Nucor Corporation - Structuring for Efficiency and Effectiveness

Nucor Corporation - Structuring for Efficiency and Effectiveness

Introduction

Nucor achieved its position as one of the largest steel producers in the United States by carefully monitoring costs and paying attention to the needs of its markets. This strategy of providing its customers with a competitive product at competitive prices has brought success and growth to Nucor, in sales, income, and stock price. Recently, however, the control of the organization has been brought into question. The recent announcement of a joint venture between Nucor and U.S. Steel to develop, test, and bring on line a new method for turning iron ore into steel added to the concern over the ability of company management to maintain the entrepreneurial spirit for which the company is famous.

Background

Nucor is the second largest steel producer (2nd in assets, 1st in profits) in the United States. Its profits of $123 million have made it one of the most efficient firms in the steel industry. Nucor achieved that position by focusing on the manufacturing segment known as mini-mills - the relatively small, electrically-powered mills that melt down scrap steel to manufacture products. This process saves on costly labor, raw materials, and the capital-intensive machinery necessary to produce steel from iron ore. A major concern of mini-mill steel manufacturers is maintaining quality, since their raw material consists of scrap steel of varying quality, containing a variety of alloys and impurities. Another concern it the recent rising price of scrap steel.

Nucor started out by manufacturing steel for the beams and posts produced in company-owned structural steel manufacturing plants and then expanded by selling its low-cost steel to other firms. Outside customers gradually became the primary outlet for sales by the mini-mills. Nucor was able to expand sales from the mini-mills by keeping costs below its competitors, both in the United States and abroad. Nucor has consistently sought ways to lower costs while broadening markets. During the latter part of the 1980s, much of the company's efforts were placed on developing technology for manufacturing sheet - flat-rolled steel of the type used by automotive and appliance manufacturers - which had traditionally been the sole domain of the big steel companies and foreign competitors. Ken Iverson, former CEO of Nucor, risked several hundred million dollars in adapting an untested German process for manufacturing this flat steel. Fortunately, the gamble paid off, increasing the company's growth in both sales and profits.

Iverson determined that one means of maintaining both quality control and costs was a highly decentralized organizational structure. Corporate staff was kept to a minimum. All decisions dealing with operations were delegated to the individual plants. 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. Iverson also gave plant-level mangers the authority to make and implement the decisions necessary to make these adaptations. Each plant manager gave a brief monthly report to headquarters and received a report comparing the divisions' performance. Major expenditures and changes were made by consensus at the periodic meetings of all plant and corporate managers.

Iverson took pride in the lean corporate structure. But the lack of corporate staff appeared to become a problem as Nucor expanded. By 1994 the company was operating 16 plants, and the flat-rolled steel plants increased the diversity of the operations reporting to the president. Nucor president, John Correnti, noted "My biggest fear is even though we're now a $3.3 billion company, we've still got to act, feel, and smell like a $300 million company (1)." Some steel industry analysis remained concerned over how Iverson would continue to control the growth of a company that was attempting to diversity its product line.

Iverson is not overly concerned with how Nucor will cope. He delights in highlighting Nucor's seeming incongruities:

Nucor's 7,000 employees are the best-paid workers in our industry, yet Nucor has the lowest labor cost per ton of steel produced.

Nucor is a Fortune 500 company with sales in excess of $3.6 billion, yet we have a total of just 22 people working at our corporate headquarters, and just four layers of management from the CEO to the front-line worker.

Nucor operates in a "rust belt" industry that lost one out of two jobs over a 25-year span, yet Nucor has never laid off an employee or shut down a facility for lack of work, nor have we lost money in any business quarter for more than 30 consecutive years.

We are in a labor-intensive and technology-intensive business, yet we've built most of our manufacturing facilities in areas that have more cows than people.

We track and manage costs more closely than just about any business you can name, yet we anticipate and accept that roughly half of our investments in new ideas and new technologies will yield no usable results.

Nucor pays hourly wages and salaries that run about 66 percent to 75 percent of the average for our industry -the rest of our employees' income comes from "at risk" bonuses -yet we regularly have large pools of qualified applicants for every job opening.

Our company is broken up into 21 independently operated businesses, each with almost complete local autonomy, yet we have an unusually active and free exchange of ideas and solutions across divisional, geographical, and functional boundaries.

We have no R&D department or corporate engineering group, yet we were America's first major operator of "minimills,"