Nucor Corporation Case Study Answers
NUCOR CORPORATION Charlotte, North Carolina. Nucor Corporation’s mission is to “Take Care of Our Customers” by being the safest, highest quality, lowest-cost, most productive, and most profitable steel and steel products company in the world. In 2006, Nucor employed 12,000 employees and earned gross revenue of $1.76 billion, a personal best. It is one of the best-run steel companies in the United States. Nucor operates one of the leanest corporate organizations in the nation. A typical Fortune500 company has a triple-digit corporate staff. Nucor, which ranked No. 189 on the list in 2005, has about 65 corporate employees. Its organizational structure has just five levels of management: president and CEO, executive vice president, general manager, department manager, and supervisory/professional. This streamlined chain of command allows the general managers at each Nucor division to operate their facility as an independent business. With the day-to-day decisions made at the operating facilities, Nucor can respond to suppliers, customers, and employees without waiting for a decision from the corporate office.Reducing the distinctions between management and hourly employees serves Nucor well. Nucor remains committed to not laying off employees in slow periods. Since its entry into the steel-making business, Nucor has not laid off a single worker. The result is a committed team of Nucor employees and high-quality products.Nucor uses base pay and productivity bonuses to motivate its employees. Employees involved directly in manufacturing are paid weekly bonuses based on the production of their work groups. The bonus can average 80–170 percent of the base wage and has no set limit. Department managers earn annual incentive bonuses based primarily on the return on investment of their facility. These bonuses can be as much as 100 percent of base salary. Professional and staff employees, such as accountants, engineers, clerks, and receptionists, can earn bonuses up to 28 percent of salary. The base pay of Nucor employees is actually significantly below industry average, but the productivity bonuses make them among the highest-paid workers in the world. And Nucor’s employees respond positively to Nucor’s production incentives.The success of Nucor is due in part to the unprecedented domestic and international demand for steel. Growing economies, particularly China, have had an insatiable need for steel. But in the last year China has become self-sufficient and not only produces enough steel to meet local demand but also is emerging as a major exporter of steel. As this chapter is being written, Chinese steel-makers are negotiating with Indian steel companies to start joint ventures to produce high-quality steel. Worldwide supply of steel is catching with demand, and current inventories are higher than industry analysts consider appropriate.With decreasing demand, production will slow, which means bonuses will decrease and total compensation (base pay plus bonus) could fall below industry average. You wonder what this would do to employee motivation. You start to think about alternative non-monetary recognition programs that you could initiate now so as to minimize the impact of decreasing bonuses on employee motivation. What if the demand for steel decreases so much that Nucor is forced to revoke its long-time “no layoff” policy? How will layoffs be handled; what will employee’s perceptions be? Instead of layoffs, could you reduce the number of work hours? What criteria will you use to determine who works how many hours? To maintain a motivated work force, you must ensure that these decisions are fair, and perhaps more important, that the employees see them as fair. You also realize that you will have very little time to plan, communicate, and execute your programs.
Please answer the case questions directly. 1000 words maximum.
1. Why has Nucor performed so well?
Nucor has performed very well because it has formulated a competitive strategy that is very effective and it has implemented that strategy.
(a Is Nucor's industry the answer?
Nucor's industry is not the answer. Had Nucor's industry been responsible for Nucor's success then other steel companies would have performed equally well. In fact the performance of Nucor is far superior to those of other companies in the industry.
b. Is it the "mini-mill" effect?
Yes, the mini mill effect has helped the company, they did not start with iron ore but converted scrap steel into finished steel using small-scale electric furnaces. .
c. Is it market power (scale economies)?
To an extent scale economies have helped Nucor, the market power comes from the ability of Nucor to control its costs. It has controlled its costs by purchasing scrap from the open market and its mini-mill approach has out competed integrated mills. Each mini-mill is a responsibility center and the general managers are responsible for these centers.
d. Is it a distribution channel advantage?
The distribution channels used by Nucor for its low end products are through steel service units. Almost half of the production of Nucor is through direct sales made to OEMs, fabricators and end-use-customers. The direct sales cut down distribution costs and give Nucor additional opportunities for profits.
e. Is it a raw material advantage?
Yes, there is raw material advantage. The strategy of using scrap from open market purchases meant that Nucor could keep its processes small, introduce the latest technology, keep cost low and meet the needs of tis customers.
f. Is it a technology advantage?
There is a technology advantage for Nucor. Nucor was first to adopt several innovative processes like the thin-slab cast steel, iron carbide and direct casting of stainless wire..
Nucor enjoyed special technological advantage when it used thin-slab casting technology developed by SMS Scholoemann-Siemag. The effect was that Nucor was able to enter the premium thin-slab casting market that earlier had been dominated by integrated steel plants.
g. Is it a location advantage?
Nucor took advantage of local communities in rural areas, and attracted hard working and dedicated employees. In ...