Tata Steel to promote e-commerce activities in steel and related areas E-PORTAL STEEL PROCESSING JV with BMW Industries Ltd. JV with Prime Gold group Having braved the lows and relished the highs, SAIL has withstood the test of time, and come out on top as the country’s leading steel producer. As SAIL prepares to commission the new facilities, there is a need to plan for a new horizon. ‘Vision 2030’ is expected to define the roadmap for the company beyond the ongoing expansion plan. *** 53