Experience of use of strategic management in the companies of the mining and chemical complex of Russia

One of key factors of sustainable and harmonious development of any economy is the condition of agricultural sector. The huge role in development of this sector is played by production and consumption of mineral fertilizers [122]. Therefore ensuring effective activity, increase in investment appeal and formation of long-term prospects of development of the enterprises of a mining and chemical complex is currently extremely urgent task. All this is impossible without study of conceptual bases of strategic planning and management of the mining and chemical company in modern conditions.

To achieve effective results not only in the current activity, but also in the long term development of evidence-based and modern approaches to strategic company management, functioning in the markets of mineral raw materials and fertilizers allows. However development of methods and instruments of strategic management and planning doesn't get on well at the scientific and scientific and practical plan behind changes of an external environment of the companies that often leads to poor control. In this regard continuous updating of approaches to strategic management taking into account changes of the external environment is necessary.

As it has been noted and analyzed in the previous sections, allocation of four stages of evolution of strategic management - budgeting, long-term planning, strategic planning and strategic management (strategic management) is considered conventional.

A little perfectly there was an evolution of strategic management in Russia.

During the pre-revolutionary period from the state planning of economic development on the basis of budgets proceeded, and the enterprises planned the activity on the basis of the elementary statistical analysis.

At the time of the Soviet Union, it depends time activity of the main mining and chemical enterprises of Russia also arose, directive planning of all economic aspects of development of an economic complex at the state level was carried out. Respectively, at the enterprises lack of independence in formation and implementation of plans was observed. The main tools at the same time were drawing up interindustry balance and extrapolation.

Then, after disintegration of the Soviet Union and in connection with emergence of the market environment, the company have faced need of effective planning of the activity for achievement of competitive advantages, as was an incitement to development of practice of strategic management at the enterprises (especially large-scale) including at the enterprises of a mining and chemical complex.

Currently at the level of the industrial enterprises modern instruments of strategic management and planning, for example, such as SWOT analysis, PEST analysis, creation of strategic matrixes, expert methods, etc. are quite often used [57].

It should be noted that in view of features of development of the market relations, foreign large corporations, especially American became the first mining and chemical companies which have given special value to strategic management. It is connected, first of all, with effective development of practice of strategic management.

So, the largest mining and chemical Canadian company PotashCorp one of the first mining and chemical companies which have paid considerable attention to strategic management. Currently the company forms the strategy proceeding from the purposes caused by a mission. At the same time distinctive feature of strategic management of this company is creation of the so-called matrix of priorities allocating the main directions of development within this strategy [114].

One more of distinctive features of strategic management of PotashCorp is that the strategy of the company can undergo adjustment in case of essential changes in the external environment [114] that distinguishes the company from the Russian producers. Currently in the conditions of the dynamic markets flexibility of strategy is the important competitive advantage allowing the company to react quickly to changes in the external environment. The company also uses modern tools of the strategic analysis, such as SWOT analysis, PEST - the analysis, risk analysis, etc.

Currently strategic management plays a huge role in activity of the mining and chemical companies of Russia though not all companies adhere to the principle of transparency that complicates carrying out the analysis of aspects of strategic management.

On the basis of the reporting approaches to strategic management of such mining and chemical companies as Uralkali, EuroChem and PhosAgro (table 2.5) [107,109,127] have been analyzed.

Table 2.5

The comparative characteristic of the largest mining and chemical companies on key aspects

of strategic management






"We produce potash fertilizers to provide people around the world with food. We effectively and responsibly develop unique potash fields to provide growth of the company, wellbeing of workers and society".

Information isn't found

"It is active to participate in development of world agriculture.

To promote ensuring needs of increasing population of the planet for food, stems of production of the textile industry and fuel".

Key purpose of the companies

Ensuring long-term growth of the shareholder value due to maintenance of leader positions in the world market and creation of the strategy on maximizing profit.

