Growth Strategies for Long Products Producers Strategies.pdf · 5 EAF production curve 1905-1998, Long Products (All grades*) & Carbon Flat Roll 0 5,000 10,000 15,000 20,000 25,000

Presentation toSMA Board of Directors Meeting

Growth Strategies for Long Products Producers

James Moss, Partner

First River Consulting

February 10, 2000Phoenix, Arizona

www.first-river.com2

What this is about

• Growth curves:

� they help understand where you are

� but not where you�re going

• Long product producer growth:

� is in danger of stalling

� it needs new approaches to rejuvenate it

• What a new approach looks like

• The elements of a growth strategy


All growth curves are similarSome take longer to develop than others

World Populat ion2000 years

0

1

2

3

4

5

6

7

8

9

10

0

1250

1750

1850

1910

1930

1950

1970

1998

2010

2030

2050

Bil

lio

ns

of

Pop

ula

tio

n

World Steel Production100 years

0

100

200

300

400

500

600

700

800

900

1000

19

00

19

09

19

18

19

27

19

36

19

45

19

54

19

63

19

72

19

81

19

90

MT

Sources: US Census Bureau, IISI


0

20,000

40,000

60,000

80,000

100,000

120,000

18

80

18

85

18

90

18

95

19

00

19

05

19

10

19

15

19

20

19

25

19

30

19

35

19

40

19

45

19

50

19

55

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

KT

US Steel Formed

US steel industry - mature from birth?Bessemer, open hearth, BOF & EAF steel production, 1880-1998

OHFOHF

BOFBOF

EAFEAF

Source: AISI reports; W.T.Hogan; First River Analysis

Bessemer etc.Bessemer etc.


EAF production curve1905-1998, Long Products (All grades*) & Carbon Flat Roll

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1906

1911

1916

1921

1926

1931

1936

1941

1946

1951

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

KT

Flat roll entryFlat roll entry

Now what for long products producers?

Now what for long products producers?

1st expansion phase1955-70

�~20 mills built�3 mills added EAF�s�23casters built�$5-15m/unit

1st expansion phase1955-70

�~20 mills built�3 mills added EAF�s�23casters built�$5-15m/unit

*Includes Stainless flat roll

Sources: C.Hall Steel Phoenix; Various; FRC

2nd expansion phase1970-82

�~15 mills built�Bigger scale�~$40M/unit�Mill chains�1MT company

2nd expansion phase1970-82

�~15 mills built�Bigger scale�~$40M/unit�Mill chains�1MT company Shakeout 1982-late 90�s

�20+ plants changed owners�6 mills closed�BIR acq. 6 mills in 3 yrs�Internt�l invest/divest�1987 6 largest co.s = 40% of 25MT capacity�Top 6 now 60%

Shakeout 1982-late 90�s�20+ plants changed owners�6 mills closed�BIR acq. 6 mills in 3 yrs�Internt�l invest/divest�1987 6 largest co.s = 40% of 25MT capacity�Top 6 now 60%


Recent major mini-mill performanceYear-on-year sales growth, 1990-1999 & 3-yr rolling avg.

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Source: Annual Reports of Ameristeel, Birmingham, Co-Steel, CMC, Nucor, Roanoke, TXI - FRC analysis


Exe

cuti

on

/A

ctio

n( e.g

.ret

urn

on n

et a

sset

s)

Innovation/Ideas (e.g.sales growth)

Weak

Strong

Weak Strong

Failing

Already winningAt risk of stalling

Headed for trouble

Profitable growthBalancing innovation & execution


Prospects reflected in population HDG lines & bar/structural mills capacity by age

HDG Lines by Age

0 2,000 4,000 6,000 8,000

KT

Bar/Structural Mills by Age

0 2,000 4,000 6,000 8,000

KT

Pre-1960

1961-1965

1966-1970

1971-1975

1976-1980

1981-1985

1986-1990

1991-1995

Post 1996

Source: Various, First River Consulting


And difficulty of pursuing growth options

How to grow?

How to grow?

2a. Value adder/Integrator

Raw Materials, e.g. Iron Carbide, scrap

2b. Value adder/Integrator

Downstream, e.g. fabrication

4. Internationalist -�mini-mill� opportunities

overseas

1. Builder

- New products in existing facilities e.g. SBQ, beams

- New products with new facilities e.g. flat roll

3. Restructurer

So far -Mostly limited advantage

So far -Mostly limited advantage

Time-consuming -risks seem too great

Time-consuming -risks seem too great

Harder to see future value in buying viable

competitor

Harder to see future value in buying viable

competitor

Slow & tough to make countSlow & tough to make count

�Weak integrateds hard to find�New products hard to pull off�Few enabling technologies�Few uncharted sectors/regions

�Weak integrateds hard to find�New products hard to pull off�Few enabling technologies�Few uncharted sectors/regions


Other signs of significant change

• Qualitech

� Greenfield site, low cost, non-union

� Entry thwarted

• Shareholder/boardroom intervention in growth debate

� Nucor

� Birmingham

• Disposal of non-core assets:

� Co-Steel

� GSI

• Others: scrap, SSC consolidation; e-commerce


Curves don�t lead industries -people do

0

5

10

15

20

25

30

35

40

45

50

Lag/development phase

Exponential Growth

Limiting factors kick in

Population Crash

Introduction -fragmentation; �garage stage�

devt.;

Demand Growth -Standardization of

products & process; knowledge diffusion

Maturity -Overcapacity;

shakeout; price declines

Decline

- Exits

- Rationalization

But in business - none of this is inevitable - it

is driven by the energy & innovation

of the players

But in business - none of this is inevitable - it

is driven by the energy & innovation

of the players


An exampleAK Steel

Some of what happened...

