The Industry Nucor Corporation has been moving in a very challenging industry which has faced various problems in recent years. The steel industry experienced slowed demand for steel which resulted from substitution of alternative materials. Furthermore, it also had to cope up with increased foreign competition and strained labor relations. But despite all these obstacles, Nucor Corp. still managed to have a five-year sales growth average of 23%, which is 11 percentage points higher than the nearest fast-growing competitor.
The company even had a 5-year ROE average growth of 18% which is more than double than the industry average while maintaining a healthy financial condition having 7% debt to capital percentage, the lowest among steel producers in 1998. The Company The story of Nucor Corporation is such a success story. Nucor Corporation had its humble beginning in the 1950s as Nuclear Corporation of America which was involved in the production of nuclear and other electronics instrument. Today, Nucor Corporation, a Fortune 500 company is the second-largest steel maker in the country with nine steel-related businesses and 25 plants all over America.
The company is focused on its commitment to produce high-quality steel and steel-related products at competitive prices. It has been at the forefront of innovation as its President Ken Iverson was awarded with the National Medal of Technology in 1991, the country’s highest award for technological achievement and innovation. Come 1998, despite the many challenges that the steel industry faced such as foreign competition, strained labor relations and slowed demand for steel, Nucor Corporation has sustained an annual growth of 17%.
The company’s key financial ratios – sales, ROE, debt-capital ratio, and profit margin were even way beyond the industry median. This made Nucor corporation America’s second largest steel-maker with an annual compounded sales growth rate of 17%. And yet the company was never contented with just being number 2 in the industry. As the company president Ken Iverson said, business is like a flower; you either grow it or die. To wit, they are challenged to become America’s largest steel maker, to become number 1. Problem Statement
What are the strategic improvements that Nucor Corporation should implement to achieve their target annual growth rate of 15-20% in the next few years? Case Analysis Despite of a very challenging industry situation that the firm is facing, Nucor Corporation was able to withstand these challenges and even become stronger. This section will primarily focus on analyzing how Iverson turned around such a losing company. PEST Analysis POLITICAL The steel industry has been subjected to various political factors particularly through the laws and legislations enacted by the policy makers.
This includes taxes, wage rates, labor requirements, and environmental regulations among others. One particular government policy that can greatly affect the steel industry is the use of patents and trademarks which encourages continuous innovation for the steel companies. Furthermore, the government’s trade policy can affect industry competition and influence market conditions. ECONOMIC Aside from economic policies implemented by the government, the main economic factor that can influence the steel industry is the fact that it moves in a cyclical pattern.
Generally, when economic conditions are good, the steel industry also gets good profits. On the other hand, when economic conditions get worse, the industry also experiences a reduction in its profits. Also, foreign currency exchange rates can affect the industry particularly export of finished goods and import of raw materials. SOCIAL Social issues such as wage increases and management-employee relations may also affect the industry as labor unions continuously advocate for increased employee rights and privileges.
Labor policies of the steel industry are closely monitored by various labor groups as its cyclical business tends to produce temporary and semi-regular employees. Furthermore, other social issues may also concern each steel producer in the industry such as community support and other local issues in the respective communities where it operates. TECHNOLOGICAL Technology can greatly improve the industry through new ways of producing its products. The use of an innovative technology can improve the overall efficiency of the industry which can dramatically improve the supply of its finished goods.
New technology may also be a source of competitive advantage as advanced technologies may minimize production costs which will translate to competitive prices. ENVIRONMENTAL The industry can be very susceptible to environmental issues together with other manufacturers. With the advent of campaigns toward saving the environment and “going green”, the society is now more concerned with how the industry’s wastes and other by-products are being managed. Using recycled materials and recycling one’s wastes can affect the industry’s over-all image as an environmental advocate.
