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Do Steel Mills need to redraw their strategymap? Pankaj Jain believes so if theyneed to survive potential risks and further grow their businesses.

 


“Steel companies need to choose and executestrategies that not only address today’s challenges but also future proofscompanies against the likely disruptions that might happen to the currentproduct/process/business models.”

  • Pankaj Jain, Chief Executive Officer, BlueOcean Steels.

     

    Hope cannot be the Strategy. Luck cannot be a factor, and fear cannot bean option – for any business – and steel is no exception.

    Success in any business requires two majorthings. First,a winning competitive strategy, and second, superb organizational execution.Many companies and professionals bank too much on hopes.

    For example:

  • Till 23rd May 2019,many were worried whether there is going to be political stability in thecountry or not (at least for the next five years).

  • Imposition of trade embargoes –like Anti-dumping on Chinese Steel – till a certain period.

  • Increase in Government spending.

  • High GDP growth, etc. 

    These external factors are, no doubt, veryimportant. But, what all of us need to understand well is that, in spite of anysituation, not all players will make profit, or incur losses. Generally, 20-25per cent are the market leaders and they make profit. The rest are somehow ableto keep their head above water or from making losses. Strategy formulation (whichis understood till the bottom of pyramid) and executed well, therefore, becomesvery important.

    In the Steel industry today, globalovercapacity and trade imbalances overshadow many of the other real issues, whichhave the potential to impact the existence of the entities itself. We tend to believethat these issues are not current and might arrive sometime in future; and, so,we do not factor in while preparing our strategies and making choices, both inshort term and long term.

    Even if they are, they tend to take a backseatas routine issues consume all the time available. Steel companies need tointrospect on how well they are prepared with few of these real issues:

    Innovation: Innovation is more to do with imagining the future and filling upthe gaps. It would not be out of place to mention that a large number ofcompanies do imagine the future, definitely have them in the strategypresentations and, possibly, understand the importance. But, for some reason orthe other, they are unable to fill in the gaps. How many companies review ‘Innovation’made by them in the last quarter/year/decade?

    One point which always comes into strategydiscussion with the Automobile OE’s is making components which are ‘Lighter but Stronger’ (whether flator long product). How many of us realize that this continuous journey ofmaking components ‘Lighter and Stronger’ coupled with many more technologicalimprovements has dramatically reduced the mass of steel required in a givenapplication? On top of it, commonly produced grades of steel are graduallybecoming obsolete.

    In the automobile sector, which currentlyconsumes good quantity of steel, traditional grades of steel are gettingreplaced by ‘AdvancedHigh-Strength Steels’ (AHSS), which comes in various varieties. AHSS arecomplex, sophisticated materials with carefully selected chemical compositionsand multiphase microstructures resulting from precisely controlled heating andcooling processes. Various strengthening mechanisms are employed to achieve arange of strength, ductility, toughness, and fatigue properties.

    These steels aren’t the mild steels ofyesterday; rather, they are uniquely light weight and engineered to meet thechallenges of today’s vehicles for stringent safety regulations, emissionsreduction, and solid performance, at affordable costs.

    Then, there is the trend of substitution ofsteel by non-ferrous materials – Aluminium in Engine and Body, Carbon Fibre inBody, Ceramics in Brakes, Polymers and Composites in various other components. Allthis put together, the share of steel in a vehicle has drastically changed.

    In the year of our country’s independence, Ironand steel accounted for 45 per cent of the value of motor vehicles. Today, however,the same has come down to below 10 per cent, and in some vehicles, it is around5.0 per cent.

    Onslaught of disruptive products andprocesses: Electric Vehicles and 3D Printing, which come from outside the steelindustry, surely have the potential to disrupt many products/processes. Scalingis just a matter of time, and we would see them making conventionalproducts/processes obsolete faster than we can think.

    A case in point is the onslaught ofelectric rickshaw (also known as tuk-tuk, toto, etc.), especially in Tier 2 and3 towns and cities. You move to any town in India and you will find that thesetuk-tuks have already replaced auto rickshaws and pulled rickshaws as a cheaperand efficient alternate.

    E-Commerce delivery agents are increasinglyinclined towards light electric CVs. Amazon is exploring Drones for deliveries,which reduces the use of conventional vehicles, and thus impacts the marketsfor Steel. This gives reason to believe that the future growth in emergingeconomies might be less steel intensive.

    Recently, there was a news headline that,come 2025, in India, there is not going to be any sale of conventional 2-wheelers– all would be electric 2-wheelers. Even in a worst case scenario, if 50 percent demand moves to e-vehicles, imagine the situation of many companies whoseexposure to these markets are high.

    To understand the technology leap phenomenon,think of the universal adoption of cell phones in countries where land lineswere never really installed. In the same manner, many towns will directly havetuk-tuks and electric 2-wheelers and never ever experience an auto-rickshaw, ora conventional bike.

    Embracing Technology for managing supplychains, bringing operational efficiency, and innovating customer experience: It is time to re-imagine all the processes. This mightrequire formulating complete business process – from mining to distribution, andeven, after-sales service). In real terms, how many of these processes aredigitized?

    Digitization brings increased transparency, a system-oriented and compliantworking, which eventually helps organisations improve supply chainefficiencies. The lead times to serve customers become much lesser, and one canfulfil the demands by reduced overall inventories.

    The crux of the matter is that steelcompanies need to choose and execute strategies that not only address today’schallenges but also future proofs companies against the likely disruptions thatmight happen to the current product/process/business models. The future isunkind to those who aren’t prepared for it.

    Disruption is simultaneously the greatestthreat and the biggest opportunity for any business. While some companiesproactively manage this potential risk and leverage it to further grow theirbusiness, others fall behind by not acknowledging the profound impact that thistype of change might have.


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