The Chaparral Steel
The Chaparral Steel
Chaparral Steel differentiates itself from other minimills because of the various activities at which they excel and the relationship among these activities. Four central and interplaying activity themes were clear in the Chaparral Steel case and will be used to build our first framework. Before modeling the framework-related contributions of the Chaparral Steel case, we want to establish a baseline for our framework. The building blocks or foundation of the framework will be based on what we believe is a “framework tautology”: all companies share a fundamental framework that consists of allocating resource to acquire inputs and adding value to them to produce an output, which will be purchased by one or more companies. Using this tautology as a starting point, it is very simple to map Chaparral Steels business to this rudimentary framework. Chaparral Steel allocates financial resource for the purchase of raw materials (scrap metal) and machinery, devotes personnel resource (manpower) to operating the machinery to reform the raw materials into finished steel products, and sells the finished products to various firms, such as builders.
The Chaparral Steel case gives us insight into the operations and successes of an industrial manufacturing company, which can be used to add to our framework. We identified four activity groups that are at the heart of Chaparral Steels strategy and decision making process and, therefore, should be modeled. The four items are Chaparral Steels leadership, its distinct culture, its technological advantage, and its high productivity. Furthermore, each of these critical elements follows a linear pattern. Chaparral Steels leadership style was the primary influencer of the companys culture, which, in turn, is largely responsible for the companys technological advantage over its competitors. Finally, Chaparral Steels technological aptitude brought about its high product output rates, which directly translated to lower costs and higher profits. (Exhibit 1 ? framework)
Leadership Facilitates the Rapid Translation of Technology into Product
Referring to our framework, we clearly give credit to Chaparral Steels leadership for having the valuable ability to quickly apply technological innovations to new products or processes that make product creation simpler and cheaper. Executive sponsorship of research and development initiatives must exist on many levels if it is to be useful, and Chaparral Steels leadership was clearly committed to technology. They devoted funds over prolonged periods of time and tolerated a larger amount of failure than most steel companies would ever have considered acceptable. This higher tolerance for risk is understandable given the founders mindset to break all the rules of big steel, adopt a flat organizational structure, decentralize decision making, treat everyone as a salesperson, share profits with all employees, and encourage creativity.
The culmination of these values spread throughout the company and created a unique culture, unlike any other in the industry. Chaparral Steels employees thrived in this environment and learned that ambiguity and change really meant opportunity. Problem solving became a cross-functional collaborative effort; when something broke, many ran to fix it, instead of finger pointing or saying “its not my problem.”
With a culture dedicated to being the best, Chaparral Steel was able to gain a technological advantage. The employees didnt view large, complex machinery as a rigid black box, but rather as a malleable entity that should be adjusted however necessary to drive efficiency. Experimentation was encouraged and the knowledge gained in conducting this experimentation was efficiently distributed to their employees. Machinery was customized to realize large gains in efficiency, putting the onus on downstream machine operators to drive similar innovation to avoid being the bottleneck in the operation. This drive led to some key milestones at Chaparral Steel, such as reducing energy costs by 50% with its Beam Blank and Near Net projects.
The final element of this framework, and component of Chaparral Steels ability to turn technology into product, is the high productivity level that comes about from its technological advantage. Through the innovation of its employees, Chaparral Steel boasts impressive operating metrics that its competitors cannot. For example, Chaparral Steel optimizes its scrap metal machine through various customizations, giving it the ability to shred a car in about 18 seconds. Other impressive key operating metrics unmatched by the competition are that the facility runs at 85% capacity and that the plant requires only 1.4 labor-hours to produce one ton of product. The complete