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Steel Dynamics's Dynamic Duo

Steel Dynamics's Dynamic Duo

Co-founders Keith Busse and Mark Millett discuss the companys unique history and its steely resolve to contain costs.

When Nucor Corp. set out to build the world's first thin-slab minimill in the late 1980s -- a project headed up by Keith Busse in Crawfordsville, Ind. -- many believed the effort was "doomed to failure," Busse recalls.

Likewise, when Busse approached two key members of his Crawfordsville team -- Mark Millett and Richard Teets Jr. -- about launching a new steel company, the idea was met with a fair amount of skepticism.

"We had a beer at a Holiday Inn, and I suggested to them that we could go out and launch our own brand new steelmaking entity," Busse recalls. "Of course they looked at me like I was absolutely nuts."

Keith Busse
The rest, as they say though, is history. Building on the success of the Crawfordsville minimill, the trio launched Steel Dynamics Inc. (SDI) in 1993. Defying the skeptics, Steel Dynamics has grown from a three-man startup to the nation's fifth-largest producer of carbon steel products, with full-year 2010 revenues of $6.3 billion on steel shipments of 5.3 million tons.

The company recently announced that Busse will retire in January, after leading Steel Dynamics as chairman and CEO for its first 18 years. Millett, who now serves as president and COO, will take the reins starting Jan. 1.

Mark Millett
During a press tour of Northeast Indiana area earlier this month, IndustryWeek met with Busse and Millett at the company's headquarters in Fort Wayne, discussing SDI's unique history and its steely resolve to manage costs, among other topics. IW: Steel Dynamics was the first independently financed U.S. steelmaker to be launched in 100 years. In your wildest dreams, did you ever imagine that Steel Dynamics would become a Fortune 500 company?

KB: I don't know that any of us had a vision that Steel Dynamics would grow to be that sizeable entity that it is today.

We dreamed about doubling the size of the caster, building a cold mill -- things of that nature. When we started producing hot metal, we were the smallest of 60 companies producing hot metal, and today we're the fifth-largest steelmaker in the United States. So it's quite a growth story.

IW: SDI has played a major role in two cutting-edge technologies for the steelmaking process: thin-slab casting and the production of pig iron via the Mesabi Nugget project. (The Mesabi Nugget project, an SDI joint venture with Kobe Steel, aims to commercialize the production of high-purity pig iron nuggets using a direct-reduction process. Production at the Mesabi Nugget plant in Hoyt Lakes, Minn., began late in 2009.) Could you give us an update on the project?

KB: I would say it's probably tougher to get done than the [thin-slab] technology that we launched in Crawfordsville. But we're making good progress. We've had a lot of issues occur since we started, and we've beaten every one of them.

You might say we're getting tired of beating issues. But it's working. It's coming. It's going to be a revolutionary new technology by which to make iron.

IW: You've noted that the SDI's Butler, Ind., flat-roll mill (the company's first and largest mill) produces steel at a rate of .25 man-hours per ton of steel. What has been the key to the mill's productivity?

KB: I think more important than anything is that we operate in a culture that gives us quite an edge over any of our competitors.

It's an outgrowth of the Nucor story and the Nucor culture, taken from the 80th percentile to the 99th percentile, you might say.

We operate with a non-union workforce, which is a blessing for all of us. But our people are fiercely loyal to this company, and highly motivated by incentives that they get for performance.

IW: Speaking of incentives, SDI employees can earn up to 40% of their salaries in bonuses, based on meeting the company's production goals and cost-containment objectives (the latter has been referred to as a "conversion bonus"). What is the secret to success of a bonus program?

MM: No. 1, the bonus program has to drive the objective and the strategy that you want to achieve.

No. 2, it has to be as small a group as possible. Such that if someone comes in and they've been drinking the night before and they've got a little hangover, and they press the wrong button and the line shuts down, the crew knows it. And next Thursday when people have $150 less in their pocket than they did the week before, people know about it.

