The chance strategy for a mining company
In the paper the continuous need for changes in a company — especially in a mining one — was described. Possible interactions between a company and external environment were presented. The possibilities of designing and carrying out changes in a company, possible development strategies, implemented...
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Навчально-науковий комплекс "Інститут прикладного системного аналізу" НТУУ "КПІ" МОН та НАН України
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irk-123456789-496912013-09-25T03:05:46Z The chance strategy for a mining company Chroszcz, H. Проблеми прийняття рішень і управління в економічних, технічних, екологічних і соціальних системах In the paper the continuous need for changes in a company — especially in a mining one — was described. Possible interactions between a company and external environment were presented. The possibilities of designing and carrying out changes in a company, possible development strategies, implemented in the companies in the world, were presented. Special attention was given to mining companies and possibilities of their changes aimed at development. Обґрунтовано необхідність змін у компаніях гірничої галузі промисловості. Розглянуто можливі взаємозв’язки між компанією та навколишнім середовищем. Представлено варіанти планування й проведення змін у компаніях, а також стратегії розвитку, що впроваджені у компаніях світу. Особливу увагу приділено компаніям гірничої промисловості та проведенню перетворень, що сприяють їхньому розвитку. Обоснована необходимость перемен в компаниях горной отрасли промышленности. Рассмотрены возможные взаимосвязи между компанией и окружающей средой. Представлены варианты планирования и проведения перемен в компании, а также стратегии развития, применяемые в компаниях мира. Особое внимание уделено компаниям горной отрасли промышленности и проведению преобразований, способствующих их развитию. 2010 Article The chance strategy for a mining company / H. Chroszcz // Систем. дослідж. та інформ. технології. — 2010. — № 1. — С. 95-99. — Бібліогр.: 6 назв. — англ. 1681–6048 http://dspace.nbuv.gov.ua/handle/123456789/49691 519.8:68 en Системні дослідження та інформаційні технології Навчально-науковий комплекс "Інститут прикладного системного аналізу" НТУУ "КПІ" МОН та НАН України |
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Проблеми прийняття рішень і управління в економічних, технічних, екологічних і соціальних системах Проблеми прийняття рішень і управління в економічних, технічних, екологічних і соціальних системах |
| spellingShingle |
Проблеми прийняття рішень і управління в економічних, технічних, екологічних і соціальних системах Проблеми прийняття рішень і управління в економічних, технічних, екологічних і соціальних системах Chroszcz, H. The chance strategy for a mining company Системні дослідження та інформаційні технології |
| description |
In the paper the continuous need for changes in a company — especially in a mining one — was described. Possible interactions between a company and external environment were presented. The possibilities of designing and carrying out changes in a company, possible development strategies, implemented in the companies in the world, were presented. Special attention was given to mining companies and possibilities of their changes aimed at development. |
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Article |
| author |
Chroszcz, H. |
| author_facet |
Chroszcz, H. |
| author_sort |
Chroszcz, H. |
| title |
The chance strategy for a mining company |
| title_short |
The chance strategy for a mining company |
| title_full |
The chance strategy for a mining company |
| title_fullStr |
The chance strategy for a mining company |
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The chance strategy for a mining company |
| title_sort |
chance strategy for a mining company |
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Навчально-науковий комплекс "Інститут прикладного системного аналізу" НТУУ "КПІ" МОН та НАН України |
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2010 |
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Проблеми прийняття рішень і управління в економічних, технічних, екологічних і соціальних системах |
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| citation_txt |
The chance strategy for a mining company / H. Chroszcz // Систем. дослідж. та інформ. технології. — 2010. — № 1. — С. 95-99. — Бібліогр.: 6 назв. — англ. |
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Системні дослідження та інформаційні технології |
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© Henryk Chroszcz, 2010
Системні дослідження та інформаційні технології, 2010, № 1 95
УДК 519.8:68
THE CHANGE STRATEGY FOR A MINING COMPANY
HENRYK CHROSZCZ
In the paper the continuous need for changes in a company — especially in a mining
one — was described. Possible interactions between a company and external envi-
ronment were presented. The possibilities of designing and carrying out changes in a
company, possible development strategies, implemented in the companies in the
world, were presented. Special attention was given to mining companies and possi-
bilities of their changes aimed at development.
