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September 1, 2008

THE GIANT’S SECRET WEAPON

ArcelorMittal is the world's largest steel producer, and Lakshmi Mittal has the vision and fortitude to expand and energize it. But with Gregory Ludkovsky, Mittal taps into the R&D mother lode.

DR. GREG LUDKOVSKY is a man of science. “I love physics,” he says, and as a young man growing up in the Soviet Union, he studied solid state physics in his hometown Moscow Institute of Steel and Alloys. Which is what led him to see if he could invent the Russian version of Gillette razor blades.

photos by Morgan Anderson

“Every time you would shave, you would come out of the bathroom with these pieces of newspaper sticking on your face because of the bleeding,” he says. “One of the Soviet ministers at the time [the mid-1970s] went to America. There, he was exposed to Gillette razor blades and came back and said, ‘I want the same!’ So that became one of the programs I was working on.”

Employed at the time by a stainless steel processor in Leningrad, now known again as St. Petersburg, Ludkovsky quickly discovered that there was more to making a better razor blade than met the eye. “You needed, typically, a ferritic stainless so the blades can be sharpened and remain sharp. It’s actually quite sophisticated science,” he says. The blade he produced was “not as good as Gillette, but much better” than its Soviet predecessor. Ludkovsky perhaps should have been declared a Hero of the Soviet Union for all the blood that wasn’t spilled.

Today, Ludkovsky is immersed in science and technology of an equally practical kind, but on a vast and more visionary scale. As a vice president of ArcelorMittal, he is responsible for the steelmaker’s global research and development apparatus, a 14-laboratory, 1,500-person, $315 million enterprise that he believes has the potential “to have a tremendous impact on the way people will live.”

“The type of breakthrough work we’re going to do will assist dramatically in resolving the environmental crisis that the world is facing while at the same time preserving the business nature of our work,” he says. “I believe you can, and we should, make a lot of money by providing engineering and environmental solutions to the world at large. It is the role of R&D to make sure that those two things—breakthrough work and improved profitability—are kept in focus. We can change the future and we will make money with our feet firmly planted on the ground of reality, the ground of business.”

Promises to Be Kept

What does that mean, exactly? Ludkovsky, whose purview covers new and improved products, as well as the processes to make steel and stainless steel more efficiently, has examples big and small that, taken as a whole, begin to show what a company the size of ArcelorMittal (2007 sales of $105.2 billion, net income of $10.4 billion, 320,000 employees in more than 60 countries, producing 116 million tons of steel, or 10% of the global supply), led by a CEO as entrepreneurial as Lakshmi Mittal (35 acquisitions in 2007 alone), can do.

One idea, released for sale last year, is the Arsolar roof, a steel roof with photovoltaic (solar power) cells built directly into it, rather than installed separately on their own raised framework. The sheets of roofing material come in three colors, are of course watertight and have a 20-year warranty. The idea won a Golden Innovation Medal at the 2007 Batimat building construction fair in Paris. “If you look at a building that has a roof from these panels, there’s nothing extra on the roof, because the solar panel is the roof,” says Ludkovsky. “It looks absolutely gorgeous.”

A second idea, the Angelina beam, is a standard construction beam with large, almond-shaped holes cut from the central core, permitting pipe, conduits, wiring and other building infrastructure to be strung through the beam instead of above or below it. Depending on the application, the beam is 45% lighter than a standard beam of the same size, with no loss of load-bearing capacity. It is now being designed into projects by Claude Vasconi, the celebrated French architect who proposed the approach. It earned the Golden Design Medal at Batimat.

“What this means is that you can build a seven-story building in the height that normally is used for six,” says Ludkovsky. “Since you can take out one-seventh of the height, you can reduce energy requirements for the building by a similar amount, dramatically reducing cost. It has potentially enormous economic and environmental impact.”

A considerable portion of R&D’s work focuses on bringing all of ArcelorMittal’s plants up to modern production and efficiency standards. Mittal’s unending buying spree has built an immense company, but many of the acquisitions were of distressed properties or plants that are overdue for modernization. A commitment to build some Greenfield plants has been made only in the last year.

