1. Company Case Study - POSCO, Affymetrix -
POSMIT LAB

2. Case1 - POSCO

3. Agenda
Introduction
Analysis
Discussion
Conclusion

4. POSCO in Steel Industry
World steel association predicts further growth
Challenges:
Innovation
Environment
Sustainable growth
POSCO 4th largest producer
POSCO established 1969 by government
Now private company
World crude steel production [million metric tons]
Source: World Steel in Figures, 2nd Edition 2008,
Early name Pohang Iron and Steel Co. Ltd.

5. FINEX - Background COREX DIOS HIsmelt CCF TECNORED FINEX Company
Develop-ment
Capacity (ton/yr)
Note
COREX
VAI
Commercial
0.6 mil.
DIOS
JISF
Pilot plant
0.15 mil.
R&D stopped
HIsmelt
Rio-Tinto
0.8 mil.
CCF
Hoogovens
TECNORED
Tupi/Icomi
Demo plant
0.3 mil.
Started in 2002
FINEX
VAI / POSCO
Commercial
1.5 mil.

6. FINEX - Development Challenges: Research and Development
Increasing prices for plants
Reinforcement of pollutants restriction
Increasingly competitive steel market
Research and Development
Started in 1992, based on COREX technology
Invested 550 billion KRW (470 million USD)
Finalized in 2002 & commercialized in 2007

7. FINEX - Technology
First, iron ore fines are reduced (de-oxidized) step by step in fluidized reduction furnace, and become bigger particles by HCI roller. Coking coals are processed to coal fines using special technology, and these fine particles are where the word FINEX comes from. Mixing these processed iron ores and coal fines in melting furnace completes FINEX process.

8. Innovative, next-generation iron-making technology!
FINEX - Advantages
production
pollutants
Blast Furnace
FINEX
Innovative, next-generation iron-making technology!

9. Agenda
Introduction
Analysis
Discussion
Conclusion

10. Porter’s Value Chain Why value chain:
Its ultimate goal is to maximize value creation while minimizing costs, relevant for FINEX
So we will look at activities the create value for POSCO or minimizes cost which could lead to the competitive advantage of this innovation
Research topics into the model

11. POSCO’s Infrastructure
FINEX R&D Project Department
POSPIA IT systems
Corporate culture
6 Sigma initiative
Loyalty and high working moral of employees
Corporate responsibility
Sustainability
Environment & social contribution
POSCO is divided into business divisions which again are divided into departments, and central in the organization structure we find the FINEX Research and Development Project Department.
For controlling and supporting business activities POSCO has implemented an integrated platform of various information technology programs with Oracle applications as a basis, called POSPIA.
Further POSCO’s corporate culture is reflected in the efforts in process innovation. The 6 sigma initiative and loyalty and high working morals of employees ensured high quality and innovative culture.
Sustainability, environment and social contribution are the corporate responsibilities of POSCO.

12. HR Management
Emphasis on learning, developing employees to obtain market leadership in the steel industry
HR training
POSTECH
Knowledge management system
Communities of Practice (CoP)
Through the history POSCO have always emphasized learning and developing employees to obtain market leadership in the steel industry.
The knowledge management system of POSCO serves as the knowledge base for the employees and is situated around Communities of Practice (CoP)

13. Tech Development of FINEX
Sources and Types of Innovation
Manufacturer innovation
Technological process innovation
Technological paradigm
Emerging technology to replace current technology
Cooperation & Strategic Alliance
Development agreement with VAI, which later became part of Siemens, in 1992
The source of FINEX technology is manufacturer innovation, the traditionally recognized source where a business innovates in order to achieve better production.
Since it has significant advantages over conventional processes of iron-making, the innovation is classified as technical and process innovation.
In its technological paradigm, FINEX has been emerged to replace this current technology. Currently the FINEX technology yields lower growth than conventional blast furnace, but will eventually overtake it and lead to even greater levels of growth.
VAI provided its facility construction and process development expertise while Posco contributed its experience as a plant operator and the muscle to carry out and finance such a complex project.

14. Procurement Steel-N.com e-Sale Portal e-Procurement
Customer and supplier interaction through i2 SRM & Oracle9i SCM
e-Sale Portal
Solutions for online transactions
Offline transactions guidelines
e-Procurement
POSCO’s suppliers and trading partners connected
The procurement of POSCO has been situated around the website Steel-N.com with supporting systems from i2 SRM and Oracle9i SCM.
This website provides customers with the e-Sale portal that include e-Transaction and e-Sales solutions for online transactions as well as offline transaction guidelines.
The suppliers have the e-Procurement site (POSCO 2008g) to participate in e-Bidding for selling their raw material, and most of POSCO’s suppliers and trading partners are connected.