INTRODUCTION
Every organization is a group of people, who are linked by a lot of relations. In
such a group making changes is difficult because it is not easy to change indi-
vidualities who create this group. However, every organization — if it wants to
survive (not mentioning development) — must change, it means also restructure.
Restructuring — a derivative of a change — is a continuous, endless process.
Quoting Heraklit we can say “Nothing is steady apart from a change”.
THE INFLUENCE OF CHANGES IN THE ENVIRONMENT ON A COMPANY
In present economic conditions (in the market economy) a company — to achieve
competitive advantage — must choose an appropriate development strategy. This
is extorted by continuously changing internal as well as external environment.
The changes in the environment stimulate appropriate reactions of a company,
aimed at improving its competitive position. It creates conditions for development
or — at least — survival on the market.
The above statements refer also (or maybe first of all) to the hard coal min-
ing industry. Especially this sector because of its characteristics (specificity of
production, seasonal character of consumers’ demand on offered products, par-
ticular and unchangeable mining and geological conditions in which it operates
and at the same time frequent political and legal and first of all economic changes
— economic fluctuations on world markets and related changes of coal prices)
should use strategies which amortize the negative impact of the environment and
create opportunities for development [3].
The changing environment, also called stormy or turbulent, creates threats
which are very difficult to predict, if it is possible at all . It refers to external as
well as internal environment. Every organization, including a mine, operating in
the particular environment is influenced by it. At the same time there is a feed-
back, which means that the environment is also influenced by the organization.
The range of mutual relationships and interactions is dependent on potential of the
company and the environment. The influence of the local environment on a global
organization will be different that its impact on a small, family-owned
business [4].
Henryk Chroszcz
ISSN 1681–6048 System Research & Information Technologies, 2010, № 1 96
The internal environment is a component of a particular organization. It is made
up by organizational culture, technology, machinery stock, finances, human re-
sources. In case of the mining industry — also mining and geological conditions [4].
The external environment is the environment in which an organization meets
its competitors as well as potential consumers. The external environment includes
among others: suppliers, customers, competitors, social and political, legal, eco-
nomic and international conditions. In economic sense the environment refers to
the economic system in which a company operates — among others demand, sup-
ply, inflation rate, credit and deposit interest rates. In social — political and legal
sense it concerns customs, features and values of the society, consumers’ re-
quirements and tastes as well as legal regulations concerning business activity and
relationships between the economy and the state. In international sense it is
among others the company’s share in foreign markets and interaction of foreign
companies.
The features of the business environment at present economic structure are
high complexity, dynamics and a considerable level of risk. It is impossible but
also unnecessary to analyze all its factors. The analysis should focus on these fac-
tors which are connected with development opportunities and threats for a company.
It refers to the future and should be the basis for defining the development strategy.
While analyzing the environment from the point of view of necessary
changes in a company, it should concentrate mainly on consumers (scale and rate
of demand changes, market segmentation, price sensitivity), suppliers (structure,
share in the market) and competitors. They create so called market environment.
It is also necessary to remember about analysis of the technological environment
(availability of present and future technologies) and about analysis of the eco-
nomic environment (analysis of the national interest rate, tax, customs, exchange
rate and industrial policy).
DESIGNING CHANGES AND DEVELOPMENT STRATEGY FOR A COMPANY
Restructuring, which is a derivative of changes, cannot be realized (as a process
of an enterprise’s development) without critical reflections, without taking into
account a whole as well as enterprise’s components. In the work [2] 10 steps mak-
ing up a process of change were proposed. In short, they can be presented in the
following way:
1. Decode a vision of the future.
2. Analyze your business activity — identify its strong and weak points. De-
fine the company’s mission.
3. Determine the key areas for the company’s results. Define goals. Work
out and establish the company’s strategy.
4. Work out the management philosophy for the new organization.
5. Design the organization whose activity will be effective and compliant
with accepted philosophy, mission, goals and strategies.
6. Fill key positions in the new organization with competent, open to change
and full of enthusiasm managers.
7. Control the new managers up to the moment when they understand and
start to realize the company’s conceptions, goals and strategies. Don’t hesitate to
spend time and money on training and improving qualities of your staff.