Ensuring steady growth of the company

To enter the five of the largest global manufacturers of fertilizers on the output, sales and profit.

Risk analysis

Risks on each strategic reference point are investigated. Is formed the card of risks, danger degree is defined, ways of minimization come to light.

The control system of risks within which risks, the description of risks, measures for their minimization and a possibility of change of risks are presented is introduced

Prioritization of risks and the subsequent actions are carried out on the basis of an assessment

it is risk according to degree of their probability and level of possible influences.

Responses to risks can vary from their exception

or transfer before decrease or acceptance.




Strengthening of leader positions in branch Emphasis on interaction with end users Preservation of positions of the leader in product cost Balanced approach to investments into production expansion

Care of people, local communities, safety and ecology Commitment to the best patricians of corporate management

Flexibility of production and sales Organic growth Increase in operational efficiency Consolidation

The leading positions on prime cost The wide product range with high value added Proximity to consumers



Introduction of system of the key indicators of efficiency developed depending on strategic and tactical targets of the company that allows to estimate strategic efficiency of the concrete company in specific conditions.

The potash company Uralpotash became the first Russian company which has paid considerable attention to strategic management and the detailed reporting. It is connected with the fact that her main competitor - PotashCorp, and for maintenance of competitiveness of the company it was necessary to correspond to world tendencies.

One of features of strategic management of the Uralpotash companies is holding strategic sessions within work of the Board of directors. Such session was held in the company two times. The interesting moment is that the session is held to Berezniki,

i.e. in close proximity to the location of the main production objects and head office of the company that allows to contact directly to management and employees. During the similar strategic sessions board members discuss the long-term strategy of the company, and also a number of functional strategy, in particular, in areas of information technologies and social responsibility, technical and production strategy. Efficiency of similar actions is confirmed and within strategic development of the company annual holding similar sessions is provided [109].

The company, also, as well as her main competitor, forms the strategy proceeding from a mission and a main objective. At the same time strategic reference points are formed, within each of which vision, the main priorities and risks is in details investigated; the main interested parties are investigated.

Nevertheless, despite high-quality approach to strategic management, in holding some weaknesses are observed. Unlike the Canadian competitor, the company it isn't possible to reach flexibility of strategy yet that can lead to strategic mistakes.

The refusal of cooperation with the Belaruspotash company and sharp change of the current strategy with strategy "the volume above the price" became one of such mistakes in 2013. It has led not only to loss of an essential share by the company of profit (figure 2.5), but also destabilization of all market of potash fertilizers.

Fig. 2.5. Dynamics of net profit of the Uralpotash company (investigation of a strategic mistake)


The example of the potash companies in questions of strategic management and planning was followed also by other mining and chemical producers.

So, the Russian mining and chemical company EuroChem actively uses such tool as SWOT - the analysis, analyzing activities for three segments - nitric, phosphoric and potash.

Has assigned the main role in strategic management EuroChem to the Board of directors which has to provide development and realization of uniform accurate strategy of the development, and also increase in cost of the company in the long term. The board of directors of the company, being guided by the advanced international standards and experience, carries out monitoring of the applied methods of the accounting and economic account, instruments of risk management, mechanisms of internal control, realization of strategy of sustainable development and corporate management. Successful performance of these tasks demands from the Board of directors of high level of professionalism and readiness and directly depends on an optimum combination of experience and qualification of his members.

The board of directors of the company builds effective interaction with management and maintains the knowledge of the state of affairs in the company, constantly watching how strategy is implemented and as far as she considers the accompanying risks. Activity of the Board of directors is based so that each his member had an opportunity to express the point of view during decision-making. Consideration of strategy for all divisions and segments, and also consideration of large-scale projects, transactions on acquisition of assets and other strategic initiatives of the management falls within the scope of responsibility of Council. By the invitation of Council at his meetings there are regularly a CEO, the finance and economy director, and also the head of department of strategic planning and investments that allows to structure competently elements of strategy and the mechanism of her realization [107].