After carefully analyzing the industry situation, it is important to take a look at the internal structure mechanism of the company as to how it affected the firm’s current success. The company’s own strengths and weaknesses Operations Tapping the rural areas. Nucor Corporation located its diverse facilities in rural areas across the United States, establishing strong ties to its local communities and its work force. By 1998, a total of 25 operating plants were situated in various districts consisted of nine businesses. Labor force is a company asset. The company established itself as the leading employer in its industry.
Focusing on its ability to pay top wages, Nucor attracted hard-working and dedicated employees that contributed to the company’s increased revenues and further boosts its profitability. Maximizing what the government has to offer. To complement the competitive workforce of Nucor, management sited its operations in states with beneficial tax structures and regulatory policies that encouraged business growth. Strategy Focusing on two major competencies. Nucor’s strategy were built around its two major competencies, first is building steel manufacturing facilities economically, and second is operating them productively.
Management is committed to internally-generated growth, so as to build new plants whenever they want to expand its operation and production, rather than enter into merger agreements or acquire existing businesses. Through this, the company was able to keep its company culture intact and unblemished. Establishing its presence through its company’s hallmarks. With its principle of continuous innovation in developing its product base and production processes, the company is always a prime-mover and is never left behind by competition.
In 1998, the company’s variety of steel products is far greater than any player in the industry, offering its customer more options to choose from. Moreover, Nucor utilized modern equipment to run production in a more efficient and effective manner. Concentrating on steel products, the firm was able to install up to date machineries and technology related to steel production. To create more customer value, Nucor employs individualized customer service through a strong distribution system resulting to greater satisfied and repeating customers.
This is reinforced by management’s commitment to producing high quality steel and steel-related products at competitive prices. Organization structure Nucor has a flat organizational structure. In contrast to many large companies, Nucor’s management is composed of only four layers. With the Board of Directors and top executives sitting on corporate headquarters, production plants were directed by general managers and daily operations by department managers and supervisors. Through this, relevant information flows quickly whenever and wherever necessary. Decentralized management style.
The general manager of each plant experienced considerable autonomy in running the activities performed in their respective areas. They essentially operate the plants as an independent business unit, and spearhead the day-to-day decision-making. However, the drawback of this autonomy results to non-communication between each plant, which results to replicating efforts already done in one of the plants. This may result to resources used to actions that do not add value to the company. Tolerance for risk. Management believed that effective management requires taking considerable amount of risks in handling the business.
In line with this, managers were encouraged to suggest improvements to current production process even if substantial capital outlays will be required. Making good decisions are not the full responsibility of managers. Nucor believed that employees have their share in choosing the best decisions for the company. Managers are not all-knowing, and as such can make bad decisions along the way. It is the subordinates’ tasks to bring into attention whenever they believed that poor choices were made and thus a better alternative exists. Human Resources Employee empowerment is a company policy.
Management listens to what employees have to say regarding issues on scheduling, equipment, production and the whole organization. Annual dinners were held by the general managers with its subordinates to discuss concerns and improvements for the business. Company is committed to provide job security to its employees. During recessionary times, Nucor chose to reduce work hours rather than to reduce its workforce. Because of this, the company has attracted a committed and dedicated pool of employees. Unions are nonexistent. Employees do not feel the need for union organizations, as the company has taken good care of its entire labor force.
Reasonable compensation, secured jobs, and a management that pays attention to what its employees have to say were Nucor’s principles to keep its workers happy. Fair dealing with all its workers. Every employee has the right to appeal to upper management in cases when he believed that he was treated unfairly. The appeal may even reach the general headquarters in times when he was not still satisfied with the response of his immediate supervisor and the general manager of his plant. Compensation Scheme Production incentive plan. Workers were paid weekly bonuses based on actual output beyond a predetermined production rate.
Rather than individual, this incentive system was based on work groups, so that each employee is accountable not only for himself but rather for everyone in his own group. In addition, production workers and supervisors work hand-in-hand with the maintenance personnel as the latter participate also in this incentive system. Effectively, everyone in a given shift must be responsible in order for the group to receive these bonuses. Department manager incentive plan. Rather than weekly, department managers receive annual incentive bonuses based on the performance of the plant where they belonged.