The change strategy for a mining company
Системні дослідження та інформаційні технології, 2010, № 1 97
8. For every organizational unit determine the framework which defines ex-
pected key results (goals, strategies, an organizational chart, staffing).
9. Make sure that the people employed in the organization understand their
role in the restructured enterprise.
10. Remember that every process of changes is a threat but should be realized
according to the above procedure. It requires strong, centralized management and
engagement of suitable resources.
A choice of an appropriate development strategy by an enterprise is one of
the key factors of its survival on the market. In case of diversified companies
(engaged in a number of different business activities) their development strategy
should concentrate mainly on determining [5]:
• activities which the company will realize;
• markets on which the company will operate;
• the conception of competitive activities.
A company must individually choose a strategy, because of a variety of
business activities (diversification) it is impossible to apply one universal model
to different enterprises. However, in scientific works models of strategies were
presented. For example H.I. Ansoff [1] recognized that a starting point were
products offered by a company and the accompanied market conditions. Accord-
ing to his theory, there are four so called growth vectors:
• Market Penetration — expectations of product changes, searching for
new buyers in the framework of the present market segment;
• Market Development — entering new market segments with the current
product;
• Product Development — offering to groups of customers current products
with new features or functions;
• Diversification — departing by a company from currently applied pro-
duction technologies and current markets.
On the other hand, for M. Porter [6] the starting point in working out a strat-
egy is competitive analysis, it means evaluation of probable strategies realized by
competitors. Therefore, the most important is defining a goal, whose realization is
dependent on company’s potential but also on the market structure. Basing on
these rules he defined three kinds of enterprise’s change strategies:
• Cost leadership — means achieving costs which are lower than competi-
tors’ costs — introduction of this strategy is connected with considerable invest-
ments in new equipment and introducing cost control procedures;
• Differentiation — means that a company seeks to be perceived as unique
by buyers; the strategy can be based on a product; distribution and customer ser-
vice systems. It requires additional costs, which are compensated by prices which
are higher than competitors’ prices;
• Focus on one market — means concentrating on a particular group of
consumers, products or the market and — by good quality of service — achieving
competitive advantage. The strategy results in slower but steady growth, however
in a period of economic downturn it makes business activity more risky.
The change strategies, if they are applied by a company, prove its expansive
policy. The expansion means primarily:
• winning new markets;
• production diversification.
Henryk Chroszcz
ISSN 1681–6048 System Research & Information Technologies, 2010, № 1 98
THE CHOICE OF A CHANGE STRATEGY FOR A MINING COMPANY
Currently, most of mining companies concentrate on one business activity, i.e.
extraction and enrichment of minerals. It means that they apply the concentration
strategy, focusing on achieving one goal. In this way they reach a high level of
specialization, which has a positive impact on costs of production and product
quality. However, the concentration has some disadvantages and such companies
to a considerable extent are dependent on the economic situation on the coal mar-
ket and their growth rate is limited.
Currently, thanks to high coal prices on the world markets, mining
companies achieve positive financial results. It influences their development
strategies, which is reflected in planned, large-scale investments in mining
companies. However, these investments are focused mainly on activities
connected with coal extraction and are continuation of the concentration strategy.
It will allow to increase output of coals which are most sought after on the
market, i.e. mainly coking coal, and supply of so called ecological coal fuels,
which will result in the maximization of profits.
Another method for survival on the market of a mining company is vertical
integration strategy. In its highest form it means including a receiver or a supplier
in the structure of an enterprise. In this case it means integrating a mining com-
pany — a producer of power coals — with a power station, or in case of coking
coal producer — with a coke plant or a group of them, as a main receiver of its
products. However, vertical integration results in decrease of a supplier’s
performance. Because there is a secure market for its products a producer is not
interested in further improvements in this area.
Nevertheless, vertical integration is a good solution for mining companies
because it ensures safety in case of demand fluctuations. It is shown by the exam-
ples of integration of The Southern Poland Power Company (pol. Południowy
Koncern Energetyczny) with the Southern Poland Coal Company (pol. Połud-
niowy Koncern Węglowy) and the planned integration of Jastrzębska Coal Com-
pany Inc. (pol. Jastrzębska Spółka Węglowa S.A.) with chosen coke plants. It is
also interesting that the concern Mittal Steel is seriously engaged in searching for
possibilities of investing in developments of coking coal deposits in Poland in
order to ensure supplies of the coal to the concern’s coke plants.
