Disruptive Innovation

Topics: Steel, Investment, Economics Pages: 8 (2779 words) Published: February 11, 2013
Continuous Casting Investments at USX Corporation is a case involving a large, established mining and steelmaking company that after almost 80 years of existence is deciding whether to go forward with a $600 million dollar investment to upgrade its Mon Valley steel facility. From its founding in 1901 through the 1970’s the company dominated the steel industry. In the 1980’s USX was hit hard by poor economic conditions and higher manufacturing costs. In addition, “minimills” which had previously not been a competitive factor for USX, obtained cost advantages and began competing heavily with integrated mills such as USX. USX responded by closing or selling eight of inefficient facilities and restructuring its remaining manufacturing facilities to focus on hot-and-cold rolled sheet, strip and tin products rather than a larger range of products which it had done in the past. Additionally, USX invested over $2 billion to improve its processes to become one of the, if not the, most efficient steel manufacturer in the world by improving labor efficiency from 11 man hours per ton (mhpt) to just 3 mhpt. As described above, in the 1980’s USX made many large investments to improve its efficiency and remain competitive in the market and a market leader, primarily as a low cost producer of high quality sheet and strip steel. For example, it invested $800 million and $200 million at two facilities, respectively, in the early 1980’s to launch continuous slab caster and hot-rolling mills. Nonetheless, the Company was in a mature market and competition was increasing. Although USX was an unquestionable market leader for 80 years, like so many well established companies, by the 1980’s and early 1990’s would need to further increase innovation if it was to be in the 10% of companies that would continue to grow consistently over the next 10 years. USX would soon find itself in a position to



potentially adopt a new technology (rather than the traditional continuous casting system) at its Mon Valley complex. However, in in the process of deciding whether to implement the technology, USX was faced with the challenge of increasing market growth through innovation in a mature market and exploiting growth avenues that would result in high gains without high risk. Additionally, USX was faced with the emergence of smaller mills in the competitive market (i.e. competitive market changes), the complexities of assessing a new technology based on information from a competitor that has different resource and technological needs and constraints, and meeting the growth expectations of consumers and other shareholders, all without becoming a victim to the success or growth dilemma. First, USX was challenged with how to continue growth as a competitor in a mature steel market. USX was aware of the need to further reduce costs and increase efficiency in order to remain competitive in the market. As such, it actively explored new technology and innovations. The initial goal of the Company was to implement the continuous casting and hot rolling mills at a third mill just as it had done at two other mills, as described above. Doing so would present different challenges due to the unique nature of that mill, which was not one mill, but rather a complex consisting of two mills located in Monongahela Valley. The first mill was the Edgar Thompson (E.T.) Works and the other the Irvin Mill. USX put together an expert team of engineers and researchers to develop and implement the continuous casting process between the two mills. The result would be a $600 million investment. Although USX was proactive in researching and engineering the potential for the traditional continuous casting system at Mon Valley, the ability to gain a



competitive advantage would still be limited. If the traditional continuous casting system, as described above, were implemented, the company would certainly reduce costs and increase efficiency over the previous...
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