{"id":4811,"date":"2015-12-09T17:05:08","date_gmt":"2015-12-09T22:05:08","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/carnegie-steel\/"},"modified":"2015-12-09T17:21:14","modified_gmt":"2015-12-09T22:21:14","slug":"carnegie-steel-building-a-modern-america","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/carnegie-steel-building-a-modern-america\/","title":{"rendered":"Carnegie Steel: Building a Modern America"},"content":{"rendered":"

As the U.S. entered a period of economic expansion following the Civil War, mass-produced steel became increasingly in\u00a0demand. \u00a0Railroads expanded westward, urban populations grew–necessitating the introduction of skyscrapers and thus more structurally resilient materials–and legacy infrastructure needed replacement.<\/p>\n

From Andrew Carnegie\u2019s founding of Carnegie Steel\u00a0in 1875 until its sale to U.S. Steel in 1902, the company became\u00a0the dominant steel supplier in the U.S.\u00a0through a vertically-integrated manufacturing process that consistently incorporated the latest technological innovation.<\/p>\n

Steel is a commodity product, so successful business is built on low-cost production.\u00a0 Carnegie executed on its business model in two main ways.\u00a0 The first was owning raw material supply.\u00a0 The steel-making process requires three ingredients: iron ore, coal, and lime; and both iron ore and coal had to be refined before use in steel-making.\u00a0 Second, Carnegie was able to generate unparalleled scale via productivity gains and capacity expansion, creating pricing power and leverage with customers.<\/p>\n

Operationally, the location of Carnegie\u2019s primary mills in Pittsburgh was very strategic for\u00a0this first objective,\u00a0as they were within close proximity of large anthracite coal deposits.\u00a0 The company controlled these nearby coal mines and benefited from reduced transportation costs.<\/p>\n

Following procurement, coal had to be converted into coke, which consisted of removing sulfur and phosphorous though baking.\u00a0 Several nearby suppliers had blast furnaces producing coke for local steel mills.\u00a0 However, when they were unable to consistently meet demand for Carnegie\u2019s mills, the company moved to construct its own blast furnaces for on-site coke production, cutting out these intermediaries and ensuring reliable and cheap supply.<\/p>\n

The Pittsburgh region is also rich in natural gas–a critical fuel used to heat Carnegie\u2019s furnaces–and which the company likewise controlled through direct ownership of wells.<\/p>\n

Finally, Carnegie\u2019s presence on the Pittsburgh\u2019s Monongahela River [pictured below] provided an operational and strategic advantage in shipping finished steel to customers.\u00a0 At the mouth of the Ohio River (the Mississippi\u2019s main tributary), this location provided convenient access to the burgeoning American West.\u00a0 Moreover, it was served by two railroads and a network of barges, so Carnegie was not beholden to any one logistics provider.<\/p>\n

\"Capture3\"<\/a><\/p>\n

Nonetheless, advantageous geography and vertical integration can be replicated and are not alone sufficient for competitive differentiation. \u00a0As such, Carnegie saw the importance of technological innovation, and was a driving force in pioneering advances within the industry.<\/p>\n

The Bessemer process was patented\u00a0by an English engineer in 1856 as an inexpensive method for mass producing steel, using oxidation to remove impurities from molten iron.\u00a0 Despite its advantages, the process\u00a0was not widely adopted in America until Carnegie hired Andrew Holley, its\u00a0first major U.S. proponent, to design his first plant [Edgar Thomson Works, above].<\/p>\n

Ultimately, the Bessemer Process was displaced by the Open Hearth Process, with the potential to triple capacity of an average mill and the ability to produce steel from less pure iron and scrap metal.\u00a0 Carnegie installed the first Open Hearth furnace at the Homestead Mill [above].\u00a0 By 1902, Homestead produced 1.5 million tons annually\u201425% of total U.S. open hearth production, despite 77 other such mills.<\/p>\n

