Nucor Corporation: Pursuing Growth in 2001

BUS470, Business Policy

Strategy

Su!"itte# to: $r% $es"arais $ece"!er 14, 200&

I.

Executive Summary 'he North ("erican steel in#ustry is in #ecline, )or the )irst ti"e two #eca#es% *acro+

en,iron"ental an# in#ustry )orces ha,e cause# steel prices to #rop while costs o) pro#uction an# la!or wages are rising% *any co"panies ha,e )ile# )or !an-ruptcy an# there is signi)icant in#ustry consoli#ation occurring, pri"arily in .urope an# (sia/ the threat o) these huge conglo"erates entering the US or other pro)ita!le "ar-ets is ine,ita!le an# in progress% 'he current in#ustry cli"ate pro,i#es )inancially+healthy co"panies an e0cellent opportunity to enter into a phase o) ac1uisition% (s 2Green)iel# growth3 is only li"ite# )or large #o"estic steel pro#ucers, ta-ing a#,antage o) purchasing opportunities o) !an-rupt an# un#er,alue# co"panies see"s to !e a increasingly worthwhile acti,ity% 'hus )ar, Nucor has !een a lea#er in the in#ustry #ue to their organi4ational culture an# "anage"ent ,alues% Nucor has also "a#e switching costs )or !uyers high an# they are a )irst "o,er in i"ple"enting new technology% (n analysis o) the in#ustry, its opportunities an# threats, Nucor5s co"petiti,e capa!ilities, an# Nucor5s strengths an# wea-nesses has le# us to suggest the )ollowing reco""en#ations% .ach reco""en#ation presents in)or"ation a!out the current en,iron"ent, its conte0t, an# how we reco""en# Nucor procee#s% .ach also contains the tools nee#e# to "easure their success% 6e reco""en# that Nucor: 1% *aintain current #o"estic !usiness an# )unctional le,el strategies 2% 7eturn to lean "anage"ent structure: 'he present "anage"ent structure that Nucor has ac1uire# is a wea-ness )or the co"pany% 8n a##ition, stoc- prices )ell !y ten percent in 1999 once the "anage"ent con)iguration change# )ro" its original #esign% 6ith that, Nucor shoul# restore its "anage"ent !ac- to its original co"position% 'his will lea,e Nucor less suscepti!le to losing sta-ehol#ers5 interest in the co"pany% :% 8"ple"ent strip casting technology in its "ini+"ills: Nucor shoul# use their strength o) continuously staying ahea# o) their #o"estic ri,als in i"ple"enting new technologies to pursue the opportunity o) using new strip casting technology within their pro#uction%

Strip casting is a process which pro#uces a "uch thinner strip o) steel while also re#ucing the )ir"5s costs% ()ter i"ple"entation, Nucor shoul# closely "onitor the costs in,ol,e# in strip casting an# !e sure there are actual sa,ings to the )ir"% 4% 8ntegrate $78 into pro#uction: Nucor5s #epen#ence upon scrap steel is a wea-ness an# they are suscepti!le to "ar-et tren#s% 'here is presently nothing to #e)en# against the threat o) high scrap prices% $78 pro,i#es a consistent alternati,e that pro#uces superior 1uality pro#ucts while cutting costs% ()ter i"ple"entation, Nucor shoul# co"pare their success to ri,als an# analy4e $78 pro#ucts5 pro)it "argin% ;% (c1uires #o"estic ri,als: Nucor is a ,ery li1ui# co"pany which helps the co"pany pursue the opportunity o) ac1uiring cheap property, plants, an# e1uip"ent% Nucor shoul# )in# a suita!le co"pany with the proper technology an# location% <nce a co"pany is ac1uire#, Nucor shoul# i"ple"ent their "anage"ent ,alues an# culture in or#er to turn the plants success)ul% 'o #eter"ine i) the ac1uire# plant is success)ul, Nucor shoul# co"pare the ac1uire# plants )inancials to Nucor5s past success)ul ac1uire# plants% =% .nters 8n#ia through * (: (c1uisitions o) co"panies with "ills capa!le o) )acilitating strip+casting, esta!lishe# or easy+to+esta!lish #istri!ution channels, an# locate# near a target city in 8n#ia are the pri"ary prospects% $ue to its growing in)rastructure an# relati,ely sta!le "acro+econo"ic )uture, 8n#ia pro,es to !e the !est location )or the ne0t phase o) Nucor5s growth% >oint+,entures "ay !e accepta!le un#er the con#itions that the ?oining co"pany is su!ser,ient in strategic an# tactical #ecision+"a-ing an# that Nucor has control o,er the re+in,est"ent o) earnings )ro" the ,enture%

II.