Return on assets was the basis for their incentive plan, and a 25% or better ROA is the target for each autonomous plant. Non-production and non-department manager incentive plan. Accountants, engineers, secretaries, clerks and receptionists also received bonuses based on a target return on assets employed of the plant to which they worked for. Senior officers’ incentive plan. Senior officers include all corporate executives and plant general managers. Their only incentive plan was based on a predetermined return on equity, above this a portion of pretax earnings were set aside and distributed among them.
When the company performed poorly, their base salaries which were relatively lower than what other firms offer was their sole compensation. Employee Benefits Even treatment of all employees. Except for some company benefits where officers are not allowed to participate, almost all employees receive the same benefits throughout the year. This includes the same holiday packages, vacation leaves, insurance programs, and travel perquisites for everyone. Management does not enjoy lavish dining during corporate meetings, company cars and jets for personal use, or executive parking places.
Nucor’s policy tries to place the normal employees at equal footing with the top management in terms of additional benefits provided. Nurturing lower-level workers. A profit-sharing plan for employees below the officer level is in place, contributing a portion of annual pretax earnings to a fund. Part of this will be distributed to employees the following year, and the remainder was kept in the fund to be vested after seven full years of service, which will be received when employees retired or got terminated.
Aside from the profit-sharing scheme, Nucor developed a monthly stock purchase plan wherein the company contributed an additional 10% based on the employee’s own contribution, as well as a retirement savings plan wherein contribution ranging from 5-25% of the employee’s own contribution where made by the company. High priority for education. Employees’ children were awarded scholarship grants from the Nucor Scholarship Fund of up to $2 200 annually for four years, when they pursued college degrees or vocational courses after high school. The fund alone caused Nucor $1. million a year, creating an invaluable goodwill in return. Information Systems Weekly Operations related data. Data regarding the figures of bids, orders, production, backlog, inventory, and shipments of each plant were collated in one sheet of paper and was sent to the headquarters weekly. It provides data for the basic operations of the company. Second Weekly report. Comparison reports are made to compare the figures of the previous week to the current week. The latest 13-week period were also compared to the corresponding period in the previous year.
Overall, the reports of all the 25 plants are heaped up onto four sheets of paper. Monthly Report. Monthly reports are prepared and submitted to compare the actual and budgeted amount for sales revenue, costs, contribution, and return on assets. Meeting and Visits. Plant general managers gather three times a year to assess each other’s performance and to plan for the coming months. They also visit each other’s mills, together with the machine operators to check that everything is working well. Innovations No Formal R&D department. Nucor only adopts the technology of its suppliers and other companies.
The company has a team composed of managers, engineers and machine operators that decides on which technology to adopt. Successfully created advanced mini-mill. The company managed to create the first mini-mill that could make flat steel, enabling the company to capture the premium segment of the industry. Build or Rebuild Entirely. Nucor continuously develops and modernizes its existing plants. In the case of rebuilding, the company not only just adds equipments; rather, it reconstructs entirely the mill. Designs and constructions were placed on the hands of the engineers of the company and the local workers.
Recommendations It is without doubt that Nucor Corporation has done really great for the past few years in pursuit of their goal to continuously grow their organization year after year. But after a careful and thorough analysis performed by the group, it is still believed that the company could have done better given its competitive advantage at hand. The company is challenged as to how they can further grow their company by 15-20% each year. With this, the group recommends the following that will surely help the firm in achieving its goals while maintaining a parallel growth in its bottom line.
A combination of revenue growth measures and cost cutting proposals are combined to ensure a holistic growth structure of the company. Boosting Revenues Increase the company’s customer base. Since the company does not intend to diversify on its product offerings, it can alternatively expand on its customers, penetrating new markets and capturing greater market share on its other existing customer segments. Currently, Nucor has its large chunk of its customers coming from the construction industry, comprising of 60% of its total customers.
