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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.
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?
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 success story of Nucor Corporation.
1. Thickening of the Activity System: Iverson’s approach on keeping things simple did wonders for the firm and its stakeholders. Nucor’s flat hierarchical, decentralized structure was successful in its autonomous operations. Iverson was very confident and believed in that the business will be going to be fine for those people who are efficient, low cost producers. He continued to thicken the major nodes of Nucor’s activity system, using Nucor’s early footing in minimill technology as a “trigger”. The disruptive nature of minimills allowed Iverson to pursue an extremely low-cost strategy with respect to the construction, production and operation of these facilities. During the era of maximum capacity and organic growth, Nucor realized incredible economies of learning and scale. He managed to position Nucor in every geographical market in the US, bringing its product closer to the customers, thus increasing the total value in the industry. Another primary activity that evolved was Nucor’s worker relations. Iverson’s interest in long term employment and workforce commitment initiated Nucor to provide tangible rewards to the firm’s stakeholder.
2. Employee Relation: Nucor’s success story was based on Iverson’s unique brain child: his egalitarian, incentive-based worker-relation philosophy. Iverson rarely fired his workers, and they seemed to seldom quite job. Iverson loved to reward all the Nucor stakeholders with cash. Consistent with his strong opposition to unions, Iverson did not want high workforce turnover, and implemented systems which encouraged workers to build a career with Nucor. Iverson’s brilliant philosophy defined the most crucial factor in the steel industry: work productivity. Nucor was widely known in the industry as one of the highest paying steel employers. Iverson’s worker incentive, egalitarianism, and the non-unionized nature of the workforce strategic were very much fit for Nucor.
3. Advantages of intangible sticky factors: Management theory has described the importance of developing organizational sticky factors in building sustainable advantages in business. While much attention in the subject is focused on tangible sticky factors, such as capital expenditures, Nucor serves as an example of how intangible sticky factors can provide even greater benefits. Integrated mills are one of the greatest examples of commitment in modern times, requiring massive capital expenditure to build operate. The other intangible sticky factor was extraordinary labor management practices. This was a key factor in their rapid, successful growth, and in their ability to produce steel at margins that could compete with imports. Intangible sticky factors share or exceed the inimitability of tangible sticky factors in commitment, while being more inherently flexible than the tangible commitments made by integrated mills.
4. Dependence vs. continuity: As the future of Nucor unfolds, it may prove to be a cautious tale of the tradeoff between dependence and continuity. The low level responsibility in the Nucor organization did produce superior results, but such a model of autonomy within a defined framework relies heavily on aligned visions of Iverson. The charismatic leadership of Iverson accomplished this purpose during Nucor’s rapid growth. If a leader has a successful vision, as Iverson did, an organization dependent on that one person can achieve outstanding results. A potential way to smooth the transition is to clearly and credibly inculcate the leader’s vision into the firm’s internal structure and governance.
5. Controlled growth: Even in a rapid growing firm, it is important to control the pace and direction of that growth. Profitability consistently remained the core consideration in new project evaluations. Iverson carefully monitored the Nucor’s growth during its expansion period, selecting only projects where its sticky factors could be successfully leveraged.
CONCLUSION AND RECOMMENDATIONS
Nucor’s story is one of the growths towards a strategic fit against the competitive backdrop of the ultimate commodity market. Over the years and largely through the vision of one man, Nucor has evolved towards a strong strategic fit with a consistent activity system. By strengthening around its core elements in its activity system, the company has shown a strong commitment to its strategy. Even though competitors might attempt to imitate Nucor’s management system, the minimills main sticky factor of an extraordinary strong work relations as well as the complex host of interrelated activities made the firm’s success difficult to replicate. Thus, despite economic swings and tough competition, Nucor continues to grow steadily.
My recommendations for Nucor are simply this: change, change and change. Iverson of Nucor discussed these issues with new management and decided it was time for the change of infrastructure and that was almost history in steel industry and Nucor Corporation itself. The one weakness, if any, with Nucor is that the risks that they take may not be the great ideas that they intended to be. They thought the company was changing much faster but kept a positive role in communities and for the environment. Over the next fifteen years Nucor continued to expand and build new plants, leading the technology revolution for the steel industry and expanding into deeper aspects of steel making parts and market segments. I would also like to suggest this company as to go for acquisition and merger. Acquisition and merger will it in utilizing its resources to the optimum while keeping its cost low.