Macro-environment 8n 2001 the US en#e# a phase o) tre"en#ous growth, create# largely !y the increase# retail

consu"ption, increase# acti,ity in co""ercial an# resi#ential real estate "ar-ets, an# a !oo"ing technology sector% 'he sharp #rop in e1uity prices that occurre# post+9@11, an# a tightening o) cre#it "ar-ets, cause# the Ae#eral 7eser,e to loosen "onetary policies an# in#uce spen#ing% 'his was re)lecte# in the #iscount rate !eing #roppe# to as low as 1B% (lso #uring year, une"ploy"ent saw an increase o) 1%&B, which en#e# a long perio# o) #ecreasing une"ploy"ent in the US% 'here was a slowing o) the glo!al econo"y in 2001, as growth #ecrease# )ro" 4%7B to 2%4B% 8"ports an# e0ports, particularly !etween the US an# #e,elope# (sian countries, also saw a signi)icant #ecrease a)ter the terrorist attac-s o) 9@11% 8n#ia, the secon#+)astest growing (sian econo"y !ehin# China, also saw a #ecrease in pro#uction #ue to increase energy prices% (lso, the country withstoo# se,eral shoc-s #uring the year, inclu#ing a se,ere agricultural #rought an# a large earth1ua-e in Gu?arat% ( political concern is the unioni4ation o) the wor-)orce that has ta-en place o,er the last se,eral #eca#es% 8t has allowe# the wor-)orce )or "ore !argaining power, an# su!se1uently, increase# wages an# !ene)its per capita o) unioni4e# wor-ers% 'hose wor-ers who #o not enter the union are at a #isa#,antage in ter"s or !argaining power, howe,er can ta-e a#,antage o) ?o! o))erings at non+union shops% US steel co"panies !ene)it )ro" generous go,ern"ent su!si#ies that protect help protect their !usinesses )ro" the threat o) new entrants% (lso, the US has a )airly lenient ta0ation o) corporations when co"pare# to "ost other #e,elope# nations/ the corporate ta0 rate is roughly :;B% Co"ple0 enterprise so)tware is helping to re#uce costs o) pro#uction a"ong "any in#ustries% 'he !etter "anage"ent o) supply+chain has in so"e cases !een a #istincti,e co"petency that has lea# to their #o"ination o) an in#ustry/ 'oyota, 6al"art, an# $ell are all e0a"ples% .nterprise so)tware has a ,ariety o) uses an# pro,i#es tre"en#ous ,alue to the steel in#ustry% Steel+casting is #eci#e#ly the )uture o) steel pro#uction technology, an# has !een i"ple"ente# in 11 co"panies in .urope% 'he i"pro,e"ent in the 1uality an# )inish o) the

