nucor corporation 1

8/3/2019 Nucor Corporation 1

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1. Strategic Issue or Problem StatementProblem Statement

Right now Nucors main problem is an excess of steel in the market. Foreign steel is being

dumped in US, the market is flooded and supply exceeds demand. This decreases the steel

companies profits and puts pressure on them, forcing some of them into bankruptcy.

2. Explanation of #1Nucor faces a problem with excess capacity of steel production on a global scale. The high

capacity has created a price war for steel, as well as steel dumping into the U.S. market which has

diminished profit over the last couple of decades. Another problem they face is lack of innovation of

technology. In order for Nucor to maintain, and continue to post profits in the future they must

identify areas to increase technology to lower production costs and increase throughput.

3. Three Reasonable Alternatives:

Strategic Option: A International Expansion - Joint venture with steel companies in India

Advantages:

Use countrys resources and raw materials,

The risk arises of US market cyclical characteristics can be overcome by spreading the

risk into larger market base and the excessive capacity can be allocated abroad

It could be less risky than open a plant in that country.

Nucor has the choice to outsource the research and development of the technology to its

partner.

Disadvantages:


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Might have disagreements with the companies in India

Technological advances in different country cannot be done in short time and it involves

enormous investments.

It could be risky and expensive at first

Maintain special locations in which the steel company can use to store the old metals and

scraps

Strategic Option: B.- Technology Investment

Invest in new technology and Research and Development on different isotopes of iron (FE) to

discover steel with better properties and preferably to produce using less capital and human

resources to increase productivity and thus drive the price down.

Advantages:

Accepted licensing, patent for 5 or 10 year - for these years just Nucor Corporation will

be the only one company in the world the produce that steel

Nucor Corporation could sell the patent to the different company in India, for example,

in order to generate fast profit

Infinite possibilitieshow to implement the new discovery to produce the new metal to

fit and improve upon the human living and working conditions.

Would create competitive advantage for Nucor on many levels

Disadvantages:

Extremely high costs of new technology,

May not achieve desired results,

Could be slow as a process


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Could be difficult to implement in old mills

Alternative CDomestic ExpansionAcquisition of steel mini-mills in more states

Advantages:

Reduce the final products cost, as using own raw materials

Open more jobs on the local level,

Competitivenessstaying ahead of domestic rivals

Fast results

Disadvantages:

Minimills competitors were increasing dramatically and advancing rapidly in technical

sophistication,

Technological advances cannot be done in short time and it involves enormous

investments,

Hiring additional employees,

Finding locations to place the mini-mills

4. Strategic ChoiceOption A Joint venture with steel companies in India

5. Explanation of Strategic choice

Nucor needs to find cheaper global suppliers and make joint-ventures with them to ensure the

availability of raw materials which will be included in suppliers balance sheet rather than

Nucors balance sheet. It will help Nucor to maintain low inventory. With such high capacity in

the market, the Nucor Corporation will have a difficult time selling steel at their current prices.

Nucor has been in a joint venture with suppliers since the 1980s. When this relationship was

initially created they were able to grow at such a vast rate due to cheap supplies.


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Including steel companies from India will decrease the cost of the final products. To Joint

Venture in India is going to be reasonable for Nucor because that countrys supply of eucalyptus

trees that could be used for fuel. In order for Nucor Corp. to reduce their production costs, they

must find a way to decrease the cost of their raw material.

Alternative A better than B - Alternative A is better than alternative B, because to keep the low

cost is the number one priority for the company to survive against the dumping steel prices

imported in the US. Joint venture with global suppliers (very reasonable in India) will be more

beneficial for Nucor Corporation instead of investment in new technology because India can use

its own resources and hence the final product will cost less. Once, the company supplies its raw

materials with lower prices than the final product will be more competitive. Implementing an

Alternative B will be very costly for the company and is more risky because in case Nucor did

not discover that steel with better properties, that would lead to failure and loss for the whole

company.

Alternative A better than CAlternative Cto open mini mills in more states Nucor Company

needs more funds. For example, to open one mill the company spends $200 million. Nucor

already acquired 29 steel companies in the United States. Although these new facilities have a

greater capacity, their operational cost remains high. In order for the Nucor Corporation to be

more competitive and reduce the final steel products price, the better choice will be to joint

venture with steel companies in India. There are also a lot of natural resources as well as

eucalyptus trees which can be used as fuel. Due to the fact that the mini- mills competitors were

increasing dramatically and advancing rapidly in technical sophistication, to joint venture in

different country will be less risky and more saver option.


