Nucor 1

Nucor Case Study

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Table of Contents

Introduction…………………………………………………………………… p. 3

Trends in the Steel Industry & Nucor’s strategy……..……………………..p. 3-5

Organizational structure and management philosophy……………………p. 5-6

HRM issues and recommended actions …………………………………....p. 6-8

Recommendations for diversification and rationale..……………………….p. 9

Recommendations to implement diversification………………………….....p. 9

Summary….………………………………………………………….………….p. 9-10

References .…………………………………………………………..……… p.11-12

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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 company’s source of competitive

advantage, we will look at Nucor’s current and future expansion plans, and the

impact that expansion is having on Nucor’s strategic human resource

management.

Trends in the Steel Industry & Nucor’s 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 Nucor’s 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 world’s highest cost steel producer.

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However, in order to defend itself in the world arena, Nucor is poised dead

center in the midst of the Cap & Trade political controversy. Nucor’s 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 world’s 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, Nucor’s 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 & Nikolaev’s (2003) statement has now come to ring true: “steel
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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, Nucor’s 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 America’s

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 2/3’s of the take home pay.
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As a “highly decentralized” organization, Nucor allows most of the day to day

decisions to be made by general managers and staff (“Sec”, 2009, p.7). The

managerial hierarchy is composed of four layers: shop floor workers, supervisors,

general managers, and executive vice-presidents (Helman, 2009). Presiding at

the top is the CEO. Headquarters in Charlotte, NC is staffed by 90 employees.

The total employee count given in the company’s most recent SEC 10-K filing

(2009, p. 7) was 20, 400.

HRM issues and recommended actions

According to Overman (1994), general managers at Nucor must make a

25% return. Thompson Jr., Strickland III, & Gamble (2009) indicate that

decentralized decision making means that managers must decide on how to

execute strategy. Furthermore, they indicate that “managers who consistently

produce unsatisfactory results have to be weeded out” (Thompson Jr., Strickland

III & Gamble, 2009, p. 347). With the steel mills running just a smidgen over half

capacity, it would appear that Nucor managers are being left to their own devices

to figure out how to make production quotas. I see this as being very problematic

for the general managers. If they fail to make their performance quotas, they will

be fired or held back from advancement in the company.

Overman (1994) also mentions that Nucor hourly employees have a weekly

bonus system. This bonus is based on the production of an 8-20 member work

group. Overman (1994) states that while Nucor teams are considered

successful, they are also money driven. If production is down to 51% capacity

utilization, the money that was previously made in performance pay is just not
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there now. Some workers, who have become accustomed to a high take home

pay, may have left the company. This could apply as well to workers in the

companies acquired by Nucor who were paid according to a different pay scale.

Datamonitor (“Steel”, 2009, p.28) mentions that while the US steel market

grew by 33% until this year (2010), for the next three years (until 2013), the

growth rate will only be about 5.5%. At Nucor, revenues and assets doubled

from 2004-2008, but so did their liabilities and employees, along with an inflation

rate of 49.5% (“Steel”, 2009, p.27).

In 2004, Nucor had 10, 600 employees. Yet, just four years later, the number

of employees was listed as 21, 700 (“Steel”, 2009, p. 27). Today, the Nucor

website lists the number of employees as 9,800 (“Nucor”, 2010). The difference

in reporting of the numbers of employees is confusing. But as mentioned already,

the company’s latest SEC 10-K filing (2009) lists the number of employees as

20,400. Essentially, the number of company employees doubled in five years.

Since the company states that it never lays off employees for reasons of not

having enough work, then the numerical differences can possibly be due to

workers leaving from the acquisitions, the drop in performance pay and

managers being fired from not making performance quotas. How else can we

account for these discrepancies in employee numbers?

Nucor also has just a minimal human resource (HR) department, consisting of

one manager of personnel services, James Coblin, and a benefits administrator,

John Giavianco (Overman, 1994). According to Overman (1994), Coblin says

that in most of the plants someone in the finance department handles the HR
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duties. If these two HR managers at company headquarters have successfully

handled the doubled capacity, then great! However, it seems reasonable that a

company with over 20,000 employees would need more than just two HR people.

I’m not sure I can recommend any remedies, since current market conditions

seem to have the upper hand. Nucor already has a well articulated managerial

philosophy with a pay structure in place that is hard to replicate and initiate.

While pay for performance can help recruit and retain high performers into the

organization, it can not necessarily improve organizational performance

(“Human”, 2005, p. 94). An organization can have all the best people in the

world, but if market conditions fall into a tail-spin, performance pay will fall also.

The only remedy would be for Nucor to examine the value of all their

compensatory schemes and readjust them accordingly to retain their employees

and remain competitive (“Human”, 2005, cover).

