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Continuous Casting Investments at USX Corporation is a case involving a large,

established mining and steelmaking company that after almost 80 years of
eistence is deciding !hether to go for!ard !ith a "#00 million dollar investment to
upgrade its $on %alley steel facility& 'rom its founding in 1(01 through the 1()0*s
the company dominated the steel industry& In the 1(80*s USX !as hit hard by poor
economic conditions and higher manufacturing costs& In addition, +minimills, !hich
had previously not been a competitive factor for USX, obtained cost advantages and
began competing heavily !ith 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 !hich it had done in the past& .dditionally,
USX invested over "/ billion to improve its processes to become one of the, if not
the, most efficient steel manufacturer in the !orld by improving labor efficiency
from 11 man hours per ton 0mhpt1 to 2ust 3 mhpt&
.s described above, in the 1(80*s USX made many large investments to improve
its efficiency and remain competitive in the market and a market leader, primarily
as a lo! cost producer of high 4uality sheet and strip steel& 'or eample, it invested
"800 million and "/00 million at t!o facilities, respectively, in the early 1(80*s to
launch continuous slab caster and hot-rolling mills& 5onetheless, the Company !as
in a mature market and competition !as increasing& .lthough USX !as an
un4uestionable market leader for 80 years, like so many !ell established
companies, by the 1(80*s and early 1((0*s !ould need to further increase
innovation if it !as to be in the 106 of companies that !ould continue to gro!
consistently over the net 10 years& USX !ould soon find itself in a position to
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potentially adopt a ne! technology 0rather than the traditional continuous casting
system1 at its $on %alley comple& 7o!ever, in in the process of deciding !hether
to implement the technology, USX !as faced !ith the challenge of increasing
market gro!th through innovation in a mature market and eploiting gro!th
avenues that !ould result in high gains !ithout high risk& .dditionally, USX !as
faced !ith the emergence of smaller mills in the competitive market 0i&e&
competitive market changes1, the compleities of assessing a ne! technology
based on information from a competitor that has different resource and
technological needs and constraints, and meeting the gro!th epectations of
consumers and other shareholders, all !ithout becoming a victim to the success or
gro!th dilemma&
'irst, USX !as challenged !ith ho! to continue gro!th as a competitor in a
mature steel market& USX !as a!are of the need to further reduce costs and
increase efficiency in order to remain competitive in the market& .s such, it actively
eplored ne! technology and innovations& 8he initial goal of the Company !as to
implement the continuous casting and hot rolling mills at a third mill 2ust as it had
done at t!o other mills, as described above& 9oing so !ould present different
challenges due to the uni4ue nature of that mill, !hich !as not one mill, but rather
a comple consisting of t!o mills located in $onongahela %alley& 8he first mill !as
the :dgar 8hompson 0:&8&1 ;orks and the other the Irvin $ill& USX put together an
epert team of engineers and researchers to develop and implement the continuous
casting process bet!een the t!o mills& 8he result !ould be a "#00 million
investment&
.lthough USX !as proactive in researching and engineering the potential for the
traditional continuous casting system at $on %alley, the ability to gain a
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competitive advantage !ould still be limited& If the traditional continuous casting
system, as described above, !ere implemented, the company !ould certainly
reduce costs and increase efficiency over the previous process& 7o!ever, the
chances of gro!th may be minimi<ed since it did not offer any real advantage over
!hat other fully integrated steel companies could employ& .n additional factor !as
the fact that minimills !ere increasing use of innovation and beginning to compete
!ith the integrated mills& .lthough the high dollar amount of capital investment
re4uired to participate in the flat-rolled steel market created a barrier for the
minimills, many minimills had entered other product segments !here the amount of
necessary capital investment !as much lo!er& 8his had allo!ed minimills to capture
306 of the U&S& steel market by 1((0& USX !ould need to eplore a more creative
!ay of producing steel& It !as becoming harder and harder for USX to find gro!th
markets, !ith the increasingly competitive minimills& =ike many companies, USX
could face the success dilemma - failure of leaning companies to stay atop their
industries !hen technologies or markets change even !hen they continue to
improve core competencies& USX !as being challenged to find a !ay to reignite
gro!th and increase revenues and profit margin&
USX !as a leader in eploring opportunities that could potentially increase its
efficiency and capacity as !ell as decrease operating and capital costs& USX had
been perhaps the earliest leader in developing a ne! thin slab casting, !hich !ould
become kno!n as CS>& Such casting !ould result in cost savings due to production
efficiencies& .t the same time, it presented challenges due to increased
technological difficulties in producing thinner pieces of steel, from the production in
