Up Front
Innovators
U. S. Steel:
Integration as Innovation
United States Steel Corporation is
synonymous with American steelmaking.
Throughout its 107-year existence, U. S. Steel
has stayed at the forefront of the industry
through countless advances in steel products
and steelmaking processes. The corporation’s
most significant innovation, however, might
be its organization into the first large-scale
vertically integrated company.
Vertical integration is the business
practice of gaining ownership over every step
of production—from raw materials to final
products. The concept, tried on a small scale
by J&L Steel, was refined by Henry Clay Frick
and Andrew Carnegie. By 1886, 50-year-old
Carnegie had amassed interests in an
impressive collection of firms: the Upper and
Lower Union Mills, the Keystone Bridge
Company, the Lucy Furnaces, the Edgar
Thomson Steel Works, and the Homestead
Steel Works.
Steel mills depend on a steady supply of
coke—charcoal made from coal—to fuel
their furnaces. Frick dominated the coke
industry not only in his native Western
Pennsylvania, but his company’s 12,000 ovens
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were the largest producer of coke in the
world. Carnegie and Frick joined forces: Frick
was named manager of the mills and, in 1892,
he organized the separate companies,
including Frick Coke, into a single, efficient
organization. Carnegie Steel Company was
not only a grand attempt at vertical
integration but had become the world’s
largest steel company, valued at $25 million.
Steelmaking also requires iron and
limestone. Carnegie Steel developed the
Pittsburgh Limestone Company to supply the
mineral but depended on others for iron ore.
Fellow Pittsburgh industrialist Henry Oliver
began purchasing land in Minnesota’s ironrich Mesabi Range, and Carnegie Steel
invested too until it controlled three-quarters
of the Mesabi’s resources. Frick likewise
wanted Carnegie Steel to have its own rail
lines and so built the Union Railroad. Its first
batch transported steel from the Duquesne
Works to the Homestead Works in 1898.
Frick also sought to gain control over
labor, his efforts reaching a climax in 1892 at
the Homestead Lockout and Strike. Though
Carnegie also discouraged unionization,
Frick’s actions began a separation between
the men that led to Frick leaving Carnegie
Steel in 1899. While unions would not be
recognized for decades, Carnegie did favor
internal promotions, and in 1900 he founded
Carnegie Technical Schools for the children
of local steelworkers. (It became Carnegie
Institute of Technology or “Carnegie Tech” in
1912 and grew into today’s Carnegie Mellon
University.) Carnegie established a pension
fund for former employees at Homestead,
and another fund he started for professors
evolved into TIAA-CREF, today one of the
largest financial services companies in the
U.S. He gave away tens of millions to establish
other schools, universities, the Carnegie Hero
Fund, and of course some 3,000 libraries.
In 1901, J.P. Morgan purchased Carnegie
Steel and other companies for $480 million to
form United States Steel Corporation, the
world’s first billion dollar corporation. Taking
vertical integration to a massive scale, the
self-sufficient company owned coal mines,
coke ovens, iron ore and limestone quarries,
barges, ports, and railroads in addition to the
mills where steel was made. Morgan knew
such total integration would reduce market
An aerial drawing of Carnegie’s Union Mills along the Allegheny River in Lawrenceville shows the interplay of horse power, railroad, steamboats, and furnaces.
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Coal Miner
Up Front
uncertainties
and
assure
material
availability—thereby lowering costs and
prices. Such large-scale integration led to a
century of market domination for the
company.
U. S. Steel continues its tradition of
innovation with a $1.2 billion investment at
its Clairton Coke Works, the nation’s largest
coke operation, which will dramatically
decrease emissions. The multi-year program
to install state-of-the-art coke batteries
represents one of the largest capital
expenditure in U. S. Steel’s history. Also, at
the nearby site that once housed the
Duquesne Works, the company recently
dedicated the Mon Valley Works Training
Hub for employees who work at the
company’s three Pittsburgh-area Mon Valley
Works locations. Through massive changes in
technology and global economics, U. S. Steel
not only survives but remains the country’s
largest domestically owned integrated steel
producer, a testament to its resilience and
innovation, and the model of vertical
integration for successful companies around
the world.
U. S. Steel:
Vertical
Integration
Iron Ore
Coke Ovens
Barges
Train
Plant
Vertical integration means that one company owns
and manages all aspects of production. The images
here include a coal miner with pick axe, early coke
ovens in southwestern Pennsylvania, barges and
towboats at a mill, mining iron ore at the Mesabi
Range, the Edgar Thomson plant in Braddock (1886),
and the Carnegie Building (1893-95), the first steelframed skyscraper in Pittsburgh (left uncovered for
a year to showcase it’s innovative construction).
All History Center Library & Archives except Union Mills on previous page and Iron Ore,
Rivers of Steel National Heritage Area.
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Steel-framed Skyscraper