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Nucor Mission Statement

Nucor Corporation is made up of approximately 20,000 teammates whose goal is to "Take

Care of Our Customers." We are accomplishing this by being the safest, highest quality, lowest cost,

most productive and most profitable steel and steel products company in the world. We are

committed to doing this while being cultural and environmental stewards in our communities where

we live and work. We are succeeding by working together. (Nucor.com)

If Nucor continues on with such high capacities in the market, they will ultimately have a

difficult time selling steel at their current prices. Strategic Option A involves investigating Nucors

current joint venture suppliers and determining whether it is possible to find cheaper suppliers in

India. Doing so is critical because decreasing raw material cost is the most important factor in

reducing their production costs. Nucor has been in a joint venture with suppliers for the past few

decades, and they were able to grow rapidly initially because of the cheap raw material cost, hence

cheap production costs. In order expand on an international scale, and especially go to India will be

more beneficial to the emerging regions of the world; Nucor must take advantage of that and execute

mergers, acquisitions and joint-ventures global partners. India is the second fastest growing Asian

economy after China. Due to its growing infrastructure and relatively stable macroeconomic

future, India proves to be the best location for the next phase of Nucors growth. Joint venture will

be acceptable under the conditions that the joining company is subservient in strategic and tactical

decision making and that Nucor has control over the reinvestment of earning from the venture.

A worthwhile financial objective is to further increase their profit margins in steel products that

they specialize in, such as the joist business and steel decking. These areas, and similar niche

products, will allow them the capital needed to develop future technology on a global scale. Instead

of purchasing the equipment from other countries, Nucor needs to be the leader. They can profit from

their own new developments.


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The financial culture that Nucor Corporation instills is focused in long term health of the

organization. For example, debt is avoided, start-up costs are not capitalized but rather are expensed

in the current period, and depreciation and write-offs lean towards the detriment of short-term

earnings.

Strategic objectives should include positive measures to enter new markets with their successful

no-frills business model. This plan must be tempered with keeping a focus on their core business so

as not to stray to far from what their expertise is founded on. Despite having a population on par

with China's, India only produces about 1/10th of the steel. Currently producing about 55.2 million

tonnes anually, India would need to produce about 300 million more tonnes annually to achieve the

normal per-capita steel consumption of most industrialized countries. Although its relatively low

production, the Indian steel market has grown rapidly over the last 20 years. Therefore, with

expansion internationally, Nucor Corporation will take advantage of low production cost and at the

same time be closer to the growing markets.

6. Implementation of Choice Building a capable organization:

o Organizational Structure

Decentralized system

Four management layers:

Chairman/Vice Chairman/President

Vice President/Plant General Manager/

Department Manager

Supervisor


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The company's success comes from its more than 12,000 employees. Nucor seeks to hire and

retain highly talented and productive people. Nucor has a simple, streamlined organizational

structure to allow employees to innovate and make quick decisions. The company is highly

decentralized, with most day-to-day operating decisions made by the division general managers and

their staff. Corporate staff was kept to a minimum. Their policy, to keep corporate staff to the

minimum, it will be following in the future with one exception, to the Vice President responsibilities

will be added the functions of International Business Executives. That strategy in human resources is

reasonable in terms of keeping the same organizational structure.

Iverson believed that the managers closest to the action should be given the responsibility to develop

plans to allow the plants, and the firm, to adapt to any changes in the environment. To the plant-level

managers will have the authority to make and implement the decisions necessary to make these

adaptations. Each plant manager will give a brief monthly report to headquarters and received a

report comparing the divisions' performance. Major expenditures and changes will be make to

Analyze steelmaker companies outside US and initiate a plan to acquire or build joint-ventures. The

top managers must accurately assess the cost and benefit of each possible acquisition which will

involve considerations of transaction cost and knowledge transfer. Corporate managers must

determine how to direct and operate their firm beyond its original boundaries. Using the knowledge

of acquired firm managers who have different organizational and industry experiences might be

challenging and difficult for corporate managers, but it will broaden corporate knowledge about

running business outside US.

o Core Competencies:

Building steel manufacturing facilities economically and operating them productively.

Benchmarked organizational style and empowering division managers.


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1st company to introduce computer inventory management systems and engineering

process.