pro#uct, along with the sa,ings in cost per unit o) pro#uction, shows great pro"ise in re#ucing pro)it "argin an# creating entry into new "ar-ets )or )inishe# steel% Please re)er to (ppen#i0 ( )or a thorough analysis o) the sta-ehol#ers% III. Industry analysis 'he North ("erican steel in#ustry is currently in a perio# o) #ecline% Aoreign co"panies are #u"ping cheap pro#uct in ("erican "ar-ets #ue to a lac- o) i"port tari))s% 'his is #ri,ing #o"estic steel prices #own #espite high pro#uction costs% .nergy costs are also rising% Couple# with a recent econo"ic recession, this is causing "any co"panies to go !an-rupt% Aurther"ore, growth o) the steel in#ustry in China an# other glo!al econo"ies is pro#ucing high "aterials prices% 8t is increasingly #i))icult to )in# consistent suppliers o) these "aterials as well% $e"an# is !eco"ing stagnant% *ar-ets are or#ering pro#ucts that "eet increasingly speci)ic custo"er speci)ications% Ainally, growing en,iron"ental concern is )orcing co"panies to re,iew their practices to ensure co"pliance% 'here are )ewer ri,als in the in#ustry, an# #ue to in#ustry consoli#ation their in#i,i#ual si4e is growing% U%S% Steel, 8nternational Steel, *ittal an# Nucor are the "ain co"petitors in the Unite# States% 'here is not "uch #i))erentiation as they conten# with si"ilar pro#ucts an# sell to si"ilar "ar-ets% 'hey also use si"ilar "aterials so they "ust co"pete o,er suppliers% 'he ri,als in the in#ustry all recogni4e the nee# to ha,e a technological a#,antage to pro#uce stronger an# lighter pro#ucts "ore e))iciently, an# the race to !e technologically a#,ance# is a "ain point o) co"petition in the in#ustry% 'here is low threat o) entry into the North ("erican steel in#ustry% 'he in#ustry is in #ecline an# there is capacity surplus% 'here are high costs an# a signi)icant learning cur,e associate# with entry% .0it !arriers are also high which causes co"panies to co"pete #espite low or negati,e return on in,est"ents% Su!stitutes )or steel such as plastic, woo#, concrete an# other "etals threaten the in#ustry% Steel re"ains the "ost i"portant in#ustrial "aterial, howe,er% Consu"ers pre)er it as long as it re"ains cost e))icient to use% 'hey pre)er it !ecause it is )or"a!le, repara!le, painta!le,

energy e))icient to pro#uce an# )ire resistant% Aurther"ore, steel co"panies ha,e a#?uste# their pro#ucts to "eet such "ar-et nee#s as corrosion resistance an# weight li"its% Suppliers to the in#ustry pro,i#e iron ore, li"estone, "etallurgical coal, an# scrap iron an# steel% Scrap steel is !eco"ing "ore inconsistent in !oth a,aila!ility an# price% 8t is ,ery e0pensi,e )or a co"pany to switch suppliers, as they woul# ha,e to !uil# new plants to use the new "aterial, so they are unli-ely to #o so% 7aw "aterials are a large part o) co"pany5s costs, an# s"all )luctuations in prices resoun# #ra"atically a"ong co"petitors% *any co"panies use !ac-war#s+,ertical integration% $irect re#uce# iron C$78D is a possi!le su!stitute to raw "aterials that has seen a growth in use worl#wi#e% Buyers ha,e !argaining power #ue to o,ersupply an# #ecrease# #e"an# in the #o"estic "ar-et% 'he largest !uyers are transportation, construction an# oil an# gas in#ustries% 'hey are "assi,e !uyers an# ha,e constant nee# o) pro#uct% 'hey also ha,e goo# -nowle#ge o) the pro#uct% 'he !uyers #o not use !ac-war# integration% Buyers5 switching costs are low, !ut they are unli-ely to switch to other pro#ucts !ecause steel pro,i#es !etter 1uality an# per)or"ance% 'he )i,e )orces create intense ri,alry in the "ar-et% *ini+"ills are continually e"ergent an# can !e )oun# in ;0B o) the states% Steel "ills ha,e E@+ 10B o,ercapacity% (##itional "ini+ "ills co"ing on line will create an a##itional 10B capacity% 'his growth is #espite an e0pecte# #ecline in #e"an#% Current con#itions )oresha#ow possi!le price wars an# "ay cause "any unpro)ita!le ri,als to stay in !usiness% (n unprece#ente# nu"!er o) steel pro#ucers ha,e )ile# )or !an-ruptcy% ("ong the" are Bethlehe" Steel Corporation an# F'G, who were the countryHs thir#+ an# )ourth+largest steel pro#ucers respecti,ely% *any o) the worl#Hs econo"ies were in recession in the late nineties, causing a surge in the i"port o) steel to the U%S%5s strong "ar-et% 6ith un)air su!si#ies )ro" their go,ern"ents, )oreign steel pro#ucers were #u"ping steel in the U%S% "ar-et at cut+rate prices% 8n 1999, the Unite# States re?ecte# a proposal to put restrictions on i"ports% ( 7;B capacity utili4ation cause# three .uropean co"panies to "erge to )or" the worl#Hs largest steel pro#ucer% 'wo >apanese co"panies #i# the sa"e to )or" the secon#+largest steel pro#ucer% 'hese new "ega+steel"a-ers ha,e greater capital an# "ar-et share than U%S% co"petitors, i"posing a large threat% 'errorist attac-s on Septe"!er 11, 2001 re#uce# the #e"an# )or steel e,en )urther as the construction an# transportation in#ustries slowe#% .))orts were un#erway to negotiate a worl#wi#e re#uction in steel pro#uction% 8n a##ition to cheap