“You have to provide R&D and technical support for plants that are just coming out of the technologies of the ’60s and ’70s and bring them up to the technologies of the ’90s and 2000,” says Pinakin C. Chaubal, general manager for global R&D’s “process portfolio,” the group responsible for overseeing process improvements. “Then there are plants that already have the sophistication of 2000, and we need to move them ahead to 2010 or 2020.”

The company’s plants in Brazil and Canada are “state of the art,” Chaubal says, as are many of its facilities in Western Europe. “Some of our plants are world class, others are mostly world class, and some are now catching up,” he says. The improvement process can take some time.

Similarly, while ArcelorMittal has organized itself to be responsive to customer requirements, not all of its products are consistently best-in-class on a global basis, creating an additional challenge for the company’s R&D group. Chaubal observes that many competitors are specialists with limited product lines, unlike ArcelorMittal, which makes or wants to make, essentially, everything.

“If you were to ask our customers to very honestly rank different companies, would ArcelorMittal always be No. 1 in every product line?” says Chaubal. “The answer is no. But that’s our challenge—how to be No. 1—and that’s our goal. We have competing products for markets that we serve. Take automotive. If you look at the Nippon Steels, POSCOs and Coruses of the world, we have products that will match them. My colleague who is responsible for automotive markets very proudly says that we have the best automotive steel in the world.”

For Ludkovsky, the issue is how to respond to local, regional and global product needs while at the same time pushing for process breakthroughs that will provide ArcelorMittal with billions of dollars of return on investment. “In the past, companies believed that equipment manufacturers would provide the majority of process R&D solutions,” he says. “But reality proves otherwise. Companies that want to lead this industry have to spend a great deal of effort building their own process R&D portfolio. It’s the most expensive R&D you can perform.”

One example is Arceo, a three-year engineering project that earlier this year launched in Liège, Belgium, an industrial prototype for a vacuum plasma steel coating line. Developed by the company’s research operation, the vacuum plasma process can coat flat steel with a broad range of materials that turn it into sensors, reflectors, a light source, an anti-bacterial surface, a self-cleaning surface and more. “We can create a totally new generation of coatings that don’t exist today. It’s a very important new technology,” says Ludkovsky. Total cost: about US$36.8 million, counting investments this year.

Arceo, launched earlier this year in Belgium, is an industrial prototype for a vacuum plasma steel coating line.

Ludkovsky, son of an architect mother and construction engineer father—he was chief engineer for the striking Ostankino Tower television and radio spire in Moscow—had “never touched traditional carbon steel” in his professional life until 1979, when he immigrated to the United States as a political refugee. Thirty years old at the time, he was a frequently published Russian scientist with experience primarily in stainless steel and alloys for magnetic recording. Products developed under his guidance were used in electrical devices with improved magnetic permeability. His work also helped to improve the magnetic durability of recording devices and to improve the performance of stainless steel in highly aggressive environments, among other things.

Ludkovsky arrived in Chicago with $56.40 in his pocket and only one piece of identification, a simple piece of paper listing his name and date of birth. The rest of his papers were retained by Soviet authorities. With the help of friends from refugee organizations, he secured an interview at the East Chicago, Indiana, research laboratory operated by Inland Steel Company, which was purchased by Mittal in 1998, becoming part, successively, of Ispat International, Mittal Steel and ArcelorMittal.

Despite the lack of official proof of his identity or skills, Ludkovsky was hired as a probationary engineer on the strength of 20 hours of interviews. Several months later, he was taken off probation, and before the end of his first year, he worked as a consultant for Inland with its customers. It took a full year to be reunited with his family and papers.

He rose progressively to become a section manager, a manager of coated products R&D, R&D product division manager, manager of product applications, director of R&D and, in 1995, vice president of R&D. After Inland was sold, Ludkovsky was named chief technology officer for Mittal’s growing empire, then for North and South America after Mittal Steel’s merger with Arcelor in 2006 created ArcelorMittal. He became vice president for global R&D in January. He holds two dozen patents and is author of numerous publications in the field of physical metallurgy.

