The use of a divisional organizational structure has advantages and disadvantages. This spotlight examines how ArcelorMittal was able to share knowledge between its different divisions, resulting in increased efficiency. By breaking down divisional walls, they were able to enhance knowledge and learning at multiple facilities.
ArcelorMittal’s approach to neutralizing the disadvantages of a divisional organizational structure is examined. Their ability to share knowledge and technology between divisions, and the resulting benefits, are discussed.
Read the following case and answer the related questions.
On the edge of Lake Michigan in Burns Harbor, Indiana, sits a 50-year-old steel mill that produces steel for the automotive, appliance, and other industries with midwestern production plants. The steel mill struggled through the 1980s and 1990s and went bankrupt in 2002. It was bought out of bankruptcy and has been owned by ArcelorMittal Steel, the world’s largest steel producer, since 2005. However, the plant faced another crisis in 2007 when it was threatened with closure unless it became more productive and efficient.
Today, this plant requires 1.32 man hours per ton of steel produced, which is 34 percent more efficient than the average in U.S. steel mills. Further, in 2011, the plant was 19 percent more efficient than it was in 2007 and produced twice the quantity of steel it produced in 2009. Its future as a productive steel plant is now secure.
How did ArcelorMittal achieve these gains and rejuvenate an old steel mill? It did it by breaking down the barriers between organization units to facilitate knowledge transfer and learning. One of the disadvantages of a divisional structure is that the divisions often perceive themselves as being in competition with each other and are therefore unwilling to share information to help other divisions improve. ArcelorMittal has overcome this by “twinning” different steel mills, one efficient and one struggling, and challenging the efficient plant to help out its twin. The Burns Harbor mill was paired with a mill in Ghent, Belgium. Over 100 engineers and managers from Burns Harbor traveled to Belgium to tour the Ghent plant and learn from their colleagues there how to improve operations. They copied routines from that plant, implemented an advanced computer control system used in the Belgian mill, and employed automated machines similar to the ones used in Belgium. ArcelorMittal also provided $150 million in capital investments to upgrade the operations to bring the facilities up to par with the Ghent plant. These changes resulted in dramatic improvements in the efficiency of the Burns Harbor mill. The Belgians take pride in the improvements in Burns Harbor and now find themselves striving to improve their own operations to stay ahead of the Americans. The Ghent plant now produces 950 tons of steel per employee each year, only 50 tons per employee more than Burns Harbor, but the Ghent managers boast they will soon increase productivity to 1100 tons per employee. Thus, Ghent cooperates and is willing to help Burns Harbor, but the managers and employees at Ghent have a competitive streak as well.
The experience of ArcelorMittal demonstrates how firms can act to overcome the typical disadvantages of their divisional structure.
How did ArcelorMittal implement the “twinning” of the Burns Harbor and Ghent mills?