Nucor Corporation (a)

SYNOPSIS

For much of its century long history, Nucor Corporation and its predecessors displayed turbulent performance. Several attempts at strategic and leadership realignment proved unsuccessful, and in 1965, the company faced insolvency. Since that time, however, the company has rallied around its steel operations to become the largest steel producer in the United States, with $4.3 billion in net annual sales. This case examines Nucor's development from an unprofitable conglomerate to a highly efficient enterprise. Specific focus on the evolution of the activity system underlying the organization lays the groundwork for systematic analysis of why some companies succeed while others fail.

ISSUES

For decades, the steel industry has been one of the toughest markets on a global scale with most steel corporations ending up in bankruptcy. Foreign and domestic competitors, management issues, environmental issues, political agenda’s and technology have had much to do with the demise and more so of the success of the steel industry. The issues that this case focus on Nucor Corporation was of:

• How to change a failure company to a winning company?

• How to stay competitive and pursue growth in a troubled steel industry?

• How to become a Successful leader?

ANALYSIS

Nucor is the largest steel manufacturer in the United States. It remains a profitable company despite being in one of the most cyclical industries in the economy. Nucor enjoys this success for several reasons, employee relations, quality, productivity, and aggressive pursuit of innovation and technical excellence. Nucor’s strategy is that of a low cost provider, they know they are selling a commodity and understand their competitive edge in the industry is lowering prices through innovation and productivity. The company operates primarily in two business areas, steel mills and steel products.

Nucor managed to turn profits around in 1966 by focusing their business where it was making profit. Careful investments in new technology allowed it to gain market share in other areas while staying ahead of the competition. Nucor recognized the importance of keeping costs down. They identified the costs of supplies as an area to target for increasing profits. They established their own interest in steel mills in order to reduce the supply cost part of their products through backwards integration. According to Management practices emphasize autonomy and focus on results. This is seen throughout the company. Incentive programs are disbursed accordingly, and even top management is not afforded normal corporate luxuries. If the expenditure does not support improving their business position then it does not happen. Bonuses are given for exceeding the productivity standards. A very open line of communication is also seen as strength, allowing employees to voice concerns to top management. Case points out that company often overestimate common interests and underestimate the potential for conflicts when it comes to employee unions. The threat of unionizing employees is very real, and Nucor has done a wonderful job of eliminating this threat. Their employees appear to be very satisfied. Intrinsic and extrinsic rewards are plentiful, as bonuses usually double the salary, and employees are enabled to solve their own problems and improve the work process. Nucor has avoided the chasm that usually separates labor and management. They also do not waste resources on "lab coat" employees to help justify decisions. They allow the people who are doing the job to make the decisions on how to run the process and what equipment to use.

"Ken Iverson is a leader whose vision shaped an industry and the future, a leader whose character, values, and ethics merge seamlessly with the mission and values of a successful, innovative business."

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.

Iverson stresses four clear-cut principles:

• Management is obligated to mange the company in such a way that employees will have the opportunity to earn according to their productivity.

• Employees should feel confident that if they do their jobs properly, they will have a job tomorrow.

• Employees have the right to be treated fairly and must believe that they will be.

• Employees must have an avenue of appeal when they believe they are being treated unfairly

Iverson was proud of the fact that there were only three layers between the President and workers on the floor. Managers were being rewarded for meeting short-term goals of increased sales, decreased costs, and quality maintenance. For example, Nucor managers would set standards for quality and output for groups of 25 to 30 employees and reward them with weekly bonuses.

Nucor top management maintained that this highly decentralized and lean organizational structure was necessary to meet foreign competition. According to top management, this structure would allow the firm to take advantage of those growth opportunities available in the environment. The risk was that the lower levels of management would follow short-term goals at the expense of long-term corporate objectives and coordination.

There are five main takeaways from the Ken Iverson’s