terms of reducing the amount of friction !hen producing thin vs& thick slabs, to the
length of the steel pieces needed in order to produce the same volume in thin
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casting& .lthough USX !as a leader in addressing these issues, it !as 5ucor, a
minimill, !hich !ould be the first to implement the ne! CS> system successfully&
@ne of the researchers on the $on %alley team !as a!are of a continuous thin-
slab casting compact strip production 0CS>1 that had been only been implemented
by the minimill 5ucor& Aased on the results at 5ucor, if this state of the art
technology could be used at USX it !ould reduce the cost of steel sheet and stripe
by 106 to 1B6 and reduce capital costs per ton by #)6& 8he CS> technology
allo!ed for thinner slabs of steel to be produced, !hich eliminated some steps in
the production process& It also allo!ed for the continuous casting and rolling
operations to be combined& Aecause a cooling step !as eliminated, energy
consumption could be cut in half& Ay focusing on the CS> process as an alternative,
USX !as addressing the gro!th challenge aggressively, but !ould be faced !ith
additional challenges as it further eplored this opportunity&
USX found that the same technology used by t!o different companies can
produce t!o diametrically opposed results& Specifically, the efficient scales of
minimills !ere dominated by geographic considerations and rolling mill technology
rather than by re4uired blast furnace scale, as is the case !ith integrated mills& .s
such, USX !ould need to take into account these differences !hen comparing the
cost savings and efficiencies that !ere incurred by the minimill !ith the savings
that may be incurred by USX& 'urthermore, the capacity needs at $on %alley of
3,000,000 tons of annual continuous casting !as four times that at 5ucor& 8he CS>
system as constructed by 5ucor, could not handle the capacity needed at $on
%alley& 'uture studies that looked at capacity of 2ust half that amount !ere still
deemed unreasonable& Aeyond that !ere the compleities involved !ith the 10 mile
distance bet!een :&8& and Irvin& .lthough a number of very creative scenarios !ere
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discussed and analy<ed to make the CS> technology !ork bet!een the t!o
facilities, none of them !ere ultimately practical, in that transporting molten steel
10 miles entailed tremendous risks that made the technology impractical& In fact,
based on all analysis conducted by the USX research team, the CS> technology
could not possibly be implemented successfully and cost effectively in order to
serve its* customers* needs& ;ith the possibility of using the ne! CS> technology
noneistent based on all of the analysis, USX !as facing the same challenge of so
many other companies, !hich is finding gro!th opportunities& 7o! does it continue
to gro! or to gain a competitive advantage !hen implementing a ne! state of the
art technology is not a cost effective optionC Innovation in a mature market can be
challenging and the company has found that it can*t take advantage of a rare
opportunity&
7o!ever, the challenge does not 2ust lie in the difficulty of finding and
implementing a potential gro!th opportunity& 7igh risk gro!th opportunities do
eist& 8he bigger challenge is finding those opportunities that !ill result in high
gro!th !ithout high risk& If USX !ent forth !ith the CS> implementation at $on
%alley, there !as the potential that it could result in a payoff of up to "1B per ton& If
it !ere successful, it !as an opportunity that could put USX far ahead of
competitors& Companies can take any number of risks& 8he challenge is that big
risks can also result in big losses& USX could certainly ensure some, but likely
limited gro!th, by implementing the traditional continuous casting system via
incremental innovation at $on %alley& 7o!ever, discontinuousDbreak-
throughDradical innovations !hich can result in the highest gains also come !ith the
highest risks& 8he CS> at $ono %alley !as a perfect eample of the challenge of
implementing radical innovation !ithout eceeding tolerant risk levels& 5ot only
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!ere such radical opportunities not approved by shareholders, even if they !ere,
the potential re!ard comes !ith the risk of total do!nfall of the company& USX had
to balance the risk levels of all stakeholders and most stakeholders are incredibly
risk adverse& >ursuing more conservative gro!th opportunities may be in the best
interest of USX& 7o!ever, future opportunities may be fe! and far bet!een&
.n additional challenge and compleity faced by USX in terms of the ne!
technology !as meeting the consumers* needs& 'or eample, even if the CS>
analysis passed in terms of cost and fleibility it !ould still involve significant risk
and challenges, in that the product 4uality may not meet the standards of
consumers at $on %alley& 5ot only may the consumers not approve, but !ith that
risk also came the inherent risk assumed by the investorsDo!ners of decreased
revenues due to loss of market share even if the ne! process reduced costs, met
the needed capacity, and increased efficiency& 8he risk is much less for the
minimills, !hich already serve markets that are less concerned !ith 4uality&
8he challenges described above by USX including finding lo! risk gro!th
opportunities in a mature market, responding to market changes and ne!