Forward spoke with Ludkovsky at the East Chicago laboratory.

How does ArcelorMittal use R&D in its approach to the marketplace?
We should be striving as a company not to sell a ton of steel, but to sell an engineering solution to a customer problem. It behooves you to have a very deep understanding of the customer’s needs, and this is the reason why we are promoting very heavily, all over the world, the concept of early involvement.

We here at the former Inland Steel established early involvement in the United States in the early 1980s. The majority of that first work was manifested in the 1986 Ford Taurus, where all the steel, the highstrength steel, was designed in rather than bought from the shelf. We’ve continued to build on this concept with ArcelorMittal. The beauty of what we’re doing right now is that we’re creating, in the automotive industry, a global common portfolio. So when we go to the customer, any place in the world—Europe, Africa, Asia, the Americas—we can provide them with the global portfolio of products. The performance of these products in Europe is the same as their performance in the United States and the same as their performance in Brazil.

But then we go beyond that. We can tell the customer that if they use a particular product, your component will behave in this way, or perhaps a different type of steel will permit major part consolidation and cost savings.

How do the laboratories and different parts of the R&D organization work with one another?
Our research centers operate both as centers of excellence and as local business partners. All product development activities are coordinated globally. Global coordinators in each market segment make sure that we’re aiming for the right targets, and that global needs are fulfilled and addressed at the laboratories with the appropriate equipment and expertise. Finally, the coordinators make certain there’s no redundant work done in any part of the world.

Once a week, the leadership team, from anywhere in the world, has a video conference so that we can go through all the issues. Safety is the first concern, but after addressing that, we talk about how effectively we are creating synergy. A lot of individual projects have a virtual global team. Our people who are responsible, say, for the global construction portfolio work hand in hand with the global construction sales and marketing organization. So R&D is steered by the business, but also by the long-term objectives and breakthrough aspirations of the top management of the company.

To what extent does the CEO get involved in R&D issues?
Mr. Mittal challenges us continuously. He wants us to produce more and more and more. It’s not easy to satisfy his demands, but it’s very rewarding that the chairman of the company has a personal interest in R&D and is personally demanding about it. He, Aditya [Mittal, the company’s CFO and Lakshmi Mittal’s son,] and the General Management Board ask for regular reports, and the focus, more and more, is on breakthrough projects.

[Mittal’s] management style is actually crucial to R&D. He is an entrepreneur by nature. He’s not afraid to take calculated risks. His whole quest to become a dominant power in the world of steel was based on calculated risk and not being afraid. It’s not enough to have vision. You have to have courage to stick by your vision.

Here’s why I say that’s crucial for R&D: I remember the day that I asked him for money for a pilot project for use of low-quality iron ore. I needed $60 million. The whole discussion took less than five minutes. He asked only one question: “Will it work?” I told him yes. I had the money the next day. That’s why I say this is a very rewarding environment. He and Aditya take a personal interest in our success.

What kinds of projects have the greatest potential for ArcelorMittal?
I can’t talk about any of the breakthrough research, other than to say that we are running about 20 projects, all based on good science, and that they each have the potential to save the company hundreds of millions of dollars every year.

[Mittal] has redefined the playing field [by creating a global steel enterprise], and the competitive environment is very different now than it used to be. The world is also very different in the cost of energy and raw materials. Consolidation of the steel industry is nothing compared with what has happened with raw material supply. That makes the role of R&D significantly more important, on the one hand to differentiate ArcelorMittal from the competition, and on the other to continuously find lower-cost solutions to the otherwise dramatically inflated cost of manufacturing.

A final component of R&D today is the environmental footprint of companies. We’ve made significant efforts to not only be in environmental compliance, but to go beyond that toward environmental leadership.