Since Nucor’s profit margins are going down, they must find a way to stabilize

the downfall, and turn the company around (“Steel”, 2009, p. 27). Ketkar & Sett

(2009) advocate flexibility in human resource management practices. It will all

depend on how quickly Nucor can “resynthesize, reconfigure, and redeploy”

(Kethar & Sett, 2009, p. 1011). If Nucor intends to stay lean and mean, then

future employment prospects will depend on how well Nucor’s HR team contains

any downside losses that are taking place within the company due to the

uncertainties in the marketplace (Kethar & Sett, 2009, p. 1010). It seems to me

that this will be difficult to do with just a team of two HR members.

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Recommendations for diversification and rationale

Nucor is already well diversified within the steel industry due to their series of

acquisitions. However, since the passage of CAFÉ, the company could possibly

look into acquiring a company that is unrelated to steel production, but still within

the metallurgical family. Nucor may wish to expand and diversify into producing

materials made from a competitive metal such as aluminum, which can be used

to manufacture light weight vehicles.

Recommendations to implement diversification

Nucor has already made small approaches into globalization, but is chiefly

known as an all-American company. Still, the company holds exclusive rights in

Brazil for strip casting technology. They also have a facility in Trinidad. They

currently are operating a joint venture (JV) mill in Italy. Previously, they had a JV

with several multinational companies for a plant in Australia, however those

operations were suspended in 2008. One of the JV partners for the Australian

project was a Chinese company, Shougang Corporation.

A recent SWOT analysis (“Nucor”, 2009, p.6) has recommended that Nucor

develop a presence in China. If Nucor does so, with its former Chinese JV

partner or another, it must select a site that is optimized with plentiful sources of

electricity and natural gas.

Summary

There are many challenges ahead for Nucor. Even though the company is

lauded for its economies of scale as well as its position as the top recycler and

steel producer in the USA, the future for steel producers is full of uncertainty.
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Heavily dependent upon natural resources and infrastructure, the company which

resurrected itself under the leadership of Iverson in 1971, must now look at new

ways to reinvent itself once again.

Even though the USA government is advocating pay for performance

schemes to retain government workers, the bumps in the road created by a

lagging economy can cause workers to go elsewhere to make a living. As was

stated earlier in this paper, employee engagement (even at 100%) can not

always improve an organization’s performance. At this particular bend in the

road, the best strategic human resource management (SHRM) plan for Nucor will

be to continue aligning their employee’s efforts to their mission, even as that

mission continues to be changed, redefined, and refined.

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References

Bekaert, F., Zeumer, B., Kutcher, E., Wagle, D., Bohlen, B., Weaver, K., et al.

(2009). Industry trends in the downturn: A snapshot. McKinsey Quarterly, (1),

85-89. Retrieved from Business Source Premier database.

Hamilton, C. (2009). A new era for steel – drivers, implications and risks.

Ironmaking & Steelmaking, 36(4), 255-258. doi:10.1179/174328109X439261.

Helman, C. (2009). Test of mettle. Forbes, 183(9), 81-82. Retrieved from

Business Source Premier database.

H.R. 2454: America clean energy and security act of 2009. (n.d.) Retrieved May

29, 2010 from http://www.opencongress.org/bill/111-h2454/show

Human capital: symposium on designing and managing market-based and

more performance-oriented pay systems: GAO-05-832SP. (2005). GAO

Reports, 1. Retrieved from Business Source Premier database.

Kelly, H. (2008). Rock and ore. People Management, 14(1), 30-33. Retrieved

from Business Source Premier database.

Ketkar, S., & Sett, P. (2009). HR flexibility and firm performance: analysis of a

multi-level causal model. International Journal of Human Resource

Management, 20(5), 1009-1038. doi:10.1080/09585190902850240.

Lyakishev, N., & Nikolaev, A. (2003). Steel metallurgy: trends, problems, and

prospects for growth. Metallurgist, 47(1/2), 66-74. Retrieved from Academic

Search Premier database.

Nucor corporation. (2009). Datamonitor: Nucor Corporation SWOT analysis, 1-9.

Retrieved from Business Source Premier database.

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Nucor corporation website. (2010). Retrieved May 29, 2010 from

http://www.nucor.com/

Overman, S. (1994). No-frills HR at Nucor. HRMagazine, 39(7), 56. Retrieved

from Business Source Premier database.

Sec filings Nucor Corporation Form 10-K. (2009). Retrieved May 27, 2010 from

http://www.nucor.com/investor/sec/

Steel Industry Profile: United States. (2009). Datamonitor steel industry profile:

United States., 1. Retrieved from Business Source Premier database.

Thompson Jr., A., Strickland III, A.J. & Gamble, J. (2009). Crafting & executing

strategy. Strayer University: McGraw Hill Learning.