Answer 3 A. ) Strategy to be pursued proactively: On a broad level, an organisation can adopt any of the three strategic concepts i. e. a) Differentiation b) Cost Leadership c) Response. Differentiation: Steel is such a product that not much product innovation can be done. Cost Leadership: Chaparral Steel is already a cost leader in the market with its limited range of products. But if it needs to expand itself in terms of capacity, it needs to come up with a new product line and that too at a low cost.
Chaparral needs to continue its strategy of low cost leadership with addition of new product lines to tap the market potential for larger steel products. The only competitor being Korean companies, if Chaparral plays its cards right, it can have virtual monopoly in the larger steel products segment. This is the strategy that Chaparral should proactively pursue. Response: Delivering orders on time is one strategy which in the steel manufacturing industry may not yield much result as everyone in the industry is more or less at the same level and the level cannot be increased.
We shall now consider how the strategy of low cost leadership will impact product, process and capacity strategy. 1. Product Strategy : Chaparral’s current product line Rebar and merchant shapes ranging up to 4”. With the increased planned capacity expansion, company should focus on adding new products to its portfolio. Product scope: a. Introduce new products in category of larger bars and wide range beams. b. Size of existing products to be increased. Product Scope: Variety augmentation through new product launches.
Product Profile: Company should concentrate on development and launching of more, newer streams of end products to continually match changing customer’s needs. The reason for introducing these new products is: 1. Existing market is not going to grow to double the size in few years whereas existing capacity expansion plans will increase the capacity to more than 200%. Excess capacity can be used to tap new markets. 2. Lower competition in the market of wide range beans and larger bars with higher profit margin. 3. Market for product 1 and 2 groups to grow to 3 million tons by 1987. 2. Continous casting
Continous casting Process Strategy: Shipment to customer Shipment to customer Rolling Mill Rolling Mill Billets Billets Electric furnace Electric furnace Lime,flux and scrap Lime,flux and scrap The stages (as depicted in the diagram above) in production are melting steel into furnaces, putting the molten steel through casters for shaping them and finally passing it through rolling process to produce the rebars and others shapes. 1. The company is now planning to adopt a process called Sequence casting. The problem with existing system is that any problem in caster can act as a bottleneck disrupting the entire process.
With the new process, this problem will be taken care of. 2. The production of new shapes and angles also posed a challenge to get new dyes and frames to be fitted into the casting machines. So new equipment will be needed for same. 3. Rolling section also needs to be upgraded if they are to produce new shapes. Process design: In addition to above mentioned points, company should in general follow the “KAIZEN” process of continuous improvement if it wants to retain its cost leadership. 4. Capacity Strategy: Existing capacity is as follows: Electric arc furnace is rates at 250,000 tons per year were producing 370,000 tons/year, 2. hours of labour/ton. Company should increase the capacity. Currently it is aiming to increase the capacity to 516,000 tons/year electric furnace, 1 500,000 tons per year casting machine and rolling mill rated at 160 tons per hour. All this will cost the company more than 160 million dollars. The initial investment is justified in that the new products added will have higher margin. Scale of Capacity Expansion: Company should adopt a strategy of occasional, big step at this stage to realize economy of scale benefits. Timing of Capacity expansions: watchful reactive capacity expansion lagging demand.
B. ) Strategy expected to be experienced reactively: In the long run, company will learn to use responsiveness as a strategy as competition will gradually increase and then to differentiate itself, it will need to exceed customer expectations by being mor responsive to their needs. 1. Product strategy: The emergent strategy will affect three areas. Product scope: company will have to drop old obsolete products as it grows. Product Profile: Once the expansion plans have been completed company will have to shift focus to standardising the process, modular design and concepts of core product. . Process Strategy: Company will learn the art of continuous improvement as it grows and stabilizes. 3. Capacity Design: Once capacity expansion plans are completed, company will gradually revert back to its old strategy of frequent incremental capacity increases through medium and short term eans to meet the market demand. It will also learn to take bold proactive capacity expansions leading demand. to always ensure adequate capacity to meet all demands. Answer 4: A. ) The real key to Chaparral’s key was not the technological improvement or ongoing learning but its people.
The following roles were played by the ‘human processes’ and their inherent human skills of “Quality Management”, “maintenance management” and “project management skills “in the past: 1. The organisation worked on the principal of participative management and profit sharing which itself acted as an incentive for employees to give their best as they felt empowered and took pride in their work. 2. A very high sense of ownership was instilled in the employees. This made the employees enjoy their work and excel in it. There was a sense of competition among the employees to do better than the others and improve continuously.
This resulted in the philosophy of “We can do it” which permeated the whole organization. 3. Employees were given freedom to experiment and implement innovative process improvements which enabled the company to become cost leader in the sector. 4. The human management programme ensured that the morale of the employees was also high. This led to Chaparral’s achieving increased output year on year through internal innovations 5. Constant training was given to the employees. This ensured that the employees are up-to-date with the best practices in the industry. The employees were ncouraged to apply their newly gained skills and learning in the plant if it led to increase in productivity and lowering of costs. Failures were also tolerated as long as mistakes were not repeated 6. Management’s structure was flat with only four levels from top to bottom. This ensured that formalization was kept to minimum without meetings and memos. The company followed and open door policy, first name basis culture. This led to increased productivity owing to elimination of time wastage inherent in other type of organizational structure where centralization and formalization in prevalent.
B. ) With the capacity expansion, more manpower will be needed roughly around 500 more employees. Some minor changes will be required in the organization structure. Joan Woodward’s classified the technology into Unit based or (Small scale), Mass based or (large scale) and Continuous process organizations. Structure of the organization depended on the technology it uses. Structural Characteristic| Unit based| Mass based| Continuous based| Number of management levels| Low| Medium| High| Supervisory span of control| Low| High| Low|
Ratio of managers to total workforce| Low| Medium| High| Skill level of workers| High| Low| High| Overall structure| Organic| Mechanistic| Organic| Chaparral is uses continuous process based technology. 1. Since there are only 4 levels and the manpower capacity will increase by more than double, the new recruits will join at lowest level. But this puts a risk on the morale of the old employees at that level. So new positions will have to be created to keep the morale high. It will also give the employee a feeling of being promoted.
This is an opportunity where company can position itself as an organization where employee has bright career and growth opportunity. 2. The new plant will need manpower of its own. So new recruitments will have to be done. A proper induction program will have to be put in place to ensure that the new employees understand Chaparral’s work culture, ethics, and missions. 3. Training programme for new and existing employees in lieu of the new product line and process that the company wishes to undertake as part of capacity expansion plans. . Some workers from the old plant will need to shift base from old to new plant . This can become inconvenient for some so the management will have to do this on a rotational basis to keep the morale high. 5. Company’s organizational structure will move from being strictly organic in nature to moderately organic. This means there will be a need to more formalization in the company. This is required for the new recruits as they will have to be guided initially and cannot be given the autonomy to act as they please.
As already discussed in point 1 above, new levels will have to be added this will disrupt the flat structure and give rise to a taller structure. 6. Marketing will have to be more active as the company no longer is restricted to domestic players but has to compete with Korean and other Asian manufacturers. 7. The operations team shall have to work harder to reduce the manpower requirement per unit of output and try to bring in below the present levels. (Only Nucor Steel matches already high levels of productivity of Chaparral Steel. Challenge shall be to beat the competition in the race to become more competitive)