i"ports, U%S% steel pro#ucers were )acing higher energy prices, higher "aterial prices an# #ecrease# a,aila!ility, increasingly tough en,iron"ental rules an# a changing cost structure a"ong pro#ucers% Steel"a-ers aroun# the worl# were watching the #e,elop"ent o) continuous strip casting technology, which was !elie,e# to !e the ne0t leap )orwar# )or the in#ustry% 'his woul# eli"inate the sla!+casting stage an# all o) the rolling in the hot "ills% Strip casting was alrea#y !eing a#opte# aroun# the worl# outsi#e the U%S% 7i,als in the steel in#ustry are ,ery li1ui#, an# ha,e capital to spen#% 'his is one o) their co"petiti,e capa!ilities% (nother is that ri,als ha,e high a"ounts o) ,ertical integration, an# signi)icant a"ounts o) hori4ontal integration% 'hey also are a!le to use econo"ies o) scale in al"ost all aspects o) the !usiness% Co"panies in the steel in#ustry "ust -eep their costs low in or#er to re"ain success)ul% 6hile #oing so, howe,er, they "ust also retain the high 1uality an# high per)or"ance o) their pro#uct in or#er to re"ain pre)era!le to su!stitutes% Fow costs an# 1uality pro#uct will also help co"panies re"ain co"petiti,e in an in#ustry which is !eing )loo#e# with su!si#i4e# i"ports, another -ey success )actor% 'he steel in#ustry is also !eco"ing "ore glo!al, an# ri,als "ust grow in a glo!al "ar-et% Ainally, it is essential to #e,elop the latest technological a#,ances in pro#uction to !e success)ul% IV. Critical issues facing the steel industry 8n a struggling #o"estic econo"y the Unite# States steel in#ustry )aces "ultiple critical issues% 8n the late 19905s a )oreign reign o) steel i"ports )loo#e# the "ar-et at a greatly #iscounte# rate% Aoreign co"petition, su!si#i4e# i"ports, an# "a?or )oreign "erges !etween large steel co"panies are a "a?or threat to the #o"estic steel in#ustry% Nucor an# other U%S% co"panies re#uce# prices to co"pete against the su##en surge o) i"port steel% 'he U%S% secretary o) Co""erce, 6illia" $aley, state#, 28 will not stan# !y an# allow U%S% wor-ers, co""unities an# co"panies to !ear the !runt o) nations5 pro!le"atic policies an# practices% 6e are the "ost open econo"y o) the worl#% But we are not the worl#5s #u"pster%3 'he co""erce #epart"ent conclu#e# in *arch 1999 that steel co"panies in si0 countries ha# illegally #u"pe# stainless steel in the Unite# States at prices !elow pro#uction costs or ho"e "ar-et prices% 8n >une o) 1999, The Wall Street Journal reporte# that the U%S% Senate #ecisi,ely shut o)) an

