Steel in the new Millennium - 3e - Sectoral Activities

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Steel in India
SAIL's integrated plants

By C.S. Venkata Ratnam

Part e

Changes in work organization

A task force appointed by the Government in 1922 made a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of the steel industry. The integrated steel mills are likely to face stiff competition from special steel mills and secondary steel mills. Since the industry is poised for a more than threefold growth over the next 20 years, at least 1,000 entrepreneurs have expressed their intention to set up new steel mills with an estimated investment of over Rs. 170 billion ($4.75 bn). The integrated steel mills are faced with the choice between upgrading existing plants or increasing their efficiency by other means and going in for green field investments. The strategic components of a 15 year perspective plan drawn up by SAIL include the following:

* Market-led product mix;

* Cost reduction to enhance price competitiveness;

* Quality improvement of products and production system;

* Emphasis on value-addition;

* Stress on customer service;

* Marketing to reach new areas and customers; and

* Steady increase in exports.

There is a realization of the need to: change the old paradigms of work culture; develop flexible and adaptive, customer-oriented, value-adding organizations; have a more qualified (emphasis on education and training), versatile (multi-skilled) workforce that welcomes change willingly; reduce the number of layers of authority; and form self-directing work groups with participative management. Individual and organizational inertia has to give way to speed of action and spirit of competitiveness.

The major changes in work organization and design at SAIL, as a part of the integrated strategy towards restructuring for competitiveness, were directed towards reducing the levels of hierarchy (from nine to five)and introducing flexibility (rapid redeployment) through multi-skills/tasks, cross-functional training, streamlining workflows and improvement of work culture. Following consultations with unions, agreement was reached on eliminating wasteful work practices, including the abolition of overtime, provision of shift overlap, removal of restrictions on crew size/composition, etc.

There was a net reduction of 23,000 employees at SAIL in 1982-93 (Table 7). These figures do not, however, convey the full story because the company had redeployed several thousand existing employees to new operations, facilities and equipment. Thus the level of jobless growth in SAIL was perhaps much higher than the figures indicate.

Table 7. Employment at major steel producers, 1983-931

	1983	1984	1985	1986	1987	1988	1989	1990	1991	1992	1993
SAIL2	246.7	249.4	250.6	250.6	247.3	240.9	235.8	231.7	227.7	225.4	223.4
TISCO	39.7	39.7	39.1	39.4	40.2	39.4	41.4	41.9	44.4	45.6	47.2
VISL3	--	--	---	11.1	9.9	9.7	9.0	8.1	7.3	6.9	6.4
Total	286.5	289.2	289.7	301.1	297.4	290.0	286.2	281.8	279.4	278.0	276.9

¹ Excludes VSP, which was operational only in 1989-90.At present its manpower is about 15,000.

² Includes IISCO, a subsidiary of SAIL.

³ A subsidiary of SAIL since 7 December 1989.

Since jobs were not threatened employees and their unions were willing to cooperate with management. There is, then, the realization that if the industry does well and meets the projected demand for steel over the next two decades it will generate additional employment, both direct and indirect, of 400,000-500,000 people. All this became possible because the organization gave due importance to the process of information sharing, consultation and communication in formulating and implementing the planned changes, harmonizing the interests of the organization and its employees. Sustained interventions were carried to integrated, hitherto warring, functional groups. Workers on the shop floor were exposed to major customers to obtain direct feedback from them on their problems with steel quality. This reduced the conflict between production and marketing areas on quality- related issues raised by customers. There has also been a welcome realization of the need to transform the traditional adversarial industrial relations approach into a cooperative one to build a new, vibrant and competitive economy/enterprise.

Since the 1980s there has been a stagnation, if not a relative decline, in manufacturing employment in India. As the economy is gradually moving away from agricultural and traditional manufacturing to services and more high-tech areas in terms of prospective job creation, there has been a parallel shift in the use of human resources from brawn to brain. When work progresively involves less physical and more mental and intellectual effort, calling for a display of initiative, enthusiasm, discretion and commitment, managements are beginning to learn that it would be difficult to obtain the commitment of people through traditional principles of management based on direction and control. There is thus a realization of the need to move towards obtaining commitment at the workplace through consensual processes. This can only come about through communication, consultation and cooperation.