The PhosAgro company adheres to the strategy of steady growth. Within strategy strategic reference points are also formed, on each of which already achieved results, strategic plans for the future and the accompanying risks are investigated.

Most the mining and chemical companies of Russia also seeks to conform to the most strict quality standards and to effectively solve strategic problems what the list of key indicators of efficiency thanks to which in scales of all holding it is possible to estimate implementation of plans is developed for and to make the weighed decisions on amount of remuneration for the top management. This list includes a financial and non-financial performance which analysis will allow to progress in increase in efficiency of activity and implementation of the principles of sustainable development.

The general for the Uralpotash, EuroChem and PhosAgro companies are such indicators of efficiency as revenue, EBITDA (the analytical indicator equal to profit volume, to a deduction of expenses on payment of percent and taxes, and the added depreciation), profitability on EBITDA, the relation of a net debt to EBITDA, the size of capital investments, both in extension of the existing projects, and in construction new [107,109,127].

However at the same time each company has the specific indicators of an assessment of efficiency of strategic management depending on own strategic reference points and interests of stakeholders (interested parties).

For example, the Uralkali company has included in the system such indicators as the reached production capacity, the average export price, profitability of sales, prime cost of the sold products, etc.

The EuroChem company differentiates indicators: in system of key indicators of efficiency the size of the general capital investments and investments into potash projects separately is reflected.

Besides the listed indicators, each of the mining and chemical companies in view of special attention to aspect of corporate and social responsibility reflects the corresponding indicators. In particular, average level of the salary of employees, turnover of staff, size of social investments, coefficient of industrial accidents, etc.

At the same time one of problems of strategic management is just that the choice of key indicators of efficiency performs directly management of the company, i.e. the choice is considerably subjective. The company can choose indicators which not fully reflect the purposes of the enterprise or efficiency of his activity. Or even to choose those indicators on which the enterprise has succeeded and to hide those parties of the activity which were inefficient.

It concerns, for example, the Uralkali company which has at some point cleaned from system of key indicators of efficiency such indicator as net profit when in 2013 it has decreased by 58% in comparison with 2012 [109,127].

Thus, it is possible to draw a conclusion that in spite of the fact that the mining and chemical companies of Russia seek to provide highly effective strategic management, there are some problems which need to be solved. At the same time, it concerns as increase in efficiency of strategic management of the companies, and strategic management of development of branch from the state. Cumulative effective implementation of functions of strategic management will allow to provide development of a mining and chemical complex of Russia.

Strategic management in the conditions of crisis. The current state of world economy and policy in general, and also the Russian economy and the Russian market in particular obviously indicates crisis existence. It affects efficiency of activity of the companies of any profile and sector, especially activity of the companies of the capital- intensive and resource-intensive branches operating in the global market. In such conditions special attention should be paid to effective management, especially strategic.

Strategic management in the conditions of crisis has to be guided by such approach within which the prospect of the subsequent recovery from the crisis and development of the enterprise due to optimum use of the influencing factors and internal potential would be provided.

At the same time within strategic management in the conditions of crisis it is necessary to consider the following aspects:

1. During stable increase in demand and favorable market condition the considerable attention isn't paid to development of crisis response strategic measures for stabilization of a situation in case of need. Such unprepared ness of strategy to sharp changes leads to considerable loss of efficiency of activity of the company.

  • 2. In the period of a crisis situation, irrespective of her reasons and scales, all activity of the company is guided by saving the current provision such operational measures which, from the point of view of strategic management, don't provide development of the company in the long term [82].
  • 3. During crisis there is an essential transformation of investment and financial activity. Generally the enterprise makes decisions on suspension or the termination of construction of new objects or cancellation of earlier made investment decisions. It is caused by two major factors: first, shortage of means in view of a crisis situation, and, secondly, not predicted prospects of future investment projects. At the same time in the conditions of crisis there are new opportunities of implementation of effective investments due to acquisition of new assets in view of probable decrease in their price therefore the detailed analysis of the current and future investment activity of the enterprise [76] is submitted extremely important.

