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.

Source: Miller, J. 2012. Indiana steel mill revived with lessons from abroad. WSJ.com, May 21: np; and Markovich, S. 2012. Morning brief: Foreign investment revives Indiana steel mill. blogs.cfr.org, May 21: np.

How did ArcelorMittal implement the “twinning” of the Burns Harbor and Ghent mills?

cASE: “i cAN’T Do iT All!” bAckgRouND AND cASE ovERviEW

Based in Walnut Creek, California, Healthdyne is a health maintenance organization (HMO) that provides healthcare to the northern California Bay Area. It serves approxi- mately 1.2 million enrollees composed mainly of upper-class, white-collar professionals. Healthdyne occupies a relatively small corner of the market, but is quickly gaining promi- nence in the area and has developed a solid financial footing with bright prospects. It is located in a growing community, with a 15 to 20 percent annual growth rate projected for the next five years.

For the past 20 years, Healthdyne’s former president, Amanda Huggins, has suc- cessfully carried out the organizational mission—to provide more affordable and better quality healthcare for its members by setting the statewide standard for excellence and responsiveness. As one of the key players in the organization since its inception, Ms. Hug- gins is a recognized expert in the managed care industry. Corporate legend has it that her motto was “It doesn’t happen without my signature!” Upon Ms. Huggins’s retirement, Arnold Brice was recruited to take her place.

oRgANizATioNAl PRoblEm

When Mr. Brice, who is the former CEO of Atlantic Healthcare, was brought in as presi- dent, he inherited an executive staff composed of the vice presidents of the marketing, finance, and professional services departments as well as a medical director, all of whom were capable of fulfilling their managerial responsibilities. However, within a few weeks of joining Healthdyne, Mr. Brice perceived a serious flaw with his staff—none of the vice presidents would make a decision, not even on routine matters such as personnel ques- tions, choice of marketing media, or changing suppliers. The vice presidents frequently presented him with issues in their areas of responsibility and requested that he make the decision. This troubled Mr. Brice. Before long, the situation seriously impeded his efforts to engage in strategic planning for the HMO.

At a regular staff meeting, when every member of his staff had an issue that required his attention, Mr. Brice finally blew up. The catalyst to this incident was this question from the Finance vice president: “What font do you want this in?”

Waving his arms in exasperation, Mr. Brice shouted, which is very uncharacteristic of him, “I cannot do it all! You are going to have to make these decisions yourselves.”

The meeting broke up with the staff looking very puzzled and Mr. Brice realizing that he had to make serious changes.