The company faces the opportunities offered by booming economies worldwide; exporting its products can be beneficial for the company’s growth prospects. Consider Creating a Formal R&D team. Since Nucor successfully managed to create new advancements in its mill, creating a team for the sole purpose of research and development may provide the company further advancements to its existing technology and further capturing untapped market potentials. Commit to employee development. Management must design an appropriate training program for qualified employees to enhance their technical skills and capabilities.
Because of the evolving technology, it will be of great advantage to Nucor to keep its workers well equipped and up-to-date with applicable changes happening in the technological world. In addition, Nucor should encourage its supervisors and middle management to attend seminars, forums and discussions regarding relevant new issues in the steel industry organized by professional associations. This will in turn increase the company’s productivity which can then be translated to more quality products giving more satisfaction to their customers.
Minimize employment within a family at the same time. Although this was done to encourage more loyalty from its workforce, the flipside of it was the increase possibility of collusions between employees to deceive management and misappropriate the company’s properties. The fact remains that workers have their own personal motives and may put self-interest above their responsibilities to the company, and this may be aggravated by having the opportunity to collude with their own family members employed at the same time. Cutting down the Costs
Consider the effects of centralization in IT. Running in a decentralized manner has been very productive and beneficial for the company. However, considerable time should be taken to evaluate if full decentralization acts in the best interest of the company. Efficiency is not achieved when each plant continues to duplicate what the others have done already, especially for IT. Since the plants were seemingly similar, that is they carry out steel production, they may have the same needs and procedures that can be addressed by a single information system.
Thus, it is wise to share computer programs between these plants to minimize time and labor resources devoted to the design and creation of similar systems. * Adopt an integrated Information System. The continuously expanding company of Nucor would require a fast and reliable information database. This would further enhance the decision making and would help the company addressed to the problems that may arise in the future. Employ non-monetary incentives. To complement the existing incentive plans, anagement must devise an incentive plan that will also boost the employees’ self-esteem and pride in performing their jobs, aside from filling their pockets full. This may include non-monetary credits like “Employee of the Month”, “Best Innovative Idea”, “Top-performing Plant Supervisor”, and the like. Not only does people like and look for well-paid jobs, they also strive to seek recognition for their effort and hard work from their peers and from their superiors.
Having recognized their hard work, this will motivate them to work even harder to surpass what they have done and what others have accomplished. Review standards regularly and adjust them appropriately. Incentive plans were based on predetermined standards of performance, and for Nucor, these include production quotas, Return on Assets, and Return on Equity. Management must evaluate these preset targets to assess whether they continue to be suitable to achieve the company’s overall objectives. Leaving these targets unchanged may inhibit the growth potential of the company.
Furthermore, workers may be complacent about their personal accomplishment and thus will not try to exceed their current performance when these targets are not changed accordingly. The Controller’s Role Design Information and Control system. The controller is responsible for creating a suitable type of information system that will help the management make better decisions. He has the responsibility to choose between a fully centralized IT system down to the decentralized one or a combination of both.
He also has the responsibility of maintaining and controlling these systems and making sure that no one could override the system at their advantage. Interpret performance report. Given the level of expenses incurred for motivating the company’s employees, how much revenues are added to the company? Is it worth the cost? This should be asked by the company’s controller upon analyzing the performance of its employees. This should be crucial as well when budget season comes as this will be one of the determining factor whether to increase, maintain or decrease the previous year’s budget of once’ department.
Oversee Plant managers properly. Since the company employs a decentralized system, it is the controller’s role to oversee and make sure that the Plant Managers’ decisions are still in line with the company’s strategies and would still add value to it. This is very crucial especially when plant managers are making expansion decisions which usually require a big chunk of company’s resources. With the above stated recommendations, the group strongly believes that Nucor Corporation can indeed achieve its growth objective in the next few years and finally become the “man of steel” in its industry.