Probably the best change strategy, which is possible to apply in the mining
industry, is product and market diversification. It means diversifying production
and services with simultaneous diversification of the output markets. The output
markets are in this case independent so the risk connected with decrease of
demand on one of them is limited. In general sense the purposes of enterprise’s
diversification are:
• creating better conditions for growth;
• better use of resources (generally) and improvement of economic conditions;
• higher financial safety.
Not investigating the classification of diversification in more details, which
Ansoff [1] did in the 60s of 20th century, we can state that such factors as: worsen-
ing mining and geological conditions; related, unavoidable increase of extraction
costs, more and more severe environmental regulations and international competi-
tion cause that further functioning of mining companies (concentrating only on
extraction and selling coal) is becoming problematic.
The change strategy for a mining company
Системні дослідження та інформаційні технології, 2010, № 1 99
Diversification of mining companies should proceed in a flexible way. It
means from horizontal phase [5], in which the range of production of different
classes and types of coal is extended, through vertical diversification (which
means going beyond a current framework of the production process), concentric
diversification, which enables to achieve a strong position in related industries (in
respect of the market, research and technology) up to the conglomerate diversifi-
cation, which means achieving a strong position in the industries which are com-
pletely different in respect of the market and technology or starting non-industrial
business activity.
A conglomerate which gathers companies operating in different industries
enables them to develop steadily. In this way the companies become independent
of possible demand fluctuations on the market. The decrease of supply-demand
relation on one market often results in its increase on the other one. Then the
companies belonging to the conglomerate but operating in other industries can
support the ones which experience difficulties. Such companies can cope with
competition more effectively, waging so called price wars, because they dispose
of not only their own capital but usually have at their disposal resources of the
whole conglomerate. The experiences of Western countries, e.g. Ruhkohle AG in
Germany, convince of such a model of a mining enterprise [4].
CONCLUSIONS
The company’s development depends on many factors, including reaction to the
changing environment. It encourages continuous need for changes in a company
— especially in a mining one. The influence of the environment and decisions
made by a company’s management decide about a choice of an appropriate de-
velopment strategy. Choosing out of three main types of strategies, i.e. concentra-
tion, vertical integration and diversification, a company can match its model of
functioning to present and — in an predictable period — future conditions.
In case of Polish mining companies, also an insightful observation of com-
petitors is important for designing these changes. Apart from paying attention to
domestic mining companies and foreign suppliers planning to enter our market,
they should also observe potential suppliers of other power fuels (natural gas, fuel
oil) and renewable energy. In the near future a considerable part of the energy
used in Poland will be obtained from renewable sources.
REFERENCES
1. Ansoff H.I. Corporate Strategy, An Analytic Approach to Business Policy for Growth
and Expansion. — N.Y.: Mc Graw-Hill Comp., 1965.
2. Antoszkiewicz J.D. Metody skutecznego zarządzania. — Warszawa: Orgmasz, 1996.
3. Chroszcz H. Koncepcja funkcjonowania spółki węglowej w otoczeniu reaktywnym.
Materiały VIII Międzynarodowej Konferencji z cyklu „Aktualia i perspektywy
gospodarki surowcami mineralnymi”. Jurata, październik 1998. Wyd. Instytut
Gospodarki Surowcami Mineralnymi I Energią PAN. — Kraków: Sympozja I
Konferencje, № 35.
4. Chroszcz H., Janczukiewicz A. Koncepcja strategii rozwoju przedsiębiorstwa
górniczego w zmieniającym się otoczeniu // Zeszyty Naukowe Politechniki
Śląskiej. — 2005. — № 35.
5. Pierścionek Z. Strategie rozwoju firmy. — Warszawa: PWN, 2004.
6. Porter M. Competitive Strategy. — N.Y.: The Free Press, 1980.
Received 27.10.2009
From the Editorial Board: the article corresponds completely to submitted manuscript.
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