Productivity and quality improvement

The analysis of productivity (particularly labour productivity) and quality in India is not simply a function of the management of the numerator or the denominator. Almost all integrated steel plants employ nearly half their workforce in maintaining the associated township. Problems associated with inputs (e.g. high ash content of coking coal), infrastructure (e.g. frequent breakdowns in power supply) and obsolete technology, mean that more manpower is necessary. Importing higher grade raw materials, having standby facilities for power supply and slow and gradual modernization of the steelmaking plant may lead to improvements, but not on a scale or at a rate achieved by some of the developed country steel producers. When the rate of change in the Indian steel industry is slower than in some other major steel producing countries, the gap between tham widens even further.

In 1995 a study team of the Bureau of Industrial Costs and Prices (BICP) visited Japan, the Republic of Korea, Germany, France and the United Kingdom and made several observations about the labour productivity of Indian steelworkers. Productivity in the foregoing countries was about eight times higher than in SAIL. While the rate of productivity improvement in SAIL was on a par with that in the other countries, labour costs were increasing much faster in SAIL. Although the labour cost in SAIL of $57 per tonne of steel in 1994 is 49% - 68% less than than that of other steel producers, the gap is declining and SAIL is fast losing its comparative advantage in cheap labour.

Table 8 compares the costs of production in the Bokaro (BSP) and Bhilai (BSL) steel plants of SAIL, POSCO in the Republic of Korea and Kimitsu Nippon Steel in 1994-95 (India, 1995, p.28). Indian steel plants consume more inputs and produce more scrap per tonne produced; they also employ more people. Yet, while coal costs in India are more than double those in the Republic of Korea and Japan, iron ore is cheap and wages and labour costs are lower. Interest charges are low in the Republic of Korea and Japan, whereas fixed costs and depreciation are lower in India because the plants are old. However, now that they are undergoing modernization, at substantial cost, these costs are bound to increase.

Table 8. Comparative labour costs, 1986; 1994

	Labour cost/tonne			Man hours/tonne			Hourly cost
	1986	1994	%	1986	1994	%	1986	1994	%
US ($)	167	167	-	7.0	4.9	30	23.9	34.2	43
UK (£)	67	72	7	8.4	5.3	36	8.0	13.7	70
France (FF)	1 024	831	(19)	9.1	5.1	(44)	112.0	163.7	46
Germany (DM)	254	288	13	7.8	5.0	36	32.5	57.9	78
SAIL (Rs.)	922	1 760	91	62.7	40.0	(36)	14.7	44.0	200

Environmental management

Environmental management has become a major issue in corporate governance. The era of industrial deregulation is being replaced by an era of environmental regulation. Indian laws on environment are stringent, but not their enforcement. Indian courts are still at a stage where they still seem to advocate shifting the polluting units rather than curing the problem and preventing its recurrence. It is difficult, if not impossible to shift integrated steel plants on account of pollution, largely in the coke-making and sinter plant areas. In the recent past some of SAIL's plants were also asked by the courts to reduce their levels of pollution. Dust emission, effluent treatment and conservation of water and energy are among the crucial areas of environmental concerns for the steel industry. A key problem in India concerns the huge accumulation of solid waste over and above emissions from coke ovens, steel melting shop and fly ash from thermal power plants. Environmental control may account for 15% or more of capital costs. The cost of waste disposal is estimated at up to $20 per tonne of steel for integrated steel plants and $10 per tonne for EAF plants (Sengupta, 1995; p. 27). With a major expansion in steel production coming through DRI - EAF plants, efforts to minimize environmental pollution are being made. Raw materials also pose a problem -- high-ash coking coals warranted the introduction of extensive coal washing (as well as imports of high quality coking coal) adding to the woes of waste disposal and/or treatment.

Workforce resistance to working in polluting areas is less evident than in developed countries. Collective agreements provide for allowances for work in hot or hazardous areas or in mines. But dust, heat and other allowances do not compensate, let alone protect workers from the problems they cause.

After the Bhopal tragedy in 1984, safety committees became mandatory. The steel industry has set up bipartite committees on environment and safety in each plant. It has also held several national conventions on safety, health and the environment in the steel industry.