atte"pt to restrict i"ports o) )oreign steel #espite the co"plaints o) U%S% steel co"panies that a )loo# o) cheap i"ports was #ri,ing the" out o) !usiness% 'he )luctuating scrap an# co""o#ity price is another critical issue that the in#ustry )aces% .lectric arc )urnace "ini+"ills that use# scrap steel as their !asic raw "aterial e"erge# in the Unite# States #uring the 19705s% (s "ini+"ill technology a#,ance# throughout the 19705s an# 19&05s they were a,eraging a 14 percent return on e1uity while integrate# steel co"panies were only a,eraging 7 percent% So"e "ini+"ill )ir"s, such as Nucor, were achie,ing returns on e1uity in,est"ent in the 2; percent range% 8n the 19905s "ini+"ills triple# their output, #ri,ing the "ar-et share o) integrate# "ini+"ills #own to aroun# 40 percent% <,er the past three years the price o) scrap has gone )ro" I1;0 per ton, to I100 per ton, an# currently !ac- to I120 per ton% 6ith the "ost pro)ita!le #i,isions within the steel in#ustry, "ini+"ill pro#uction, relying on such an unsta!le co""o#ity as scrap steel, new )or"s o) steel pro#uction nee# to !e #esigne# an# i"ple"ente#% 'he i"pen#ing recession in the U%S% is another "a?or critical issue the steel in#ustry )aces% 'he #e"an# )or steel rapi#ly slows as new car sales )all an# !u#gets )or "aintaining an# !uil#ing in)rastructure shrin-% 'he i"pen#ing recession co"!ine# with the i"ports o) )oreign steel into the U%S% "ar-et le# to su!stantial e0cess pro#uction capacity an# net inco"e losses o) nearly I4 !illion #ollars in 2001% Between <cto!er 2000 an# <cto!er 2001, 29 steel co"panies in the Unite# States, inclu#ing Bethlehe" Steel Corporation an# F'G Corporation, the nation5s thir#+ an# )ourth+ largest steel pro#ucers, )ile# )or !an-ruptcy protection% Since 1997, nearly 47,000 ?o!s in the U%S% steel in#ustry ha,e ,anishe#% 'he increasing en,iron"ental concerns are the last critical issues )acing the steel in#ustry% 'he )our "a?or en,iron"ental issues are air e"issions, wastewater, o,er pro#uction o) soli# waste, an# large energy consu"ption% (ir e"issions inclu#e contri!utions )ro" e,ery stage o) the steel "a-ing process% Particles are generate# at ,irtually e,ery stage, !ut "ost hea,ily !y co-e "a-ing an# !last )urnace operations% 6astewater )ro" co-e "a-ing has high conta"inant le,els, re1uiring e0tensi,e re"o,al an# treat"ent !e)ore #isposal% 'he pro#uction o) soli# waste )ro" the steel in#ustry presents pro!le"s #ue "ore to the ,olu"e o) the waste generate# rather than the ha4ar# present in the waste% 'he steel in#ustry sector is also a ,ery large consu"er o)

energy an# as such, is a "a?or contri!utor to green house gas e"issions% (ccor#ing to #ata collecte# !y the U%S% $epart"ent o) .nergy, an# )ro" green house gas in,entory #ata )ro" the .P(, 2'he iron an# steel sector was the secon# !iggest contri!utor to green house gas e"issions o) all in#ustry sectors, secon# only to petroleu" re)ining% V. Nucors competitive capa ilities

i. Business strategies Nucor )ollows a low+cost pro,i#er strategy, as it pri"arily ai"s to pro,i#e a so"ewhat generic pro#uct to custo"ers, at the lowest price a,aila!le in the in#ustry% Price sensiti,ity is high in the steel in#ustry, as price is the -ey #i))erentiator to a pro#uct with such in#istinguisha!le )eatures% ii. Functional strategies (ll )unctional le,el strategies are lin-e# #irectly to its !roa#er strategy o) !eing the lowest cost pro#ucer% 8t achie,es this !y co""itting to trie#+an#+pro,en ,alue chain co"ponents, which allows the" to not only co"pete on price, !ut generate !etter pro)its "argins, an# grow at a )aster rate than its "ain co"petitors% 'he one -ey aspect to Nucor5s success)ul ,alue chain is its e0pertise in the i"ple"entation o) technology+ a #istincti,e co"petence% Nucor #isplays an a!ility to a#opt new "achinery an# e0peri"ent with #i))erent per"utations o) pro#uction, to i#enti)y the lowest cost "etho#s that generate steel o) the sa"e 1uality% 'his )ocus on "astering new technologies presents it the positi,e e))ects o) pro#ucing at greater econo"ies o) scale% 'he electric+arc )urnaces !eing e"ploye# also )ollow the concept o) a continuous )ocus on increasing the e))ecti,eness o) the resources a,aila!le% 'he switch to using .(A5s eli"inate the nee# )or the "ining an# coo-ing "achinery nee#e# in integrate# "ills% 8nstea#, $78 an# scrap steel )low continuously to the )urnace, then sent to the continuous casting an# rolling syste", e"itting a )inali4e# pro#uct% Using this "etho#, Nucor a,oi#s the a##e# wor-)orce, e0tra 1ueue ti"es nee#e# )or a##e# phases, an# the costs o) a##e# pro#uction processes nee#e# to run integrate# "ills%

