In nearly all aspects of life--transportation, housing, information, communications, entertainment, dining--a host of metal products has helped generate the comfort and affluence that the world has come to seek and enjoy.
Which makes it hard to fathom why metal producers are often slow to embrace and incorporate new technology into the business operations side of what they do, and why many outside the metals sector see the industry as hopelessly behind the times when it comes to innovation.
Metals executives need to showcase their companies as innovators, spread the word about their successes, and keep the focus on making the innovation process even better, Jim Forbes, global metals leader for consulting firm PricewaterhouseCoopers LLP (PwC), said in a report on the role of metals and technology.
The answer to this paradox, Forbes said, may lie partly in metals position in the value chain. As a raw material for many products, improvements in the strength and durability of metals just arent visible to the general public, he said, so when people think of metals they are still more likely to picture smokestacks rather than innovations such as advances in vehicle lightweighting that are improving transportation fuel economy and reducing greenhouse gas emissions.
In surveys conducted by AMM over the past several years, large majorities of metal industry chief executive officers said they expect revenues to increase based on innovation and anticipated increases in efficiency.
And their customers expect them to lead such efforts. Automotive, engineering and construction executives have said in PwC surveys that their businesses expect to look more to their metal suppliers for process innovation. Metals executives are expected to work with customers not only to develop the next generation of products, but also to find more efficient ways to manufacture them.
Metal companies in recent years have found themselves working closely with customers. Both steel and aluminum companies have long had close relationships with companies in a number of industries, including the automotive and aerospace sectors. That means intensive co-development efforts. One well-known example, according to Forbes, is the collaboration between Audi AG and Alcoa Inc. on the automakers A8 series. The Audi A8 spaceframe, the first mass-market aluminum car chassis, was developed jointly by Audi and Pittsburgh-based Alcoa back in the late 1990s. It employed 40 new patents, a number of new alloys and several new design and production techniques. Alcoa even built a new plant in Soest, Germany, to produce the new spaceframes for Audi, which is headquartered in Ingolstadt, Germany. The partnership has continued with updates to the series.
Alcoa also is working closely with the aerospace industry, Forbes said. For example, it is developing specific fasteners for Boeing Co.s 787 Dreamliner and the Airbus SAS A350 aircraft to integrate the function of lightning-strike management with the structural fastening of the airframe. The company is going further, looking at other innovations, such as fasteners that can detect cracks in composites.
Steel, aluminum and newer composites are often used together, but their different properties create engineering challenges. In February 2012, Montreal-based Rio Tinto Alcan Inc. announced a new research partnership aimed at developing innovative solutions and technologies in the field of aluminum joining and multi-material combinations. The project will help give small and medium-sized companies access to the technologies needed to work with new material mixes.
Steelmakers are continuing efforts to work together with automotive customers, too, Forbes said. As weve noted, new advanced high-strength steels can cut the structural weight of a vehicle up to 25 percent. Often that means working directly with an automotive customer to develop exactly the right steel for a particular component. Demand is booming in advanced high-strength steel.
While somewhat fewer metals executives have placed their focus on new business models or improving existing products, in PwCs view both areas will need increased attention. The current emphasis on improving processes may lend itself particularly well to developing business models based on marketing these types of innovation, independently or together with development partners such as equipment manufacturers, PwC said in a report, adding that we believe that truly radical change happens when technology breakthroughs are combined with business model innovation.
The importance of innovation and information technology (IT) is universally recognized by (metals executives) ... to achieve their long-term strategic goals, said Sean Hoover, metals leader for PwCs U.S. industrial products practice. You must measure (benchmark) performance before you can enhance it and measure the improvement.
Earlier this year, AMM surveyed global steel executives holding a title of vice president or higher on behalf of PwC, following similar surveys in 2011 and 2012. The changes in attitudes over the course of the surveys show a slightly growing appreciation for technology on several fronts, and overall the executives responses indicated their businesses were prepared to deal with shifting challenges.
More than 80 percent of the survey respondents in 2012 and 2013 said that innovation and new technology are very or somewhat critical to their long-term strategy. Production and operations topped steel executives list again in 2013 as the technology or innovation most critical to their organization, while environmental progress again was cited as the least-critical technology or innovation.
Innovations or technological breakthroughs keyed to improve the cost, efficiency and productivity of mill and plant floor production and operations were rated by respondents to this years survey as the application of pioneering technology most critical to their organizations success.
Business intelligence and reporting led the group in 2013 as the strategic objectives for the executives use of IT. Predictably, 2013 survey respondents ranked business intelligence and reporting as the top application area or functional objective they plan to achieve through the implementation of IT. Close behind are data quality analysis, transformation or integration and the consolidation of critical systems. Eliminating and/or upgrading layers of legacy systems are key to providing a clear window into the efficiency, strengths and weaknesses of the enterprise.
More than half the steel executives participating in the 2013 survey indicated that their organization had implemented an enterprise risk management (ERM) program as a strategic tool. Survey results also indicated that once ERM was implemented, organizations built on the foundation to increase the sophistication of the program and their ability to more fully exploit it.
In 2012, 36 percent of steel executives said their ERM system program was being driven by the chief executive officer and 28 percent said it was being driven by the board of directors. This year, 32 percent said the program is being driven by the chief executive officer and 26 percent said the program is being driven by the chief financial officer.
To succeed, a cultural change of this dimension must initially be mandated and force-fed from the top then, once implemented, day-to-day maintenance/enforcement descends the ladder and appears to be landing more often at the (chief financial officer) and (chief operating officer) levels, Hoover said.
While 2013 survey respondents indicated the importance of the board and chief executive officer had diminished as ERM drivers (a combined 48 percent in 2013 vs. 64 percent in 2012), their responses pointed to a pickup in responsibility for ERM on the part of the chief financial officer and chief operating officer (42 percent in 2013 vs. 26 percent in 2012).
Many projects focused on breakthrough research are broad collaborations across the industry in conjunction with academic institutions and government. And while that may well be the only way to tackle some of the industrys challenges, PwC said it believes there is still more potential to foster radical innovation within individual companies.
When does it make sense to ramp up radical innovation in-house? Thats always a judgment call. If there is significant potential to patent a truly revolutionary product, that may be one good reason to try and go it alone, Forbes said. It wont be easy. Traditional management techniques lend themselves better to incremental innovation, which is easier to measure and where return on investment is more predictable, so in some cases completely new approaches are necessary. These might include creating a separate organization to pursue some types of innovation.
And metal companies will need to continue to step up their innovation to compete with the claims of rival materials for next-generation design in sectors such as aviation.
We look at how metal companies are delivering innovation and how they can take it to the next level, Forbes said. We look at why radical and breakthrough innovation needs to go hand in hand with incremental innovation if companies are to meet the challenges of the next decade. And we consider the different paths that can be followed to make innovation happen and the role of senior managers in making sure it gets done.
In reality, the industry has made a whole range of significant breakthroughs over the past two decades. Production methods and product design have changed radically. Downstream, the industrys key customers need higher-performing metals to help improve products, while upstream the need to reduce the industrys environmental footprint, as well as secure reliable, low-cost energy sources, has driven a range of significant improvements in the production process.
We think that addressing the perception gap is a key task for metals executives, Forbes said. Some companies are already actively promoting their innovation activities, and industry organizations are doing their part as well. But theres still a very long way to go. Metal companies need to take their share of the credit for todays technological advances.