• Tom Graham appointed 6/92

• Identified operational core:

� Ingot manufacture closed

� 1 HSM, 2 cold mills closed

• Changed focus to company not industry

• Stopped all new investment

• Renegotiated contracts

• 75% of top managers replaced in 2 years

• Fired all consultants

Achievements

� Led steel industry in operating income/ton by 4/94

� Hot strip mill output went from ~3.5MT on 2 mills to ~5MT on 1

� Cold mill output from <2MT on 3 mills to >3MT on 1

� Recapitalized

� Built Rockport - $1Bn

� Acquired former parent

� Revenue growth 19% pa.

� 6 yr. EBITDA 28% pa.

Achievements

� Led steel industry in operating income/ton by 4/94

� Hot strip mill output went from ~3.5MT on 2 mills to ~5MT on 1

� Cold mill output from <2MT on 3 mills to >3MT on 1

� Recapitalized

� Built Rockport - $1Bn

� Acquired former parent

� Revenue growth 19% pa.

� 6 yr. EBITDA 28% pa.


• A great mix of commercial, operational, human resource, engineering & investment skill

• Execution skills are valuable:

� Achieve superior results - faster, more responsive

� Provide an �embedded� advantage - hard for others to copy

� Easy to apply to new situations

� Easy to train people to implement

� And refining the skill compounds advantage

Mini-mill survival has been built on skillful execution


But success can bring similar constraints• Like resistance to change:

� Organizational: We don�t talk anymore

� Cultural: We don�t do it like that around here

� Personal: What growth problem?

• Efficiency of current skills works against slowing down to learn anything new - risk of failure

• Strategy sometimes becomes a search for situations to apply the skill - appropriately or not

• Ambiguity of environment makes it hard to know if:

� the skill is misapplied (We need a different approach)

� or, you�re just not trying hard enough!


It�s growth at the corporate level

• Not how to revive an individual operating unit - but how to make the whole add up to more than the parts

• What makes (or could make) the �whole� work is driven by more than operational fit:

� complementary cash flows (growth/share)

� position/industry attractiveness (portfolio analysis)

� operational & commercial advantages (synergies; core competencies)

� type of business parent knows how to manage/ improve (parenting advantage)


But requires similar approach

• Finding the advantages of the whole will point to clear growth options

• Driving growth by identified advantages may involve lots of change:

� disposals

� acquisitions

� changed roles

� new people

• And to get started, you need both

� a fresh perspective

� resources & organization


�Walk out the door & come back in� With a fresh perspective...

• Shock the system:

� We�re going to get out of memory chips - Intel

� We�re the worst steel company in the world - AK

� �We�re the most bureaucratic mini-mill��?

• Slaughter sacred cows:

− We need more BF capacity

− It�s not us, it�s the industry

− �We�re decentralized...�?

• Create opportunities for debate & dissent (or dissent!)

� Get a �fool� - make mavericks & heretics your companions

• Expose yourself & others to new data


Resources & organizationA balance between top-down/bottom-up

• A number of options for organizing the effort

• At the �corporate� level:� A central group; a department; a person - tendency to be

too remote; may slow action

• At business unit level:� A core group/person at business unit level; tendency to

be too committed - can�t see the wood for the trees

• �Divisional�: � Groups of businesses - region, product or process

• Or a mix: �kitchen cabinet�; diagonal slice

• Depends (among other things) on where innovation is most likely


Choose a role Risk & amount of change involved in different roles

Risk

Lower

Higher

ChangeLess More

ReframerReframer

Value-adder

Restructurer

Internationalist

Seller?Seller?Builder


Strategies limited by capabilitiesNew skills can enable different options

• In addition to new ways of looking at things - all kinds may be needed :

� Merger & Acquisition

� HR: hiring, succession, management education, OD

� IT

• Can be acquired in a variety of ways:

� (Re-)train

� Hire

� Rent

� Experiment, experience

• How - will depend on what you need & how much time you have


The elements of a growth strategy

• Defines a role for the entire organization

� based on what you can do now

� & what you want to be able to do

• It gets & drives commitment of resources

• Attached to goals - short-term & long term

• What you won�t do as much as what you will do

• Courts risk

� GE�s #1 or #2 business

� AK�s commitment to value-added product & automotive

• Releases energy to grow in place of frustration & doubt

Documents

Growth Strategies for Long Products Producers Strategies.pdf · 5 EAF production curve 1905-1998, Long Products (All grades*) & Carbon Flat Roll 0 5,000 10,000 15,000 20,000 25,000