Sophisticated in purchasing, sales and management and beat competition by its design

effort.

o Organizational StructureChart

Department

Mana er

Chairman President

Vice

president

Plant General

Manager

Vice

chairman

Supervisor

Employees

Professionals


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Budget (in millions)

Item 2007 2008 2009

1. Sales $16, 226.43 $19, 471.72 $24, 339.65

2. Cost of Product sold 10, 500.00 11, 200.20 12,500.30

3. Administrative costs 603.5 714.56 815.36

4. Interest Expense 4.5 10.2 12.6

5. New Equipment 1, 200.00 2, 250.00 3,500.00

6. Transportation

expenses

1 500.00 2,200.00 3,400.00

Total Profit $ 2, 418.43 $3,096.76 $4, 111.39

Nucors Policies and Practices:

Aggressively pursue and implement cost-saving technologies

Employ incentive compensation that motivate above-average output

Empower plant employees

Create a low-cost culture

Offshore joint ventures

Benchmarking

In their development, Nucor Corporation benchmarked three main processes:

1) Fastener steel segmentfrom GKN plc, UK


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Fasteners include hardware such as hex and structural bolts and socket cap screws, and are used

extensively in an array of applications, including construction, machine tools, farm implements, and

military applications. After a year of studying the fastener market and available technology, Nucor

built a new fastener plant in Saint Joe, Indiana. Productivity was substantially higher than

comparable US plants, and a second fastener plant came on-line in 1995. The fastener plants receive

most of their steel from the Nucor Steel division. With a production capacity of 115,000 tons -- up

substantially from 50,000 tons in 1991 -- Nucor has the capacity to supply nearly 20 percent of this

market.

2) Second Benchmarking Processopen integrated mini mills and produce thick steel slabs

from Bethlehem Steel, Pennsylvania

To produce 10 inch thick steel slabs, Nucor Company, needed to roll sheet steel in a

minimill, but their small electric arc furnaces simply did not have the same capability as the

blast furnace used by an integrated mill.

3) Third benchmarking process, Nucor used thin-slab casting technology developed by SMSSchloemann- Siemag, a West German company. Staff engineers from over one hundred steel

companies visited SMS to explore this technology, but Nucor adopted the process first,

obtaining the rights from SMS by signing a nonexclusive contract with an additional technology

flow-back clause.

Designing Support system

Use of mini-mill technology

Backward integration

Modernizing the existing plants

Technology management


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Reward System

Nucor's employees were paid according to their productivity. Employees were given certain

production goals, and their pay depended on realizing these goals. Though the hourly wages at Nucor

were only $9 per hour compared to the industry average of $18 per hour, yet, Nucor employees

earned more than their counterparts in the industry due to the company's reward system which linked

pay with productivity. According to analysts, Nucor's incentive plans not only encouraged the

employees to perform well at individual level but also encouraged them to excel at the team level as

the incentive plans took the performance of the teams into consideration.

A non-unionized employment system gave Nucor the ability to have a very flexible workforce. An

employee could work on various parts of the assembly line which would not be possible with a strict

union based workforce with specific job descriptions. All employees within the firm have same

fringe benefits and only one group of insurance. The compensation is directly linked to performance

of the employee.

The benchmarks for each specific job decided the bonus for the workforce. If the task was

completed 30% earlier than expected than the workforce would receive a 30% bonus. Almost all of

Nucors employees salaries were 75% of the industries norm but bonuses often could reach up to

90%. This was not only a unique way of Nucor differentiating how they managed their company but

it was widely praised from inside the company. Typical production workers earn $8 or $9 in base

pay plus an additional $16 per hour in production bonuses and averaged $60,000 in 1996 making

them the highest paid employees in the industry. Since Nucor locates their plants in rural locations,

employee salaries are well above the norm for any specific area, making Nucor jobs highly desirable.

Nucor also offers several other benefits to help motivate and retain employees. Some other

incentives that Nucor employees can enjoy are participating in the company's monthly stock

investment plan. Nucor will match up to 10% of the contribution. Nucor's Service Award Plan


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grants employees common stock in five-share increments for each five years of continuous service.

The company has also disbursed special $500 bonuses (four times in the last 20 years) in

exceptionally good years. They also provide four years worth of college tuition support (up to

$2,000/year) for each child of each employee.

Culture

Nucor is a company whose strong organic approach to their organizational culture has made

them successful. Their short lines of communication have been a major factor in the positive

achievements made by the company. Nucor has gone through many changes in their organizational

culture since the creation of the Reo Truck Company in 1897. The company has gone from a

decentralized informal method of organization to todays more structured system. Despite all the

changes, the company continually kept a fairly consistent corporate culture.

The single approach towards employee benefits, welfare, compensation, group performance

based incentives, job rotation to ensure all employees know all work and an approachable,

communicative, transparent management helped making a unique organization culture of motivated,

productive and innovative workforce at Nucor. Employees were never laid off and they were none

unionized. Nucor provided its employees job security and they earned more than a unionized worker

and their salaries were more than 85% of the people of state where they worked. Employees kept

informed on performance of company, charts put all over showing returns on assets, bonus pay offs.

