Measuring Up in Steel: Performance Measurement and Innovation Policy in the Canadian Steel Industry
| Published date | 01 March 2004 |
| Date | 01 March 2004 |
| DOI | 10.1177/0020852304041236 |
| Subject Matter | Journal Article |
International
Review of
Administrative
Sciences
Measuring up in steel: performance measurement and
innovation policy in the Canadian steel industry
Peter Warrian
Abstract
Private industrial firms have impressively improved their internal performance in the
last 20 years through the use of performance metrics. This article argues that private
firms can not only learn from public organizations and performance measurement,
they can also profit from it. The article proceeds from the Innovations System
literature and applies it to the Canadian steel industry and examines public policies
directed at improving the innovation performance of private firms. The most com-
mercially successful firms are those that effectively interact with public infrastructure
and social capital. Public policies should be critically examined in the same light. The
analysis finds that the Innovation Strategy policy being implemented by Industry
Canada, including its Innovation Targets, are misdirected and are likely to miss the
most promising sources of innovation in the steel industry.
Introduction
This symposium has examined the ways in which private entities can learn from how
public agencies perform and how that performance is measured. This is particularly
important to the innovative performance of private firms. Private industrial firms have
impressively improved their internal performance in the last 20 years through the use
of performance metrics. They have also become integrated nodes in complex supply
chains. This article argues that private firms can not only learn from public organiza-
tions and performance measurement, they can also profit from it.
The theoretical perspective of the article proceeds from the Innovations System
literature (Wolfe, 2003). It applies the construct to the Canadian steel industry and
examines public policies directed at improving the innovation performance of private
Peter Warrian is at the University of Toronto. CDU: 65.012.3(71)
Copyright © 2004 IIAS, SAGE Publications (London, Thousand Oaks, CA and New Delhi)
Vol 70(1):137–155 [DOI:10.1177/0020852304041236]
02_RAS 70_1 articles 2/27/04 1:00 PM Page 138
138 International Review of Administrative Sciences 70(1)
firms. The most commercially successful firms are those that effectively interact with
public infrastructure and social capital.
Public policies should be critically examined in the same light. The analysis finds
that the Innovation Strategy policy being implemented by Industry Canada, including
its Innovation Targets, are misdirected and are likely to miss the most promising
sources of innovation in the steel industry. To the extent that the current policy is
followed in budgetary, regulatory and research and development (R&D) pro-
grammes, the intended objectives of the government’s White Paper on Innovation
are unlikely to be achieved.
Background: steel and the state
Governments have had an active role in the steel industry for over a hundred years.
Steel was seen by national governments for most of the last century as a strategic
industry. Tariff protection, import controls and direct and indirect subsidies were very
much a part of the birth through maturity of the industry (Howell et al., 1988; Hogan,
1991).
For instance in Canada, the last in a long list of government–industry initiatives
was the Bessemer Project in the early 1990s. It was a direct technology development
project with shared costs by government and industry to develop the next genera-
tion of direct strip steel production technology, expected by many to allow the tradi-
tional integrated (blast furnace) producers to compete with the mini-mill (scrap-fed
electric furnace) producers. A five-year project ending in 1997, it was not commer-
cialized because of a lack of company funding. This was the last major, direct
Industrial Policy initiative of the Canadian federal government directed at the steel
industry (Warrian and Mulhern, 2002).
Now, governments across the Organization for Economic Cooperation and
Development (OECD) have come to focus on Innovation Policy as the new form of
industrial policy. It is also a policy formulation that largely avoids the World Trade
Organization (WTO) restrictions on subsidies, because the WTO codes have only
addressed export subsidies to date and not domestic subsidies. As well, innovative
capacity has come to be viewed as the key to international competitiveness.
