Nucor Case Study
Essay Preview: Nucor Case Study
Report this essay
Nucor Case Study
Table of Contents
Introduction
In this paper we will look at Nucor, the largest recycler and steel producer in the USA. Nucor has a highly decentralized model of management (“Sec”, 2009, p. 7), and a pay for production compensation scheme. With the globalization of the steel industry in the emerging stages, Nucor will be one of the key players. Since effective management of people is a companys source of competitive advantage, we will look at Nucors current and future expansion plans, and the impact that expansion is having on Nucors strategic human resource management.
Trends in the Steel Industry & Nucors strategy
Lyakishev& Nikolaev (2003) have stated that “electric refining based on the use of iron-bearing scrap and the direct reduction of iron will be the dominant steelmaking technologies by the end of the first half of this century”. This type of steelmaking (scrap based minimill) is Nucors core process (“Sec”, 2009, p.1). As Hamilton (2009) states, the use of electric arc furnaces (scrap based minimill) will put any country with a scrap surplus at a competitive advantage.
According to Bekaert & al. (2009), there is a stalled growth in the steel industry, mostly related to slowed construction projects in 2008. However, Bekeart & al. (2009) anticipate that the demand and growth for global steel will grow to two billion tons by 2025. According to Helman (2009), Nucor is the most efficient steelmaker in the world, which puts them at a competitive advantage over China, considered the worlds highest cost steel producer.
However, in order to defend itself in the world arena, Nucor is poised dead center in the midst of the Cap & Trade political controversy. Nucors efforts have been pushing the Obama administration to enforce trade agreements. China has been receiving a competitive advantage over US steelmakers due to their illegal trade practices, not being held to the same environmental regulations as manufacturers in the USA, and worst of all, through the manipulation of currencies (“Sec”, 2009, p.2). Nucor has a very protectionist view and wishes to guard American jobs.
Whereas in previous years (2007-08), Nucor had backlogs of orders to fill, in 2009 their capacity utilization rate fell to only 51% (“Sec”, 2009, p. 2). Therefore, Nucor is highly concerned about the overcapacity of China as the worlds largest producer and consumer of steel (“Sec”, 2009, p. 7). Nucor is aware that the “cap and trade” legislation already passed by the House in June 2009, will negatively affect their business is the same bill passes in the US Senate this year (“H.R. 2454”, n.d.).
In addition to the cap & trade greenhouse emissions bill already passed by Congress, Nucors management is also just as concerned about another recent governmental regulation that will directly impact their production of steel. The Corporate Average Fuel Economy (CAFÉ) mileage requirements for new cars and light trucks will take effect in 2011 (“Sec”, 2009, p.12). Since all new cars and trucks must get higher mileage performance, Nucor believes that auto manufacturers will begin reducing steel content, and substitute other materials. Lyakishev & Nikolaevs (2003) statement has now come to ring true: “steel production worldwide is taking place within the context of a worsening economic climate that is exacerbating the environmental and energy crises. From now on, metallurgy will be in stiff competition with the producers of alternative materials (aluminum, plastics, ceramics, and composites)”.
Organizational structure and management philosophy
Nucor is divided into two segments: steel mills (four divisions) and steel products (five divisions). Nucor became a highly focused steel producer in 1971 and went public one year later (“Nucor”, 2010.) Eight years later, Nucor made the Fortune 500 list. Because of its sole focus on steel, Nucors divisions are all related to steel production with some “downstream value -added products” such as fasteners, steel decking, wire mesh, and metal buildings (“Sec”, 2009, p.7).
Nucor has recently acquired various companies such as Auburn Steel, Birmingham Steel, Free State Steel, SHV North America, Harris Steel, and others. These strategic acquisitions have positioned Nucor as “North Americas most diversified producer of steel and steel products” (“Sec”, 2009, p. 6). Nucor also owns a 50% stake in an Italian mill serving Italy, Southern Europe, and North Africa (“Sec”, 2009, p. 7).
Nucor has a well-defined management philosophy which is listed in depth on the company website (“Nucor”, 2010),. One striking statement made by the company is that Nucor has “never laid off employees for reasons of not having enough work” (“Nucor”, 2010). The expectation by management at Nucor is that everyone (including the CEO) is paid for performance. According to Helman (2009), the Nucor weekly bonus can be equal to 2/3s of the take home pay.
As a “highly decentralized” organization, Nucor allows most of the day to day decisions to be made by general managers