Chapter 1- Case Study

Nucor Corporation

Summary: For more than 20 years the Nucor Corporation has been one of the leading manufacturers of steel and steel related products in the world. With their technology advancement, low debt ratio, decentralized type of organization and many more, this company still thrives to achieve better goals in their company. Aside from the positive views of the company, it also faced problems like bankruptcy.

History: Nucor traced its origins to auto manufacturer Ransom E. Olds, who founded Oldsmobile, and later, Reo Motor Cars. Through a series of transactions, the company eventually became the Nuclear Corporation of America, a company involved in the nuclear instrument and electronics business. In 1972, the firm changed its name to Nucor Corporation. By 1998, with Kevin Iverson as president, it had become America’s second-largest steel maker.

Operations: Nucor related its diverse facilities in rural areas across the United States, establishing strong ties to its local communities and its work force. As a leading employer with the ability to pay top wages, it attracted hard-working, dedicated employees. These factors also allowed Nucor to select from among competing locales, siting its operations in states with tax structures that encouraged business growth and regulatory policies that favored the company’s commitment to remaining union-free. By mid-2008, Nucor operated 53 facilities throughout the United States and one in Point Lisas, Trinidad. The company also maintained operations through wholly owned subsidiaries, Harris Steel and the David J. Joseph Company (DJJ).

Strategy: Nucor’s strategy focused on two major competencies: building steel manufacturing facilities economically and operating them productively. Nucor’s ratio of debt to capital was not allowed to exceed 30%. The company did not believe in acquisitions or mergers, choosing instead to commit to internally generated growth. And it had no plans to diversify beyond steel and steel-related products.

Organization Structure: Compared to the typical Fortune 500 company with 10 or more management layers, Nucor’s Structure was decentralized, with only the four management layers illustrated below: Chairman / Vice Chairman / President Vice President / Plant General Manager Department Manager Supervisor

The general managers of each plant was granted considerable autonomy, essentially operating the facility as an independent business. Thus, having the decision-making not only for the top management.

Human Resource Policies: Employee relations at Nucor were based on four principles:  Management is obligated to manage Nucor in such a way that employee

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

Compensation: Nucor provided employees with a performance-related compensation system. All employees were covered under one of four compensation plan, each featuring incentives for meeting specific goals and targets.  Production Incentive Plan

> Employees directly involved in manufacturing were paid weekly bonuses based on actual output in relation to anticipated production tonnages produced. The bonuses were paid only for work that met the quality standards and were pegged to work group, rather than individual output.

 Department Manager Incentive Plan

> Department managers earned an annual incentive bonus based on the performance of the entire plan to which they belonged. The targeted performance criterion here was return on assets.  Non-Production and Non-Department Manager Incentive Plan

> All employees not in the Production Incentive Plan or Department Manager Incentive Plan – including accountants, engineers, secretaries, clerks, and receptionists – received a bonus based primarily on each plant’s return on assets. It could total over 25% of an employee’s base salary.  Senior Officers Incentive Plan

> Included all corporate executives and plant general managers. A portion of pre-tax earnings was placed into a pool that was divided among the officers. If Nucor did well, the officers’ bonuses, in the form of stock (about 60%) and cash (about 40%), could amount to several times their base salaries. If Nucor did poorly, an officer’s compensation was only base salary and, therefore, significantly below the average pay for this level of responsibility.

Information Systems:

All weekly data for the 25 plants were pulled together onto five sheets of paper only, for corporate review. While Nucor work hard to get the information they need, they've worked just as hard to keep reports streamlined and themselves free of "information overload". Because "too much information puts you in the same position as too little information---you don't know what's going on."

Benefits: Nucor took an egalitarian approach toward employee benefits. Treating all employees equally giving same rights and benefits. All employees traveled in economy class, had the same holidays, vacation schedules, and insurance programs, and all wore the same green hard hats, including the CEO. Benefits include profit-sharing and scholarship programs, stock purchase plan and service awards. Nucor’s benefit program also attested to the company’s commitment to education.

Technology: Nucor did not have a formal Research & Development department, a corporate engineering group, or a chief technology officer. Instead, it relied on equipment suppliers and other companies to do the R&D, and they adopted the technological advancements they developed – whether in steel or iron making, or in fabrication. Teams composed of managers, engineers, and machine operators decided what technology to adopt. Nucor adapted successfully the “mini-mill” concept. Unlike integrated steel companies, mini-mills do not process iron ores, but converted scrap steels into finished steel using small-scale electric furnaces.

Future: The company’s biggest challenge (in the future) is to continue to grow the company at 15 – 20% per year, and to keep earnings parallel with its growth. “Business is like flower: You either grow of die,” says Iverson.

Analysis: Nucor Corporation became one of the top corporations in the steel industry because of their handwork and technology innovation. This company also sees and takes care of its employee’s needs, which in return gives them a quality service in their work. Nucor is definitely one of the best companies to work in. Their strategy so far is the best for them. But still, there’s room for more growth.

Problem: Nucor does not believe in mergers or acquisitions, and have no plans to diversify beyond steel and steel-related products. Therefore withholding much larger opportunity for the company, interceding further growth and greater success.

Conclusion: Nucor, even though we can see it as a successful, almost perfect company, it still has its flaws. If Nucor is all for taking risks, then they should not be afraid to broaden their company and give it more room for growth.

Recommendation: We highly recommend change in the company’s certain views. The company should get into diversifying their businesses and acquire or merge, beyond steel industry and steel-related ones. So that the company can utilize its resources to its maximum while keeping costs low. Do the only thing they haven’t done yet. Higher risks gives back higher return.