The core of the steel industry is still the traditional integrated producer. However,
innovation by the integrated producers has become problematic. The major pro-
ducers in North America and the UK, i.e. US Steel, Stelco, British Steel, largely dis-
mantled their internal developmental engineering staffs as a cost-saving measure in
the late 1980s and early 1990s. Furthermore, depressed steel prices and constrained
margins have made it very difficult for traditional producers to fund major new
innovative technologies.
Two developments have taken place in the light of this reduction in indigenous
firm capabilities. First, combinations of strategic international partnerships have come
to form the backbone of research networks between steel companies. There are two
major networks: the Japanese node of US Steel–Nippon Steel, the network with
which Stelco, the leading Canadian producer, is associated; and the European Acelor
node with which Dofasco, the second steel producer, is associated. Second, in addi-
tion to these international networks, public research laboratories and public universi-
02_RAS 70_1 articles 2/27/04 1:00 PM Page 139
Warrian Measuring up in steel 139
ties in Canada have come to play a strategic role. In some measure, these public
agencies are filling some of the gap left after the reduction in internal firm engineer-
ing capacities.
The relevance to this in public policy is acute. The recent US Steel Trade cases are
a turning point in the international steel industry. The US industry seems to be on the
verge of abandoning innovation and relying instead on protectionism. The US indus-
try states it cannot innovate because dumped imports have deprived it of sufficient
earnings. In turn, steel technical innovation has largely become the province of the
European and Japanese industries. The latter’s R&D efforts are also characterized by
major government subsidies and contributions by public research agencies.
The steel industry performance measurement
The introduction of performance measurement systems, particularly in the 1980s,
was a major shift of focus for steel industry management. Historically, the industry
had been driven by only two metrics: production tonnage and capacity utilization.
Twenty years of focus on performance measurement in the steel–auto industry
supply chain has produced major improvements: delivery times have been dramati-
cally reduced; inventory levels have been slashed; and inventory turnover at pro-
ducers and distributors has been dramatically accelerated. As a result, productivity has
been improved tremendously, carrying costs have been reduced and overheads
slashed. Productivity in the Canadian steel industry has tripled (Warrian and Mulhern,
2002).
The onward march of performance metrics in steel is relentless. For instance, Table
1 gives the objectives for improvement in the steel–auto chain coordinated by the
Lean Processing Programme at Cardiff. These aggressive improvements, however,
only address internal operations. They do not address product and process innova-
tion directed at future commercial success.
Table 1 Performance improvement targets in steel
British steel
Metal
Total
strip products Distributors
processors
for the
Improvement area
(%)
(%)
(%)
three tiers (%)
Lead time reduction
40
40
40
40
Time-to-market reduction
30
30
30
30
Stock reduction
10
20
20
15
Quality improvement
50
20
50
45
Productivity improvement
5 per annum 5 per annum
5 per annum 15 over 3 years
Increased mutual business
30
30
30
30
Source: Taylor and Brunt (2001).
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140 International Review of Administrative Sciences 70(1)
Innovation Systems approach
The Innovation Systems approach proceeds on the assumption that the key to indus-
trial innovation lies in a network of institutions that interact to initiate, import and
diffuse new technologies (Wolfe and Gertler, 2003). In addition to the internal
capabilities of private firms, there is an array of social and public factors that are
critical factors to success. These include:
● government policy,
● corporate R&D,
● education and training system and
● structure of industry.
The key is the patterns of interaction between firms as a collective learning
process in the acquisition and use of new knowledge involving
● private firms, especially R&D performers,
● science system, science and technology infrastructure,
● public research institutions,
● private and cooperative research organizations and
● technology transfer agencies.
The impact of public sector organizations takes place on different spatial scales.
At the national level, it includes industry structure, corporate organization and
governance, the legal/regulatory framework, the fiscal (taxation) and macroeconomic
environment, the framework of industrial relations and labour training, the financial
system and government policy.
At the state/provincial level, it includes regional areas of specialization, the
research infrastructure/higher education sector, specialized training institutions, indus-
trial attraction...
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