Analysis of Corus Business Strategy - Case Study Example

Strategic Business Analysis The Case of Corus Table of Contents Introduction: Strategic Business Analysis 3 Purpose of this Study 3 Corus: The Steel Giant 4 The Strategies adopted by Corus 5 Conclusion 8 References 9 Introduction: Strategic Business Analysis Strategic business analysis implies the strategic path that a firm should follow to attain certain targets. Before commencing its financial year, a firm first specifies the targets that it intends to achieve and designs its strategies to make it happen, keeping in mind its target customers, the types of products it is involved with, new government policies implemented that might hamper or ease its growth, the prevailing market conditions or rather economic conditions - booms, recessions, etc., and of course the probable targets and strategies that the firm’s rivals are planning to adopt. A model commonly used by business analysts while designing a firm’s business strategies is the SWOT Analysis. SWOT stands for (S =) Strength, (W =) Weakness, (O =) Opportunities and (T =) Threats to a company. Once these four factors with respect to a firm have been identified, it becomes easier for it to operate accordingly. The firm can emphasise more on its strength, utilise its opportunities – provided by the government or market conditions - at hand and takes measures to minimise its weaknesses and the threats originating from the market conditions or the activities of the firm’s rivals (Review Your Business Performance, n.d., para 2). Purpose of this Study The SWOT Analysis clearly, cannot reveal similar results for each and every industry, and also for each and every firm. This paper focuses particularly on the business strategies undertaken by the steel giant Corus – what are the potentials of the firm and how aptly has it utilised them to rise high in the field. But, before we take-off it is necessary to present a brief summary about the firm’s history. Corus: The Steel Giant Corus was the result of a merger between UK’s British Steel and the Dutch steel manufacturer Koninklijke Hoogovens on October, 6, 1999. Basically, the intention behind a merger between two huge self-recognized firms is to enhance their capacity of production and thus operating in a cost-efficient manner. Cost-efficiency can come up not only through a larger scale of production, but also through a greater utilization of the prevailing local factors. For example, if two firms indulged in the production of more than one product and located in two separate places say, A and B, decide to merge their operations, they can distribute the production of the various products between the two locations depending on the prevailing local conditions that suit best and rather create a positive externality for the manufacture of a particular type of product. Moreover, a merger also widens the market for a particular brand of product and helps to eradicate the government policies and regulations arising due to locational factors, to a great extent. This causes a fall in that part of the production cost which was previously attributed to tax and tariff payments. But a merger can also be formed in order to cater to the needs of a greater proportion of the population, for which intensive research and development is necessary. But, a single firm cannot carry it out effectively because of the cost involved in research and development. But, a bigger firm can carry it out with a greater ease and with a higher efficiency, since it is able to employ skilled people and also build up the necessary infrastructure to conduct a survey and carry out a research effectively. The more a company attends to the needs of its customers, the more loyalty will it earn from its customers and thus earn higher revenue. In fact, a merger can be successful only when the original companies are able to earn greater revenues after sharing their proportions, than when they used to operate separately. When British Steel and Koninklijke Hoogovens merged and gave birth to Corus Steel in October 1999, they had very similar plans. Individually, the two steel plants although were huge enough, but, the actual potential of either of them shown up after the formation of Corus Steel, which today is the 3rd largest steel manufacturer in the world just after the Japanese Nikkon Steel and . Either of the firms although were large individually, and conducted intensive research and development, operated in different fields in the sense that the British Steel used to carry out researches concerning invention of new production methods that cause a lower environmental pollution (since British Steel was a nationalized unit) and the Dutch firm concentrated more on the various applications of steel. Both however had units that were supposed to receive and respond to customer feedbacks. The formation of Corus Steel merged the operations of the two and helped to increase not only their area of operation but also the total turnover of the firm (Bryant John & Duyne J. Fokko van, June 1999, pp5). The Strategies adopted by Corus The success story of the merger rather appeared to be short soon after their first year of operation. A step that had initially appeared to be an introduction to a great saga in the history of steel manufacture evolved out to be a pathetic one. In order to assess the story of the steel giant it is necessary to evaluate the strategies they adopted after forming a merger on the basis of the SWOT Analysis Model already discussed in the introduction to this paper. Strengths The inherent strength of Corus was brought about by the merger plan between the two steel tycoons of the world. As discussed earlier, both the firms had a highly advanced and organised research and development section with each of them specializing in a different aspect that helped the merged company to profit. Moreover, they had advantages on cost-efficiency grounds that complemented the high class research and development. Although the initial years were sort of a nightmare for Corus, but fortunately enough, after the CEO of the Corus was replaced by Philippe Varin in 2003 there was a complete U-turn in the image of the company. Varin’s first step was the introduction of the ‘Restoring Success’ programme. He targeted a cost savings of about 680 million pounds to be reached within three-and-a-half years and the firm actually went on to save its costs by 555 million pounds by the end of 2005! Not only were the costs of production reduced, the company also managed to increase its share prices to 390 pence by the end of that same period of time from a meager 40 pence just four years back. The Corus although did not have a very efficient line of workers at the time when the merger actually happened, but later after Varin took over, the productivity of its labour force rose by 5 percent. The company seemed to know, under Varin’s leadership, the exact incentives that workers need to enhance their productivity at work. Thus, Corus is thus blessed with a very efficient management and line of workers which obviously is one of the greatest strengths for a company. Varin planned certain effective and profitable strategies which helped out the company from a financially and socially distressed situation. As a first step, Corus cut down its chain of suppliers from 16000 to just 9000, which helped to cut down supply in small scales, and a larger scale or wholesale supply helped in reducing the cost of raw materials to a large extent. Secondly, Corus decided to be very particular about serving its customers. The facility of on-time deliveries rose from 74% to 85% by 2005, which helped Corus create goodwill among its customers. A major step was the decision of Corus to sell off its aluminum plant to the US-based Aleris in August 2006 for 570 million pounds. This helped the company to reduce its debt burden by a considerable amount. The next major step was the shut down of two of Corus’ manufacturing plants and the distribution of the production process between two of the company’s plants producing engineering steel at Stocksbridge and Rotherham. The former was supposed to do just the re-melting work for very high-end aerospace steel and the entire production unit of engineering steel was shifted to the latter. Weaknesses Corus was indeed proved to be an unexpectedly weak merger until 2003. In its initial years of operation, Corus Steel failed to meet the expectations of the people. When it was formed, Corus was the third largest steel producer in the world and the largest in the whole of Europe. But, chaos and conflict between the two sides, i.e., the British and the Dutch resulted to a fall in its profits. The conflicts mainly took place due to a difference of opinion regarding various business strategies. For example, the Dutch manufacturer, Koninklijke Hoogovens also specialized in the production of aluminum as well, but the British side objected to it and demanded a closure, asking to focus more on production of steel. Again, a merger with CSN was proposed and later withdrawn due to similar reasons. Since both sides were equally divided in power, this lack of unity caused the company to face huge losses. In March 2001, 15 months after the merger, the total operating loss amounted to 1.152 billion pounds. This loss went on rising and in 2002 itself, the total losses to the company was 458 million pounds and its share prices had dropped to 40 pence. But, fortunately enough, this weakness in operations did not persist for long and came to end as soon as Varin took over as the company CEO (Roy Pallavi & Philipose Mobis, n.d.). Opportunities The main opportunity for Corus steel plant came in the form of rising steel prices since 2003. Previously, between 2001 and 2002, the price of steel per tonne came down between $200 and $250. But since 2003, the rising price of steel along with Corus’ initiative to reduce its costs through Varins ‘Restoring Success’ programme resulted to a high profit for the company. The period between July 2003 and January 2004 saw steel prices rising by 20% and it rose by an additional 10% in February 2004 (Dittmer Joerg & Kellenberger Mary-Beth, March 31, 2003, para 1). Threats Corus had not been free of threats in the business front. From time to time it had to face a number of hazards and hassles from internal as well as external sources. For example in November, 2001, the company was at threat from the cheap imports of steel that flooded Europe from outside the European Union (Edinburgh Evening News, November 21, 2001). This resulted to a devastating fall in steel prices during that phase. The company also had been subjected to employee strikes from time to time which had hampered its manufacturing potential. Conclusion The Anglo-Dutch merger Corus is now again on a stable track after its initial years of downfall. Today the company has again succeeded in attaining its previous position of glory as was during its starting days. The difference between its operating costs and its operating revenues although had been very low, recorded at just 8% by the end of 200 and last recorded at 10% in 2005, compared to Tata Steel that maintains a difference at 30%, the former still has along way to go. With the company having enough potential to ride high in its field, it makes it quite an able ally of Tata Steel and that is why the latter decided to go on a merger with it in 2007 and paid $12.1 billion for it. References Bryant John & Duyne J. Fokko van, June 1999, A New Force in the Metals Industry: background to the proposed merger [pdf]. Available at http://www.corusgroup.com/file_source/StaticFiles/Functions/Media/Merger_Manifesto.pdf [Accessed on August 19, 2009] Cranfield School of Management, n.d., Review Your Business Performance [Online]. Available at http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1074451452 [Accessed on August 19, 2009] Dittmer Joerg & Kellenberger Mary-Beth, March 31, 2003, Steel Prices Rise: Customers are Squeezed [Online]. Available at http://www.frost.com/prod/servlet/market-insight-top.pag?docid=11526468 [Accessed on August 19, 2009] Edinburgh Evening News, November 21, 2001, Threat to Corus as Imports Flood in [Report]. Available at http://news.scotsman.com/corus/Threat-to-Corus-as-imports.2278540.jp [Accessed on August 19, 2009] Roy Pallavi & Philipose Mobis, n.d., This is Corus [Online]. Available at http://www.businessworld.in/index.php/This-is-Corus.html [Accessed on August 19, 2009] Read More