If you have a very global system, for the whole facility, and all 600 people are on the same bonus program and that guy presses a button and screws the bonus up, the guy half a mile down the production line doesn't even know that it occurs.

So you try to get your bonus group on an operational level as tight and as small as you possibly can, and have the action and consequence as closely linked as you possibly can.

IW: SDI has three sites in Indiana (in Butler, Columbia City and Pittsboro). Could you talk about the work ethic in the Hoosier state, and how that's helped SDI contain its production costs?

MM: I would say our workforce is incredibly creative and innovative. In part that's driven by the bonus system. But if they can figure out a better way or a quicker way to make steel, they're going to make more bars. So there's a natural tendency for them to ask, 'How do we do it better?'

The Midwest has a phenomenal work ethic anyway, generally. The people here typically have risen with the sun, worked all day, and gone to bed with the sun at night. And they've tinkered with machines and wrenches and fixed their tractors and their cars. Those folks are phenomenal employees in our type of environment.

In Butler, for instance, we started off with one cast and one furnace -- one rolling mill at 1.2 million tons [of annual output]. Then we doubled it to 2.4 million, and that was just basically additional equipment.

But in the last three and a half years, they've systemically tweaked this, tweaked that, and they've got it up over 3 million tons. It's not due to any massive, revolutionary change. It's just good old entrepreneurial, innovative spirit.

KB: I think you're going to find that the work ethic in this geography is as good a worth ethic as I know of anywhere in the country or in the Midwest. And people here are moldable, shapeable, willing to learn, and interested in being highly productive.

IW: When hiring, what do you look for in an employee?

KB: We're always looking for positive mental attitudes, not negative. We just don't hire negative-thinking people -- they drag the world down.

And we don't tolerate crap when it comes to drugs and alcohol and things of that nature. A lot of union shops will forgive you two times, three times, 100,000 times before they ever discipline you or fire you [for violations of substance-abuse policies]. In our system, you don't get a second chance.

If you don't value an $85,000, $90,000 job, then shame on you. If you want to disappoint your family because you came in drunk or you're doing dope, and you get caught, you're out of there.

When your little black ball comes out of the jar, you get tested -- including me. And if I fail, I'm fired. I may be the CEO, but it doesn't matter -- I'm fired.

We're not in the rehabilitation business. We're in the steel business.

IW: Keith, are you going to miss being CEO?

KB: Mark is a terrific young leader. He's gonna do a good job. My role is to mentor him, to continue to pay attention to investor relations, to be involved in strategic planning -- the board made that a stipulation of my retirement.

And those are roles I would like to play and will play. But I don't need to fight the daily battles everyday.

Anytime you change, there's an adjustment. I came in two days in a row at 8:30 and left at 4:30, and I'm used to coming in at 7:30 and leaving at 7. I felt guilty. I felt like I was stealing from the company by shaving a half hour here and there.

I'll still be over here from time to time. But I'm gonna move my office out of here, because I don't need to have an office here and have people come to me. They all need to understand that Mark's in charge. He's been a great partner, and the transition is going extremely well.

What do I look back on? Well, I created, I believe, one of the world's great steelmaking entities ever in this nation or maybe globally.

But probably more than anything, I just I really cherish the fact that we collectively were able to create 6,500 high-paying, high-quality, highly pumped-up, supercharged jobs. That's the biggest legacy I have or will leave, and probably the most important accomplishment.

Are we the greatest steelmaker? Do we have the edge? Are we more productive than any other steelmaker, including our dear friends at Nucor? Yeah, we are.

But we're only marginally better than they are in terms of productivity. They may be at .4 or .35 [man-hours per ton of steel] when we're at .25. They're a great company and I was part of [Nucor's] success story for 21 years and fortunate enough to be part of this success story for the last 17. That's a career in and of itself.

So I'm pleased with my decision. I'm not at all melancholy about it.

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