Reform Continues at POSCO

Aimed at steel giant's competitive edge maintained at home, abroad

"Sharpen competitive strength enough to survive from any tough competition,"said an order issued recently by none other than POSCO Chairman & CEO Lee Ku-taek. The statement would not have surprised any one if it had been made by heads of average companies. But it deserves a lot of attention because it came from the POSCO chairman himself, one of the leading steel makers in the world. People were curious why he had to make such a statement when his company is doing so well. The Korean steel giant is the fourth largest steel maker in the world in terms of steel output and tops in competitiveness. The World Steel Dynamics Inc. named POSCO the top firm in the world in terms of competitiveness for three years in a row from 2002. The Japanese steel industry yielded the top position in the world steel community to POSCO in the latter half of the 1990s and has been trying to catch up with POSCO ever since in search of its past glory.
The POSCO CEO has been issuing dire warnings to his company to make reform in light of the fast changing environment in the world steel industry. Until recently, the steel maker's main job was to supply good quality steel products to domestic market at reasonable prices as its motto, "To serve the country with steel production."But things began to change coming into the new century. A number of earth-shaking M&As took place in the world steel industry, making steelmakers just another commodity, no longer a strategic national industry. The establishment of many steel foundries in China is already threatening the domestic steel market in the country.
The POSCO chairman believes that the completion of globalization and privatization is the only answer to beat the challenge and survive from the limitless competition and making reform is the only way to go about it. The chairman recalls that the most difficult thing about realizing his plan was convincing the entire company that it needs reform because every one knows that the company has done well in the past four decades.
They don't think that reform is needed because they don't think the company needed to change its operation.
The word that popped up most often during the course of innovation was customer relations because the analyses of strength and weakness of POSCO in a survey made by PwC showed that it was very competitive in products and cost, but much room for improvement in the development of close relations with customers. The steel giant also needed to improve its office procedures and systems.
The company introduced its operation system in 1974 when it first began its operation, but has done not much to streamline its operating system to cope with its expansion. The most difficult factor was that each unit has a different steel product to handle and the business processes have not been fast enough, raising inventory levels unnecessarily.
POSCO has decided to reform not only its office procedures, but also its process in fact overall operating system under the Process Innovation Office, set up in December, 1998. The reform was pushed for 36 individual core tasks under the master plan leading to the construction of systems and test-run those systems. The reform effort came to conclusion in July 2001 after 30 some months since its launching.
Before the introduction of PI, it took about 60 days to complete a marketing and production plan, but it reduced to 15 days under the PI system. The period of delivery of products after receiving orders was also cut to 14 days from 30 days. The time it took to develop new steel products and put them on market was cut to 18 months from 4 years.
POSCO officials said the most valuable asset above anything else was the confidence that officers and staff gained from successfully completing such a vast project in such a short period of time. They felt that they can solve any difficult problems they face from now on. PwC Consulting estimated that intangible value that POSCO obtained from achieving such a large project amounted to 5.4 trillion won.
But the steel maker was still hungry for change. It felt that it still needed to continue its reform effort and from January, 2002, the company launched the second phase of the PI, with its core built around the Six Sigma program. The program is geared to reducing the number of defective products to three or four in 1 million.
POSCO's Six Sigma Program doesn't stop at reducing defective products, but its application is varied ranging from production, marketing, purchasing, research and development to support-in fact all aspects of company operations, geared to up grade the entire phases of a corporate business quality.
The steel maker has developed its own style Six Sigma program called QSS. The company bench marked Toyota's production system TPS, which is carried out with the participation of all employees. From 2002 and 2005, the company innovated 14,329 items valued at 1.4 trillion won.
But the program had its own defects. It wrongfully gave hope to employees that they had only have to work for the program to help their careers with the company and ultimately had hurt the company's growth and development, according to a simulated court trial on the program held at the end of last year. The court ruled that the company should continue to undertake the program for 10 more years. What the ruling meant was that the company should made its own new innovation reform program to fit its special nature as a giant steel maker.
The key word for POSCO's reform is "making reform part of daily life,"and "Globalization of working methods." "making reform part of daily life,"means that the reform should be part of corporate culture and also the strategic change by steps in support of the strategy to globalize POSCO.
"Globalization of working methods"means that POSCO should succeed in its operation overseas with POSCO style of working method.
The steel giant, in the meantime, has decided on the third master plan for management reform geared to complete the POSCO-type reform activity. The first period of reform involved business reform, followed by the second reform phase centered on the Six Sigma program to firm up its reform base.
POSCO type reform means the steel giant's own reform model just like Toyota and GE having their own management reform culture and is related to the development of global organizational capacity and making the Six Sigma program part of its life.
The steel maker completed its digital management system through PI and since 2003; it was able to upgrade individual work capacity by introducing and expanding the Six Sigma programs, by removing the walls between departments and expanded a scientific business implementation culture. Despite these results, the company has not been able to secure the participation of all its employees in those programs. Thus, the company has been trying to reform the minds of individual employee to expand their capacities to accept changes. The aim of the program was to create a corporate culture that calls for daily reform and participation of all employees. nw

POSCO Chairman & CEO Lee Ku-taek.

An aerial view of POSCO steel complex in Ulsan.