Amid the Vanderbilts, Rockefellers, and Morgans of his day, Andrew Carnegie understood he could not rely on being the premier capitalist<\/em>, and embraced technology as the key driver of operational and financial success.\u00a0 He continually reinvested profits into the mills and frequently ordered even modestly outdated equipment torn out and replaced.<\/p>\n

At Carnegie Steel, this formalized continual improvement process was known as \u201chard driving\u201d, and sought to \u201cincrease blast furnace production through\u2026the use of more powerful blast engines, hotter blasts, larger blast furnaces, the introduction of automatic raw materials storage, handling, and delivery facilities, and the production of clean blast furnace gas (4).\u201d <\/em>Ultimately, this capitalization<\/em> strategy allowed him to both reduce labor costs and rely on less skilled, and thus inexpensive, labor.<\/p>\n

The alignment of these operational processes toward consistent productivity improvement allowed the company to grow into the dominant steel provider of the time, increasing output while driving down the price of steel.<\/p>\n

\"Capture1\"<\/a>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0\"Capture2\"<\/a><\/p>\n

Carnegie became the world\u2019s wealthiest man when he sold Carnegie steel for $480 million in 1902.\u00a0 In such an era, it\u2019s easy to fixate on iconic individuals; however, Carnegie understood credit lay with the process, when he affirmed:<\/p>\n

\u201cTake away all our money, our great works, ore-mines, and coke-ovens, but leave our organization, and in four years I shall have re-established myself (3).\u201d<\/strong><\/p>\n

 <\/p>\n

Sources:<\/span><\/p>\n

1. “Andrew Carnegie:\u00a0Rags to Riches Timeline,” accessed December 7th, 2015, http:\/\/www.pbs.org\/wgbh\/amex\/carnegie\/timeline\/timeline2.html<\/p>\n

2. David P. Billington, The Innovators: The Engineering Pioneers Who Made America Modern<\/em> (New York: John Wiley & Sons, 1996)<\/p>\n

3. James Howard Bridge, The\u00a0History of the Carnegie Steel Company<\/em> (New York: The Aldine Book Co., 1903)<\/p>\n

4. Joel Sabadasz, “The Development of Modern Blast Furnace Practice: The Monongahela Valley Furnaces of the Carnegie Steel Company,” The Journal of Society for Industrial Archaeology<\/em> 18 (1992)<\/p>\n

5. Thomas J. Misa, A Nation of Steel: The Making of Modern America<\/em> (Baltimore: Johns Hopkins University Press, 1995)<\/p>\n","protected":false},"excerpt":{"rendered":"

Revolutionizing steel-making through vertical integration, constant innovation, and scale to fuel American industrialization<\/p>\n","protected":false},"author":1249,"featured_media":5056,"comment_status":"open","ping_status":"closed","template":"","categories":[686,161,664,152],"class_list":["post-4811","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-industry-leader","category-manufacturing","category-scalability","category-vertical-integration"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nCarnegie Steel: Building a Modern America - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/carnegie-steel-building-a-modern-america\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Carnegie Steel: Building a Modern America - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Revolutionizing steel-making through vertical integration, constant innovation, and scale to fuel American industrialization\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/carnegie-steel-building-a-modern-america\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"article:modified_time\" content=\"2015-12-09T22:21:14+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/Steel-Mill.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"3713\" \/>\n\t<meta property=\"og:image:height\" content=\"2922\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/carnegie-steel-building-a-modern-america\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/carnegie-steel-building-a-modern-america\\\/\",\"name\":\"Carnegie Steel: Building a Modern America - Technology and Operations Management\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/carnegie-steel-building-a-modern-america\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/carnegie-steel-building-a-modern-america\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/Steel-Mill.jpg\",\"datePublished\":\"2015-12-09T22:05:08+00:00\",\"dateModified\":\"2015-12-09T22:21:14+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/carnegie-steel-building-a-modern-america\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/carnegie-steel-building-a-modern-america\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/carnegie-steel-building-a-modern-america\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/Steel-Mill.jpg\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/Steel-Mill.jpg\",\"width\":3713,\"height\":2922,\"caption\":\"Original caption: Pittsburgh, PA. 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