How has R&D helped reduce costs?
For example, we’ve developed a new technology that allows us to use extremely high phosphorus ores that no one in the world has been able to use before. The phosphorous content destroys equipment, blast furnaces. We have now implemented this new process technology in Kazakhstan and plan to extend it to other regions, as well.

The savings are enormous. What’s the difference between the current price of iron ore in the world and literally getting it for next to nothing? We will save hundreds of millions of dollars with this.

We are now deploying a global iron ore allocation model that takes into consideration the costs of different iron ores, different qualities of the ore, transportation costs and location so that we can optimize the use of ore across the entire company.

We are developing new techniques for improved galvanizing to take cost out of those operations. We’re developing new techniques to take tremendous amounts of energy out of hot rolling operations. There is almost no component of steel manufacturing that we’re not working on with a goal to reduce costs through the use of cheaper raw materials, or to dramatically reduce energy content with a collateral positive environment effect.

Why does the company have an interest in artificial intelligence?
When a competent operator leaves the job, all the experience he has for the most part is lost. But if you have the capability to capture their knowledge and put it into a system that permits you to extract it, then we can build upon it. None of the expertise will be lost.

That’s one component. Another is the ability to effectively manipulate huge amounts of data in a creative and instructive manner. For example, we are working on projects to analyze the global energy consumption of the company. We want to know where the energy comes from and what amount is consumed so that we can optimize the energy consumption of the whole plant.

Then the idea is to apply highly sophisticated modeling. Here’s just one aspect of that. If you calculate how much energy is used to produce a ton of steel and then you calculate how much energy is theoretically required to produce that ton, you find out that the amount of energy you are actually using is many times higher than the amount demanded by physics and chemistry. The rest of the energy used presents an opportunity.

So there’s tremendous waste in the process?
Not because people do it intentionally, but because the processes were developed in a time of abundance and were consistent with the technology available. The times have changed, but many processes have not. It behooves us to take a look at everything we are doing in a different light, both as businesspeople and also as members of society.

Does it take a company the size of ArcelorMittal to provide resources for studies like this?
Yes.

Turning to the environment, what other things are under development at ArcelorMittal?
There are two projects I’d like to mention. We are part of ULCOS, the European Ultra Low CO2 steelmaking program. We’re in the process of deciding where to deploy a technology to capture and re-circulate top gas from the blast furnace. Some of it we’ll put back in the blast furnace, and we’ll separate that away from CO2. We’ll take the CO2, condense it and sequester it in the ground. That will dramatically minimize the environmental footprint of future steel manufacturing. The savings to the company will be substantial because we won’t have to pay the cost of taxes for carbon dioxide emissions under cap-and-trade mechanisms. If you don’t have a way to take care of your CO2, you may encounter significant financial penalties.

In November, we will host an international symposium on sustainable construction at Musée du Quai Branly in Paris. We’ll be inviting 300 people, including some Nobel laureates in environmental sciences, some influential architects from around the world, representatives of construction companies and others. We will show them progress toward achieving our ultimate goal: creation of zero-energy housing. The quest is to create a house that will generate as much energy as it consumes.

Is it difficult to manage an organization like this?
Yes, but it is also extremely exciting to work for an organization with such a high level of truly global diversity. For example, in our East Chicago Research Center alone, we have representatives of more than 20 countries. The challenge is to make all research organizations spread all over the world to perform as one truly integrated virtual organization without creating redundancies, and while constantly capitalizing on synergies.

I fundamentally believe that people are capable of delivering significantly more than they themselves believe is possible. Management’s responsibility is to challenge them to get there. Give them targets that will stretch the living hell out of them, but also give them all the tools they need to succeed. If you look at my laboratories around the world, you will see that the equipment is absolutely state-of-the-art. All of our engineers have the best that they need to do their jobs.

If you have faith in your people and if you give them an environment in which they can succeed, they will always amaze themselves.

It looks like that first probationary job at Inland Steel worked out for you.
This is an unbelievably exciting company to work for. I’ve been to 62 countries around the world. My overriding love in all this has been creation of things that did not exist before. I love to make things for the first time. I am very lucky.