Although later in 21st century with Nucor acquiring new firms and entering strategic alliances, had a

trouble adjusting some of the new firms to their culture of non unionized because so many firms in

U.S are non unionized.

A key ingredient in any effective corporate culture is people. Nucor differs dramatically from

their competitors. The new culture atNucor, us versus them clearly implies management and


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workers united against competitors. Comments such as those by one melt-shop supervisor who

described a sense of personal responsibility not only for his own job but also for the firm. He

described his position at Nucor as being much like running his own company. The former CEO of

company, Ken Iverson explained that Nucors success is being based on a technology used and

organizational culture.

Leadership

According to the case study, Nucor was forced to use low cost leadership strategy due to the

price competitiveness among the competitors and standardized nature of the product. Firms use

inventory management system to reduce operations and inbound logistics cost. Nucor plants were

linked electronically to each other production schedule, has far fewer production steps, far less

capital investment where each plant operate in just-in-time inventory mode resulting in reducing the

operation costs and inbound logistic cost of the company. Furthermore, in order to ensure and control

on time delivery Nucors Vulcraft facility manages a fleet of trucks for efficient outbound logistic.

As a leader Ken Iverson had brilliant philosophy in the still industry: worker productivity. Worker

productivity is measured by the number of labor hours per ton. During the seventies and eighties,

Nucor achieved worker productivity of four labor hours per ton compared with the national average

of eight per ton. Even foreign competitors were capable of just six labor hours per ton. Ironically,

Nucor was widely known in the industry as one of the highest paying steel employers. It seemed that

that the worker incentives, and the non-unionized nature of the workforce were a great strategic fit

for Nucor. For years,Nucors leader, Iverson, waswell aware that the companys strengths lay in the

construction and operation of steel products plants and continued to leverage these skills, while

divesting the companys final non-steel related assets. Now, the new leader, DiMicco follows the

same concepts established by his predecessor as continue to drive company to success.


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7. Standards to measure the ImplementationThe implementation process will be measured through a matrix

2007 2008 2009

ROE (per share) 17.75 20.22 25.25

Net Income 1,471.95 1, 830.99 1, 950.40

Sales $16,226.43 (10%) $19,471.72 (20%) $24,339.65 (25%)

8. Time Line

Expectations 2007 2008 2009

Designing Support System X X

Designing the Reward System X

Changing the Organizational Structure X X

Benchmarking

Increasing Organizations capability X X


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Policies and Procedures

Information & technology X

Measuring Implementation Process X X

ROI

Net Income X

Sales X

Customer Satisfaction

Market Share X

Expand Product Line X

9. Conclusion on the implementation

Competitive advantage


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The steel industry has an extremely high competitive nature. Within the U.S. there are a

few major steel competitors. Outside of the country, foreign competitors are prevalent.

Nucors number one competitor within the U.S. economy is U.S. Steel, and their main

foreign competitor is the worlds largest steel producer Arcelor Mittal.

The Nucors Corporation competitive advantages are:

Building steel manufacturing facilities economically and operating them competitively

Continuous innovation, modern equipment, individualized customer service and producing

at competitive prices.

Mini-Mills

Large applicant pool to hire from because they are seen as an attractive place to work,

allows them to be very selective for who they hire

Have a willingness to take risks.

Sustainable for three years -

o New Initiatives to Sustain Growth

Nucor should further leverage its sustainable competitive advantage by expanding more

aggressively, taking the following steps:

To build an additional iron carbide plant to increase the availability of low-cost raw

materials.

To carry out market research to ascertain:


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Expand product line and downstream steel business (e.g. steel for building, bridges,

highways, roof decking, flooring);

Video Conference one day per weekbetween Nucors managers and steel companys

managers from India and other Joint Ventures companies abroad in order awareness

of the whole process

Competitors current strategies, weaknesses and strengths;

Joint Venture with steel companies abroad

Add an employee stock ownership program to further reinforce employees sense

of ownership and loyalty.

Buying ownership rights in innovative new technologies

Technology Advances

Opportunities:

Acquiring high-cost producers and making them more efficient

Nucor should continue to be the low-cost, quality provider by using all its strengths.

It should continue to be the technological leader by quickly identifying and adopting

new technologies.

Problems:

Dumping of steel into US market.

Rising raw material costs.


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References:

1. Dr. R. Haug, Strategic Management, Nucor Corporation: Competing against low cost steelImportsA.A. Thompsonp.323-346

2. www. Nucor.com3. www.wikiinvest.com4. Nucor Corporation, Annual Report, 2006, 2007 and 2009 year
http://www.wikiinvest.com/http://www.wikiinvest.com/http://www.wikiinvest.com/

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