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 Steel's 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 Steel's strategy and decision making process and, therefore, should be modeled. The four items are Chaparral Steel's leadership, its distinct culture, its technological advantage, and its high productivity. Furthermore, each of these critical elements follows a linear pattern. Chaparral Steel's leadership style was the primary influencer of the company's culture, which, in turn, is largely responsible for the company's technological advantage over its competitors. Finally, Chaparral Steel's 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 Steel's 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 Steel's 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 Steel's 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 "it's not my problem."

With a culture dedicated to being the best, Chaparral Steel was able to gain a technological advantage. The employees didn't 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 Steel's 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

Chaparral Steel's Business Model

Chaparral Steel has a very simple business model that relies on its ability to take scrap and convert it into useful steel products. The profit generated in this process is then used to create new process and equipment to help them maintain their technological leadership in the industry. (Exhibit 2)

Chaparral Steel Must Grow

The question of whether, where, and how Chaparral Steel should grow is best answered by referring to the framework we have constructed. Again, we begin with the focus on leadership, which is the origination point of Chaparral Steel's success. It is imperative that any growth plan preserve the original leadership elements to ensure that the remaining critical success drivers are realized. Growing the plant size to accommodate product growth is a safe bet, assuming there is physical room to do so and local government ordinances permit it, because the foundation for success is already in place. Culture and leadership are already in place at the current location.

Starting another operation at a new location should