4. Steel Industry Snapshots
The steel industry is entering a period of consolidation, with the primary
objectives of the industry leaders being to blunt the cyclicality that has
historically plagued the industry
The “winners” in this new era will be those companies that have the following
characteristics:
they will own a balanced portfolio of assets in developed and emerging markets,
benefiting from the stability of the former and the low costs of the latter
they will become increasingly more self-sufficient in the necessary raw materials
used to manufacture steel, particularly iron ore and coking coal, as the volatility of
the market price and availability of these resources in recent years has
challenged steelmakers
they will embrace new technologies for making steel better, faster and cheaper;
and
they will concentrate on producing higher grades of steel, such as automotive
steel, in order to differentiate themselves from commodity producers.
5. Integrated Business Model
Arcelor Mittal is not only a steel producer but also an
integrated metals and mining operation.
At the other end of the value chain, it has a powerful
distribution arm which transforms and trades
finished products.
Upstream and downstream integration increases the
sustainability of profits by allowing a steel company
to capture opportunities wherever they arise in the
value chain.
6. Upstream Integration
Upstream integration allows steel companies
to hedge against raw material price
fluctuations.
Arcelor Mittal’s strategy is to expand its
already substantial captive resources of iron
and coal to increase levels of raw material
self-sufficiency.
Major investments are underway to expand
iron ore output from existing mines – most
notably in Ukraine.
7. Downstream Integration
Downstream integration, through the ownership and
management of distribution channels, allows steel companies to
capture a greater share of value-added activities, particularly for
high-end customers, such as automotive manufacturers, that are
outsourcing more and more of their operations.
It also brings steel makers closer to their end customers, giving
them better market intelligence. that, in turn, allows them to
better manage inventories in the supply chain to reduce volatility
and improve working capital management.
Finally, captive distribution channels provide a buffer against
falling demand during an economic downturn – particularly in
Europe where steelmakers tend to own distribution channels.
8. Geographic reach – delivering cost
leadership and growth
With an industrial network spanning 26 countries on four
continents, and representation in a total of 60 countries, Arcelor
Mittal benefits from unique geographical diversification.
Approximately 25% of production is from plants that figure
among the lowest-cost producers in the world.
Around three-quarters of production is at less than global
average cost, giving the company the regional cost leadership
that is essential to ensuring profitability throughout the economic
cycle.
Arcelor Mittal is committed to maintaining that cost leadership.
In the short term, that will be achieved by realising the maximum
synergies – in purchasing, marketing and trading – from the
merger.
Over the longer term, the focus will be on continuing to use scale
and global presence toachieve greater production efficiencies,
operational synergies and cost savings across the business.
9. The 5-year Program
Arcelor Mittal is embarking on a fiveyear programme designed to
bring a number of its plants sited in emerging economies, and
acquired over recent years, up to the same standard as that of
Western Europe & US.
Together with selective investments, efficiency improvements across
the Group are designed to reduce headcount by around 40,000
through a combination of natural attrition and a voluntary retirement
scheme.
While the worldwide breadth of Arcelor Mittal’s sales reduces its
exposure to wide price or demand fluctuations in any one market, its
leading position in Brazil, Mexico, Central and Eastern Europe,
Africa and Central Asia, enables it to benefit from the anticipated
strong growth in domestic steel demand among developing
countries.
A major investment programme to expand the company’s low-cost
operations in emerging markets is underway.
10. HR Practices
Human Resources has played a key role in driving the integration of
the Group in the wake of the merger, establishing the organisational
structure and overseeing management appointments down to General
Manager level.
Announcement of the bonus plan – detailing the way in which people will be
measured and rewarded
Completion of a comprehensive job evaluation, benchmarking and salary
review process covering the top management tiers.
Primary focus going forward is talent management. Harnessing and
developing the skills of its 320,000 employees is an integral part of the
Arcelor Mittal vision to be the most admired steel institution in the world.
Ensuring there is sufficient talent for the future leadership needs of the
Company is a primary focus of the existing senior Executives, supported by
proactive HR initiatives.
Investing heavily in the fostering and developing of internal talent through a
multipronged Leadership Development Programme.
The Leadership Development Programme combines several tiers of internal
and external training with a continuous review process designed to identify
and develop a long-term pool of talent.
11. Arcelor Mittal University
One of the key priorities in the wake of the merger was the establishment of the
Arcelor Mittal University.
Build on best of the two predecessor companies’ learning and development programmes
One of the most advanced skills development resources in the corporate world.
Its objectives are to develop the potential of everyone in the Group and bring on the next
generation of leaders.
It encourages people to:
• Acquire new skills and competences.
• Meet and exchange ideas and share best practice.
• Allow themselves to be intellectually stretched and challenged.
• Develop a ‘bottom-up’ flow of ideas – so proposals for change are driven not only
from the top down.
It combines the former Arcelor University training centre in North-Eastern France with the
extensive e-learning and localised modular training courses created by Mittal Steel (an
integrated, global offering)
University is additionally playing a valuable role in the process of integration and the
building of an Arcelor Mittal culture.
A global English language training programme, delivered online and targeted at second
and third level managers, is already being accessed by several hundred people.
12. Leadership Development
The Global Executive Development Process (GEDP) has been deployed across the
Arcelor Mittal Group in 2006. It is the key to succession planning, salary increase,
annual performance bonus payout, long-term incentive plans and the nomination
of candidates for advanced management development programmes.
GEDP is a performance management review process that not only assesses the quality
of leadership within all business units and functions but identifies the potential leaders of
tomorrow – the so-called ‘high potentials’ or ‘Hipos’.
The process covers every level of management, assessing performance and potential,
mobility, English language capability and seeks nominations for Arcelor Mittal University
programmes.
The succession management component targets a minimum of ten to 5 key positions in
each business unit, identifying two successors for each position, and between five and 5
‘Hipos’. For each successor or ‘Hipo’,
Every effort is also being made to identify managers prepared to move across borders
and encourage mobility. International mobility is now viewed as a key component of
personal development and a prerequisite for career advancement.
As part of the process of encouraging mobility, Arcelor Mittal is committed to making its
internal job market as transparent as possible. A preliminary Intranet site – Job offers for
Managers – was launched in December 2006.
In addition to fostering internal development, Arcelor Mittal continues to look beyond the
boundaries of the steel industry for future talent by recruiting Global MBAs
13. Other Initiatives - worth a mention
Partnership with employees and their relationship
Adopted a partnership approach with trades unions. Building
and maintaining good relations with employee representatives
everywhere is one of management’s key goals.
Evolving Sustainable Development Framework
Sustainable Development framework is evolving so that it will
provide consistent standards and values in the form of tools and
knowledge sharing, whilst allowing operations to determine what
is most important in their own communities. In 2006, this
evolution has centred on policy development, standards
development and the introduction of key mechanisms to improve
performance.
14. Other Initiatives …Cont.
Continued efficiency improvements
Adopted a comprehensive productivity benchmarking
programme for all operating units
Work on restructuring and productivity improvement is
underway.
Through benchmarking and knowledge transfer the
overall employment efficiency will be continuously
improved and with that the viability of individual plants
strengthened.
