February 28, 2017
Insights and actions for managing disruption in the steel industry
By: John E. Lichtenstein

Many competitive threats in the global steel industry are tangible, meaning they are well-known issues that steel companies have tactics in place to address. Examples include the ongoing trade concerns and the steel versus aluminum debate in the automotive sector. (See my previous blog post for more detail on the state of the industry.)

But what about the unexpected threats, the surprises that appear through manufacturing advancements, digital technologies or changing customer expectations?

These new and potentially more disruptive developments have the potential to fundamentally challenge traditional steel company business models. Fortunately, they can also create growth opportunities for companies that successfully predict and prepare for the challenges. Understanding the source of the possible disruptions and making bold moves now makes sense.

Four disruptive trends in growth model
Since the beginning of the modern steel industry, steel demand growth has proceeded according to a well-defined model in which market growth = f(population growth X economic development X some kind of middle class multiplier). As long as the global population grows, economies expand, more people enter the middle class and demand for steel will grow.

This model encompasses the widely used inverted U-curve, which shows how per capita steel intensity rises during early stages of a country’s economic development, reaches an inflection point and then declines as countries get wealthier.

At Accenture, we are taking a closer look at this growth model and think it will likely be disrupted by developments in four key areas:

  1. Ongoing advances in steel. Through innovation, the steel industry continues to improve the characteristics of products so that customers need less quantity. Under constant customer pressure, this trend will likely continue in response to the other forces included in this blog.

  2. Improvements in material sciences and process manufacturing. These advances are coming from outside the steel industry. A prime example is 3D printing, which uses alternate materials that could replace conventional steel-derived manufacturing in many key markets.

  3. Digital disruption. While digital technologies and big data are essential to improving operational efficiencies, customer service and supply chain management, potentially more disruptive are the digital developments in steel-consuming industries and the supply chains that support them. This includes how steel is ordered, how and by whom value is added to it, and how the customer will change for many sectors.

  4. Adoption of circular economy practices. The steel industry has long been associated with reducing and recycling. Now the goals extend to sharing, re-use and re-manufacturing. Advances in these dimensions could have a profound impact on future steel demand levels, as well as product requirements.

There are two important corollaries of these emerging trends. First, these developments are not taking place in isolation; rather, they are highly interdependent. In the automotive industry, for example, there are two ways in which the steel market is being disrupted:

  • The growth in ride services, combined with urban congestion and a circular economy mindset, is shifting transportation from a personal property-based to a service-based feature of society. As vehicle sharing increases, demand for new vehicles will weaken.

  • Once driverless cars become a widespread reality, the reduction in accidents could eventually obviate the need for crash-protecting vehicle bodies. This potentially renders the steel versus aluminum issue obsolete, as a variety of other materials could fit the need.

Second, the dispersion of disruptive impacts from mature to emerging economies could be incredibly fast. Assuming they escape the middle income trap, future growth in emerging economies will be much less steel intensive than the early growth stages of today’s mature economies. To understand the technology leap phenomenon, think of the universal adoption of cell phones in countries where land lines were never really installed.

Creating growth opportunities from disruption
Based on our preliminary analysis and modeling results, it is likely that global steel demand is entering a long period of slow growth that could peak around the middle of the century. For this “extreme” outcome to occur, there would have to be a widespread movement toward circular economy principles and practices in all parts of the economy, as well as ongoing advances in the other areas.

Bottom line, steel companies need to not only address today’s challenges, but also prepare for fundamental disruption to their current business models. To do this they must seek to:

  • Understand the disruptions that are taking place in their customers’ industries, and how these might impact future demand for steel products and services.

  • Align product and service innovation around the “hot growth areas” being created through disruption.

  • Invest in new lines of business to exploit these areas of innovation, especially in markets where their current business is most vulnerable.

  • Develop agile new business models to recognize and scale opportunities.

The companies that take these steps can be better prepared to convert disruption to competitive advantage for long-term success. For further insight on how and why steel producers must reinvent themselves as demand growth disappears, read my recently published report, "Steeling for Disruption."

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