Besides, within strategic management in the conditions of crisis it is necessary to assess objectively current situation and to define already existing problems of strategic management and probability of emergence of new.

By results of the conducted researches the author has formulated the following main problems of modern strategic management in branches of a mining and chemical complex:

The solution of the listed problems and prevention new is possible at the accounting of effective interaction of the enterprises of a mining and chemical complex with the dynamic external environment.

As it has been noted, in modern conditions of crisis extremely urgent is an approach of the founder of strategic management I. Ansoff who has allocated various levels of turbulence of the external environment - from repeating to unpredictable (is more detailed in section 2.2).

We will characterize the external environment of the mining and chemical companies. As it has been noted earlier, the market of mineral fertilizers in the last decades developed rather high rates that was promoted by growth of world economy in general and agriculture in particular. As a result less than in 30 years its volume has increased by 5 times and currently makes more than 70 bln. dollars of the USA. This market is rather developed and definitely international (global) as structure of production and consumption considerably differ. Only the Russian mining and chemical companies export about 70% of the production for the markets of the main consumers - China, India and Brazil, and also the markets of Europe and North America [122].

For an example it is also possible to give the market of mining and chemical raw materials - phosphoric ore (P205). The world market of raw materials and fertilizers is consolidated. So, the total share of the main world P205 exporters makes about 60% (figure 2.6). Among the existing companies there is a cut-throat competition for a share of the world market.

Fig. 2.6. The main problems of modern strategic management in branches of a mining and chemical complex

Fig. 2.6. World export of P205, one million t

As for novelty of events, in this plan the market is rather volatile. One of the fundamental reasons of high volatility of the mining and chemical market is feature of its market structure - an oligopoly. A small amount of producers of production is around the world observed. The potash market is especially concentrated - 3 largest enterprises control about 60% of the market. In such conditions close interdependence of the companies is observed that causes influence of behavior of each player on all market in general.

At the same time all world market is presented by only 11 producers (figure 2.7).

Fig. 2.7. Structure of the World Potash Market

In such conditions close interdependence of the companies is observed that causes influence of behavior of each player on all market in general. The situation in the market of mineral fertilizers constantly fluctuates. One of the last signs of turbulence was observed after August, 2013 when the largest producer of potash fertilizers - the Russian company "Uralkali" - has declared getting out of trade partnership with the Belarusian company "Belaruskali" and the termination of export sales through the joint trader - the Belarusian Potash Company (BPC).

This situation has led to destabilization of all market of mineral fertilizers. The prices began to fluctuate on all types of fertilizers that has led to considerable loss of profit of the mining and chemical companies (figure 2.8).

Fig. 2.8. Losses of profit of the largest mining and chemical companies in 2013, ml. dollars

of the USA [109,114,127]

Besides, it has led to loss of the world by the largest potash companies - Uralkali, the Canadian PotashCorp, the American Mosaic, the German K+S, etc. - more than $20 billion capitalization and to decline in demand for production. Losses of capitalization by the largest companies are presented in the figure 2.9. Follows from this fact that turbulence of the market is caused first of all by the fact that any considerable action of one of participants of the market causes fluctuations of all market.

Fig. 2.9. Losses in capitalization of producers of potash fertilizers in August, 2013 as a percentage


At the same moment the Uralkali company has declared revision of the strategy (at the same time the previous strategy of the company has been accepted in 2011): the company has decided to compensate reduction of prices by increase in volume of production, having loaded completely the production capacities [109]. It has led to a bigger reduction of prices and has forced consumers to postpone purchase of production.

