Sandvik AB

Sandvik AB

Sandvik AB began operations as a small steel company in Sandviken, Sweden. The company, originally known as Goransson Hogbo Stal & Jernwerks, recognized early on the important role creating innovative techniques and products played in being successful. To this day, Sandvik maintains a firm commitment to research as a means of gaining competitive advantage. Unfortunately, competing with other innovative industrial firms in a small country like Sweden provides limited growth opportunities. The local environment made Sandvik realize growth would only be achievable through foreign market development. So over the next century Sandvik would expand to become one of the largest materials technology engineering companies on the globe.

Sandvik’s expansion was facilitated through a strategy of unrelated diversification predicated upon innovation. Technologies, such as cemented carbide fueled, product development and gave rise to new business areas. Such advances, coupled with a strong emphasis on internationalization, drove growth for a long time. However, growth slowed during the 1970s and into the 1980s. Much of the growth achieved during this period was a result of acquisitions.

Prior to the 1984 reorganization, Sandvik’s organizational structure consisted of divisions where managers had to report to both divisional management and functional management at the parent company. For a company known for its innovations, this reporting relationship created enormous bureaucratic waste and costs, as well as delayed decision-making. However, in 1983 the company established a decentralized structure, creating six business areas, two service companies, and three regional companies. Coromant emerged as the highest return business in the portfolio. Amongst the other business areas it served as a model for best practices and process innovation.

Despite the success of his major initiatives, the current CEO, Clas Ake Hedstrom, is still looking for ways to further integrate and produce synergies amongst Sandvik’s business areas. Integration has already occurred or is being studied in human resources, marketing, and information technology. However, disagreement exists amongst managers over the amount and level at which integration is needed. Employees are also concerned about a return to centralized decision-making and loss of autonomy over their business area. Finally, it is still unclear how the cost, fit and significance of further integration may impact business area needs. The uncertainty surrounding these issues makes the whole idea of integration to create synergies questionable.