Case | HBS Case Collection | March 1998 (Revised April 1998)

Lehigh Steel

by V.G. Narayanan and Laura Donohue

Abstract

Lehigh Steel is a specialty steel manufacturer that plummeted from record profits to record losses in less than three years, driven by an inability to distinguish between profitable and unprofitable business. The scale and growth of service activities and overhead costs in an increasingly customized product line suggests that activity-based costing (ABC) could unlock the secrets of profitability. However, the high fixed-cost structure suggests that theory of constraints (TOC) could also be relevant. Lehigh must determine how to measure profitability to rationalize its products.

Keywords: Measurement and Metrics; Product; Cost; Activity Based Costing and Management; Profit; Accounting; Corporate Finance; Steel Industry;

Citation:

Narayanan, V.G., and Laura Donohue. "Lehigh Steel." Harvard Business School Case 198-085, March 1998. (Revised April 1998.)