Along with cost reduction and customer service, steel companies are focused on product innovation—to a greater or lesser extent—as one of the three core elements of their business strategy. While the research and development (R&D) function plays a central role in enabling this third strategic pillar, typical R&D budgets are only 0.5 to 1.0 percent of revenue1 in many companies. Squeezing the maximum return out of such limited budgets is crucial.
At a macro level, the more commodity-oriented steel producers are investing in targeted innovations to increase their product ranges in selected areas. Thus, they’re encroaching into the markets of diversified steel players. On the opposite side of the spectrum, producers that traditionally have considered themselves as specialty steel players are not only enhancing their products, but also diversifying into other areas—again entering the markets of the diversified steel companies.
What’s clear is this: whether a steel company is being squeezed in the middle as a diversified producer (and hence looking to increase innovation as a defensive mechanism), or on either side as a challenger, the company needs to be more effective in innovating and bringing new materials to market. It’s a prime way to help enable competitive advantage.
Digitalizing the R&D approach
The importance of R&D in a steel company can be easily overlooked. Historically, it has been difficult to prove any clear linkage between invested R&D dollars and increased business profitability. Companies must wrestle with the time required, as well as the complexity of bringing new steel products to market. In many cases, the cycle time is too long.
One large European steel company, for example, requires on average up to five years to introduce a new material innovation due to the extensive time needed for laboratory sample tests, pilot tests and evaluation, and pre-production tests.2 With today’s increasing pace, such time-scales are not competitive.
Fortunately, the use of digital technologies to transform the R&D function can help steel companies change the game, especially when many companies are chasing after similar innovation areas. Potential areas for improvement include:
Ideation: From screening and managing a portfolio of ideas, to fostering a culture of innovative thinking, steel companies can take advantage of digital platform technologies to facilitate more effective information sharing between various stakeholders, both internal and external—from suppliers through to end-customers and users of steel products. These digital platforms can also help to increase transparency on the overall R&D portfolio, and help leaders make the “right” decisions and conduct the “right” projects.
Process and Connectivity: With input from various internal and external business stakeholders, in which contributions are often made on an ad-hoc basis, R&D processes can be streamlined for flexibility and agility to enhance overall innovation excellence. Improved process and data integration with other key internal processes—such as business planning (e.g., sales and operations planning, production planning)—will help drive efficiencies.
One example is minimizing the potential negative impact of R&D plant production trials on the overall manufacturing plan. Once produced, trial data information can be more easily extracted from various manufacturing and quality systems, incorporating outputs from automated virtual Internet of Things (IoT) platforms that gather and share digital information. Using IoT (connecting sensors, equipment, computers and other objects), steel companies can collect and exchange more comprehensive data, as well as use it as input for statistical test evaluation and planning analysis.
It is important to note that digital technology can make it easier for the R&D function to access internal and potentially external data sources, which will make cybersecurity and intellectual property management a necessity.
These three areas are just a few examples of how digital technologies can help steel companies rethink the approach to innovation in the industry. Such improvements can help drive R&D productivity and effectiveness—reducing development costs and time-to-market, while increasing trial material development success rates and portfolio management effectiveness. The companies that prove successful will become key innovative suppliers for their customers—a strong benefit in an increasingly “me too” world.