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March 1, 2010

AHEAD OF THE CURVE

The CEO of South Korea's POSCO, a surprise management innovator, has turned the staid steelmaker on its ear with his three management principles.

Here’s something you don’t read every day, especially not in a corporate news release. This is from one of the news releases posted on the web site of Pohang Iron and Steel Company, or POSCO, the world’s fourth-largest steelmaker:

“Dear my lovely son Wu-Jin,” it begins. “It’s already been three months since I parted from you…About 40 years ago, my predecessors at POSCO made ‘something out of nothing’ under circumstances that were much harder than…today. Thanks to them, I had a rich and comfortable childhood. Now, my POSCO colleagues and I have to play that role for future generations.”

This letter to a young son from a worker at POSCO Vietnam, and similar emotional and proud essays from POSCO employees around the world, have been part of the South Korean company’s new, open value system since Chung Joon-Yang became CEO in February 2009. From the first day, Chung promised an era of open, creative and environmentally friendly management at POSCO. No one could have guessed just how transformational Chung planned to be, nor how different from the typical industrial company he wanted POSCO, previously orthodox, to become.

In many respects, POSCO’s work environment has come to resemble the most laid back cultures of California’s Silicon Valley. Chung’s innovations have included:

  • A rigid no-smoking policy both inside all POSCO buildings as well as anywhere on the grounds.
  • Creation of office environments that emphasize opportunities for creativity, including areas where employees can play musical instruments, watch movies, nap or simply chat with colleagues. The headquarters in Seoul calls this area POREKA, combining aspects of POSCO and that famous exclamation, “eureka!”
  • Breakfasts with the CEO, where employees, who in photographs look distinctly uneasy, are nonetheless encouraged to offer up “fresh ideas, logical thinking” and thoughts about competence in global business environments.
  • Exhortations to business and engineering students to develop themselves further through a lifelong additional focus on the liberal arts. Among other things, Chung posts book recommendations for employees in his CEO blog, says Yoon Dong-Jun, senior vice president for human resources.

“POSCO has made me start my life all over again with a whole new sense of passion. It has taught me what a motive-driven life is,” says Choi Jae-Won, a Steelmaking Department employee. “Being a POSCO man means I’m the one who builds the pillars of my country’s economy…”

Chung is not simply into a softer management style. The company also focuses strongly on global growth opportunities. It invested in new facilities through the recession in the belief that POSCO would be better-positioned to benefit from the recovery if it purchased or built new assets inexpensively during the downturn. POSCO now owns 36 steel processing centers in 12 countries, including such far-flung outposts as Turkey, Vietnam, Kazakhstan, Ukraine, Mexico, India, and China. An important supporter is investor Warren Buffett, whose Berkshire Hathaway holds a 4.5% POSCO stake, the company says. Buffett, it says, has offered to help the company with its global aspirations.

POSCO, which expects to produce 34.4 million tons of steel this year, is the only company among the world’s 10 largest steelmakers not to report a quarterly loss during the recession, Bloomberg News says.

Nothing about Chung’s background suggested that he would try to work a revolution at POSCO which, like many Korean and Asian companies has been known for its disciplined management and top-down leadership style. Chung holds a bachelor’s degree in industrial engineering from Seoul National University and a master’s in metallurgy from Sunchon National University. He joined POSCO in 1975 and rose to hold a range of top operating positions, including general manager for steelmaking at the Gwangyang Works, general manager for production technology there, general manager of the company’s European Union office, general superintendent at Gwangyang, chief operating officer and president of POSCO’s engineering and construction unit. He looks gray and grim in photographs. But beneath that regimented exterior is a Korean management innovator.

“Mr. Chung established POREKA under the belief that refreshment is vital for creativity,” says Yoon, describing just one break with traditional management style. “Open management goes hand-in-hand with creative management. In that sense, POSCO is trying to foster a corporate culture that enables discussion and harmony between employees at different positions.”

“The typical Korean company is extremely hierarchical, where even if you have doubts, you can’t argue,” says Dr. Xiao-Ping Chen, a cross-cultural management researcher and chair of the Management and Organization Department at the University of Washington’s Foster Business School. “The POSCO approach is nontraditional in terms of how Koreans think about work. They are extremely hard working—long hours, concentrate on your work and nothing else. But he (Chung) is modeling the Google kind of paradigm to make his people more creative and more imaginative, helping them learn how to relax and reflect.”

Chung sometimes calls his approach the “POSCO 3.0 Era,” with global expansion fueled by aggressive business strategies, innovative workplaces and green processing techniques. POSCO, for example, plans to switch to a hydrogen-based steelmaking process by 2012 to curtail all of its carbon emissions. The company has formed POSCO Volunteers for Clean Ocean, whose scuba diving participants cleaned the waters and beaches near company processing plants, collecting three tons of garbage in February.

“The CEO has a vision for the company and believes in his vision,” says Dr. Chen of the University of Washington. “Whether he succeeds depends on how effective he is in communicating his vision, to persuade the people below him to see it, too. Then, he will be a transformational leader.”