competition, and meeting the gro!th epectations of consumers, investors and
shareholders are all illustrative of the challenges faced by nearly all companies in
mature markets& 8he $on %alley comple, due to its uni4ue nature, further
complicated the already eisting challenges& USX, like other companies, must
continuously eplore opportunities for gro!th& 7o!ever, even !hen $anagers
respond to investors demand to gro! by finding ne! gro!th opportunities such as
installing a ne! technology, the odds of creating successful gro!th in the long term
is still very lo!&
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:ven though all analysis of the CS> pro2ect, as mentioned several times above,
has made it clear that the conventional casting technology !as the correct
investment for $on %alley, Eappmeyer should not sign the proposal !ithout further
considering other investment options outside of the t!o described in the case& 8he
researchers and engineers only compared t!o investment options F the CS>
investment option involving continuous thin slab casting and the "#00 million option
for the conventional casting& Ges, the CS> investment in terms of the compleities
of $on %alley, the integrated steel market vs& the minimills, and USX*s uni4ue
customer base has been proven to be the incorrect decision& 7o!ever, based on the
information presented in the case, $anagement 0i&e& Eappmeyer1 has not
considered other options to gro! the business beyond the conventional continuous
casting and CS> technology at $on %alley& ;ith either investment, USX is still
focusing on its same particular customer base and relies on its motto +$on %alley
sells surface, not bulk&, .dditionally, the main advantage is cost savings, !ith !hich
other companies !ould likely soon compete& 8hat strategy has clearly !orked in
the past& 8here is no doubt that USX must assume sufficient 4uantity and 4uality to
those customers& 7o!ever, it appears as if USX has not even considered
investments at $on %alley that !ould allo! it to increase its customer base andDor
begin to serve another niche market& 'or eample, !ould it be possible for $on
%alley to implement the conventional continuous casting system at $on %alley but
create an epansion that could involve use of the CS> technology at lo! costs and
serve customers !ho demand lesser 4ualityC 9oes USX have investment
opportunities that involve a merger, ac4uisition on 2oint venture !ith a minimill
0specifically 5ucor*s Cra!ford1 or even another fully integrated millC In other !ords,
USX has failed, thus far, to consider modifications or different basic technologies to
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either the conventional continuous casting and hot-rolling process or the CS>
casting system that could serve ne! markets, !hich is kno!n as architectural
innovation& 8hese are !ays to gro! the company that involve more than 2ust
implementing ne! machinery and technology and may allo! for USX to epand its
market and customer base and further take advantage of economies of scale& If USX
continues to focus only on its current customers and !hat has !orked in the past,
USX is likely to become a casualty of the success dilemma, by !hich companies
continue to manage only current core competencies and fail to sustain gro!th and
profitability&
5ot only as $anagement failed to consider other gro!th opportunities, going
for!ard !ith the conventional casting recommended in the proposal may put USX in
a position that limits its ability to reach to future market changes& 'or eample,
Eappmeyer kno!s that this !as the last continuous casting investment !hich !ould
be made at USX for at least a decade& Eappmeyer needs to be certain that a
modification of the current continuous casting proposal may not be better in order
to ensure potential gro!th over the net decade& 5ot only that, but Eappmeyer is
only looking 10-1B years into the future& 8he fact is that +USS*s current )B6
utili<ation rate of its strip production capacity !as average for the industry and the
sheet steel market !as gro!ing relatively slo!ly& .t current gro!th rates there
already !as sufficient capacity in the industry to satisfy market demand for another
10-1B years&, .lthough not a completely unmerited analysis, it is clear that
successful companies, such as Hohnson I Hohnson, that epect long term gro!th
need to look +100 years into the future&, USX does not appear to be doing that&
In rationali<ing the conventional continuous casting system, the case states that
+it is unlikely that any ne! integrated greenfield mills could be 2ustified in the
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foreseeable future&, 'urthermore, +Eappmeyer determined that selecting !hich
programs or technologies ought to be the focus of USS*s future development efforts
!as an important corporate priority&, 8hat having been said, USX must still be
prepared to react to or think ahead of its competition in the event that the
+unlikely, events do happen& 'urthermore, before signing the proposal, USX should
have a more concrete vision for the future& In this !ay, he could make changes to
the proposal, if needed, to support the long term vision and mission& If he signs the
proposal immediately, USX could be limited to potential gro!th opportunities& It is
better for USX to look ahead and ensure that any decisions today support that
vision&
In conclusion, USX has many challenges and compleities surrounding the
implementation of the ne! technology at $on %alley& .lthough it appears that the
conventional casting system is the correct investment based on the analysis,
Eappmeyer should hold off on signing the proposal until he has fully considered
other investment and gro!th options that could increase profitability by increasing
customer base or other!ise& .dditionally, Eappmeyer should have a more clear
direction of the company for the long term in terms of potential gro!th
opportunities before signing the proposal, such that any decisions no! are assured
to support the long term mission of USX& 8his !ill better ensure USX does not
become a victim to the success or gro!th dilemma and can become part of the 1#6
of companies that survive in the long term and perhaps included in the (6 that
outperform the e4uity market averages over the net decade&
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