For producers it is the difficult crisis period - the price depends, first of all, on prime cost, therefore, in the conditions of low prices unprofitable are new potash projects. The EuroChem company has postponed start of operation of the Gremyachinsky potash field in the Volgograd region to 2017 again, the Vale multinational corporation has suspended the potash project in Argentina, the similar decision is expected also from Billiton on the project of development of the field Jansen (Saskatchewan, Canada) [117].

Besides, as is well-known, the political situation of 2013 - 2014 has considerably influenced the Russian market of agricultural production. Till 2014 the considerable volume of agricultural production was imported including from Europe. However the political crisis expressed in loss of positions of Russia in the world community has led to introduction of the anti-Russian economic sanctions that has led to the ban on import of meat, fish, fruit and vegetable and dairy products from the European Union countries, Canada, the USA, Australia, the kingdom of Norway and others. It has negatively affected the market of agricultural production of Russia that has entailed change of demand for mineral fertilizers in domestic market.

Besides, in only one 2014 also the world market began to come back to the previous level of the prices, revenues of the companies began to increase again.

Thus, in the market of mineral fertilizers constantly there are bystry, poorly defined changes and events demanding special approach to management of the companies. After the analysis of the external environment of the mining and chemical companies of Russia by such tools as SWOT - the analysis, PEST - the analysis, the analysis of influence of competitive forces according to M. Porter, it has been revealed that degree of turbulence of the environment can be defined at the level of 4, and periodically even at the fifth level. It also causes need of interactive strategic planning of activity of the mining and chemical companies.

In the conditions of rather high turbulence of the market of mining and chemical production the horizon of planning needs to be narrowed from 10 years to 5. Besides, realization of strategy doesn't mean her strict execution and its stability throughout the long period of time. Strategy has to be flexible on the one hand and at the same time steady for ensuring achievement of goals. Finding of such balance demands from the management of the company of considerable efforts as in material, and it is scientific - methodological plans. It is necessary to know how to plan actions of the company in case of changes as it is often necessary to reconsider strategy, on the one hand, not to lag behind the market, and with another - not to be fond of strategic planning to the detriment of the current activity.

Thus, currently it is necessary to define strategic management of the mining and chemical companies in the conditions of crisis and high turbulence as the strategic management in real time demanding from the company of observance of some requirements:

  • 1) need of the strategic segmentation allowing to define and differentiate the spheres of the external environment capable to give her perspective opportunities in the future;
  • 2) need of the solution of problems and questions in real time that will allow to reveal as tendencies of the external environment, dangerous to the company, and favorable, and in due time to react to them, or to use them in the purposes;
  • 3) need of planning of a position of firm, future situation in turbulence conditions defining her (i.e. the unpredictable and changing external conditions) [92];
  • 4) need of transformation of system of strategic company management on the system meaning formation of flexible strategy, and also a permanent assessment and control of her ability to react to external changes.

Within strategic management the system of strategic control which just and provides flexibility of strategy in real time is of particular importance, and also reveals compliance of position of the company and a condition of an external environment to the corresponding elements of the current strategy and, in case of need, causes need of her adjustment.

Partial reorientation to domestic market has to become one of the main accents of strategic management of the mining and chemical companies in the conditions of crisis within strategic segmentation also that will allow to smooth to some extent fluctuations in a condition of the external environment in the world markets, to create some "safety cushion" for decrease in level of turbulence.

Besides, similar orientation will allow a mining and chemical complex to correspond to strategy replacement import which elements gradually take root into economic development of the country.

Within such strategy it is necessary to solve the following problems: first, creation of the highly effective agricultural enterprises providing production competitive at the price and quality of production is necessary, and, secondly, creation of the legal framework is necessary for ensuring the effective competition of domestic manufacturers in the world and national markets.

For example, in Europe quotas of production, import and export of food are allocated for each country, each agricultural producer, and also the tariff and non-tariff regulation providing protection of the national markets is carried out. Measures of state regulation are differentiated for each country taking into account climatic and organizational and economic conditions that provides steady functioning of agricultural producers [48].