Chapter IV of the NJCS agreement signed in June 1994 deals exclusively with safety, health and environmental management in the steel industry. Even the 1989 agreement provided a section on environment and safety. As seen from the following excerpts, the 1994 agreement provides for duties of employers and employees and measures to be initiated for environmental hazards control and improvement of occupational health:

Management will provide the necessary environment for the health and safety of all the employees at their work place and agrees to:

* Provide and maintain a safe plant and healthy working atmosphere and to take appropriate measures to improve quality of work and work life of all employees;

* Train and supervise employees with respect to safe working procedures and health care;

* Provide all information to employees and the union regarding hazards to health and safety at work;

* Provide health assessment and surveillance of all employees on a continuing basis;

* Provide safe system of work;

* Provide safe place of work;

* Provide required safety appliances; and

* Ensure implementation and compliance of the statutory provisions of the safety, health and environment and also ILO health and safety recommendations.

Each employee is obliged is obliged to:

* Take reasonable care of the health and safety of himself and another who may be affected by what he does;

* Cooperate with management to perform or comply with his/her duties with respect of safety and health, observe safety rules/regulations and wear safety appliances, where prescribed; not to interfere with or misuse anything provided in the interest of health and safety; and

* Cooperate with management in implementation of duties enumerated above.

The Employees' Union will continue to:

* Educate and cooperate with the management to educate the employees regarding their duty with respect to safety and health;

* Participate in management's efforts on training and supervising employees to follow healthy working procedures; and

* Cooperate with management in all bipartite discussions on safety and health of employees.

Further, it was agreed that studies and research will be undertaken to determine pollution levels and environmental and occupational health hazards. The NJCS is empowered to discuss and provide guidelines to management for appropriate measures to be taken in this regard.

Conclusions

The challenge of change

Pre the 1960s India was a low cost producer of steel. Between the mid-1960s and the early 1990s it became a high (variable) cost producer of low-quality steel. The industry was never affected by recession and there is no dearth of skills or other inputs, including raw materials. The country has a wide industrial base. Over the next two decades demand for steel is expected to exceed supply. The steel industry thus has the potential to grow and be competitive, but the potential remains to be harnessed.

The response of the Indian steel industry to the current crises and adjustments has been remarkable in recent years. Fortunately, unlike in the West, demand for steel in India is not a constraint. Any minor fluctuations were met by mini-mills which are not the main focus of this study. The modernization of several steel plants preceded the deregulation of the economy. This, together with rupee devaluation helped the steel industry to manage the transition in the immediate aftermath of the twin, parallel processes of liberalization and globalization.

State-led growth of the steel industry bred inertia. With liberalization, the industry is expected to gain the initiative it lost all along. The private sector is poised to play a major role in the future development of steel. In future integrated steel mills are less likely to be set up; mini-mills with value-added products will be the norm. These changes will mean qualitative changes in orientation towards quality and customer satisfaction, both internal and external.

The most valuable lesson that the restructuring experience of steel industry, particularly in SAIL, provides concerns the proactive approaches to deal with adjustment without having to downsize the plants and make employees redundant. It does not mean workforce reductions did not take place; they occurred through voluntary means as explained above.

The presence of a permanent negotiating machinery which contributes to both setting norms as well as to implementation of agreements, the emphasis on information sharing, consultation and communication also paved the way to harmonizing effectively the interests of both the organization and individuals. The result has been that the adjustment in the steel industry, at the macro and micro levels, had been relatively strife-free compared with some other sectors of the economy.

The steelworker in the 21st century

Human resource development has become as important as any other aspect of running a steel mill. This is evidenced by the tremendous transformation in the personnel function in SAIL. Two successive chief executives fomerly headed the personnel function. The following major changes point to the changing profile of steelworkers in the 21st century:

* Automation of routine, blue collar, jobs and rationalization of white collar and supervisory/managerial jobs leading to a flatter organization.

* Greater use of microelectronics technology in steelmaking which will necessitate the removal of walls between planning and doing, and the formation of integrated cross-functional teams.

* Fewer people, broad-banded jobs with greater responsibilities. Job design should provide for enrichment and enlargement through combining tasks, task identify and task significance, autonomy and feedback.

* Diverse workforce. Greater representation by women and disadvantaged under-represented social groups.

* Age/skill-mix planning with a greater focus on younger, literate persons with technical inputs, multi/cross functional skills, and other competencies.

* Multiple skills and multiple careers.

* Continuous training, retraining and redeployment.

References

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Updated by BR. Approved by OdVR. Last update: 28 September 2000.

Steel in India SAIL's integrated plants