15. Inbound Logistics Coal and iron Investments in mines
Online bidding for suppliers
Investments in mines
Joint venture between POSCO and Rio Tinto Coal
Techno Partnership program
Diversification strategy
POSDATA, POSRI, POSCO E&C
The FINEX process requires coal and iron ore for production of steel, and POSCO acquires the resources through an e-Procurement system.
Investments in mines should be mentioned in this activity. Further POSCO’s Techno Partnership program supports smaller sized companies nearby the steelworks in Pohang and Gwangyang to foster innovation and relationship to adjacent technology of smaller suppliers.
Last the diversification strategy of POSCO during the 1990s and early 2000s lead to a numerous amount of subsidiaries like POSDATA (IT-related services), POSRI (R & D, Consulting), and POSCO E & C (engineering and construction).

16. Operations FINEX R&D Project Department 1992 ~ 1995 Lab Scale Test
1996 ~ 1998 Model Plant Test (15 ton/day)
1999 ~ 2002 Pilot Plant Test (150 ton/day)
2003 ~ 2005 Demo Plant (0.6 mil. ton/yr)
2004 ~ Commercial Plant (1.5 mil. ton/yr)

17. Outbound Logistics POSTEEL Easy access to customers
Plants nearby water
Easier shipping
The diversified company POSTEEL handles the outbound logistics activities for POSCO.
The outbound logistics infrastructure has the same benefits as the inbound logistics with POSCO’s plants that are situated near deep water and have the ability to undock resources directly to the plant and allow easier shipping to the customers.

18. Marketing & Sales Commercialization FINEX in global market
Media coverage
Annual report and website
FINEX in global market
Steel project in Orissa (India)
Steel project in Vietnam
Protecting innovation
Some processes patented
IP through business secrets
The prototype plant was widely covered in media, emphasizing the environmental friendly characteristics of the system. And the FINEX technology was promoted in their annual report and website.
Further POSCO aims to take charge of FINEX plants in foreign countries, and dominate the global market. The first big sale or marketing of the technology besides Pohang is the steel project in Orissa (India), and Vietnam as well.
For the protection of innovation, some processes are patented, but it is found that POSCO will protect the intellectual property of the innovation through business secrets

19. Agenda
Introduction
Analysis
Discussion
Conclusion
Discussion:
after investigating the innovation and analyzing we discussed both the value chain and the hypotheses

20. Value Chain Analysis Industry Dynamics with FINEX
Towards dominant design
Gain competitive advantage
Success in technological innovation
Innovation Strategy with FINEX
First-mover advantages
IT opportunities
Process improvement
Value chain:
How FINEX will affect the industry
What innovation strategy FINEX could benefit from
Connected our findings to the theory in the book.
Regarding FINEX's industry dynamics we found
Could become a dominant design, projects in both India and Vietnam Global POSCO
Competitive advantages with regards to environment friendliness and cost reduction
FINEX successful, hard to imitate,
innovation strategy FINEX
First-mover: opportunities to cover locations new locations and emerging markets, monopoly rents
IT: technology management, has a good focus on IT system implementation and connects it to Process improvement
PI: Six sigma, and knowledge management

21. The Korean Way Hypothesis # 1 vs. FINEX Americans & Japanese vs. FINEX
Top-down ownership
Diversification strategy
Project-focused organization
Americans & Japanese vs. FINEX
Radical innovation, over time
Americans - lost focus
Japanese – not invested
Further investigation
Innovation plan
Sustainability plan
Innovation process
Hypothesis #1:
The Korean Way of making decisions is better for medium time frame and short/medium term industries
FINEX supported the top-down ownership and had autonomy to support creativity in the innovation
The diversification strategy supported focus on the core capabilities, and directed the long innovation
The change towards a project organization supports the medium time frame focus
FINEX was a radical innovation over time, Americans might have lost focus with the short time frame decisions while
Japanese might not have invested in the first place because of opportunistic market
We identified some points for further investigation towards the hypothesis.

22. The Korean Way production pollutants Hypothesis # 2 vs. FINEX
Process improvement
Cost reduction
Production improvements
Americans & Japanese vs. FINEX
No short-term profitability and high risks
Americans – “No go”
Japanese – high risk and investment
Further investigation
Increased profitability
Increased market share
Industry and external environment
production
pollutants
Blast Furnace
FINEX
Hypothesis #2:
The Korean Way focus on reduction in time, which forces quality improvement and cost reduction at the same time, resulting in increased profitability and market share
FINEX supported process improvement with the six sigma and KM
Also FINEX leads to cost reduction further supporting the hypothesis
And production improvements is present. All fit to the reduction in time
FINEX involved high risk and no short-term profitability
Americans might not have let this innovation through the funnel
Japanese might not have invested in something radical while they still could improve an existing process
We identified some points for further investigation towards the hypothesis.

23. Agenda
Introduction
Analysis
Discussion
Conclusion

24. Conclusion FINEX Hypothesis 1 Hypothesis 2 Successful now
Interesting for the future
Hypothesis 1
True?
More detailed information
Hypothesis 2
Early to prove profitability and market share
Conclusion:
We think that finex is successful now, and interesting for the future. Environmental friendliness is very good.
We found supportive information on both hypothesis 1 and 2, but to indicate a true or false we need more detailed information
while answering hypothesis 2 would need calculations for profitability and market share.
FINEX?

25. Discussion Issues What are the benefits of dominant design?
In POSCO’s case, do you think POSCO takes the first-mover advantages through FINEX?