Focations o) steel "ills are chosen !ase# on a close geographical pro0i"ity to custo"ers an# also in areas where there is little union in)luence% Buil#ing personal an# stronger relationships with custo"ers is easier when they are close !y/ in Nucor5s case, "any o) the" resi#e on Nucor5s 2ca"pus3% 'he i""e#iate sa,ings )or custo"ers co"es )ro" their greatly "ini"i4e# shipping costs an# ha# their pro#ucts #eli,ere# 1uic-ly using the 1;0 truc-s rea#y )or #eli,ery% 'his signi)icant !ene)it along with the personal connection create# !y #oing !usiness in this "anner, translates in to high e0it costs% 'his a))or#s Nucor an in,alua!le co"petiti,e a#,antage, securing long+ter" custo"ers% Secon#ly, the use o) a unioni4e# wor-)orce allows )le0i!ility in pay, as Nucor has e"ploys a results+!ase# co"pensation syste"% *aintenance an# operating e"ployees can earn !etween &0+1;0B o) their actual salaries, !ase# on their per)or"ance/ the increase# e))iciency create# !y this )or" o) co"pensation ulti"ately results in lower costs that are translate# to the custo"er% 'he o,erall )rugality o) Nucor5s "anage"ent is tie# to a )ocus on re#ucing costs% 'he hea#1uarters e"ploys 12; e"ployees, on the a,erage earning 2;B less than a si"ilarly+ positione# e"ployee at a co"peting co"pany% (si#e )ro" the strippe#+#own incenti,e progra" )or e0ecuti,es, there is a "ini"alist approach to all paperwor-, !usiness+trip e0penses, an# anything else that #i# not #irectly a## signi)icant ,alue to the co"pany% iii. Assessment of strategies Strea"lining the "anage"ent an# pro#uction+line )unctions ha,e resulte# in a stea#y #ecrease in cost, an# a stea#y increase in pro#uction per wor-er% 8n Nucor5s Alorence >oist plant, the tonnage pro#uce# per "an+hour was 0%1=: in 1977 an# was 0%241 in 2000% (lso, Nucor has !een a!le to actually slightly increase their prices while re1uiring less raw "aterial per unit o) )inishe# pro#uct Cwhile "aintaining the sa"e custo"er !aseD/ this ulti"ately lea#s to an increase# "argin, which is the pri"ary in#icator o) operational e))ecti,eness Can# one that is e,en "ore in#icati,e when use# to assess "anu)acturing co"paniesD% By analy4ing the inco"e state"ents o) Nucor an# it5s "ain co"petitor US Steel, we notice a signi)icant #i))erence in operating e))iciency% Nucor5s only operating costs are a#"inistrati,e, an# are consistently 1;+20B o) the gross pro)it% 6hereas US Steel is consistently spen#ing roughly a thir# o) gross pro)it, !etween selling an# general a#"inistrati,e costs, one+

ti"e costs Cunplanne#D, an# other unliste# costs% 'he #i))erence in the ratio is signi)icant, an# also the types o) cost show that US Steel is consistently "a-ing unplanne# e0penses Cpoor "anage"entD% 'he #ecision to stray )ro" the steel+in#ustry nor" o) a!sor!ing shipping costs an# translating the" to custo"ers, pro,e# to !e a !rilliant one% Ai,e custo"ers at the (r-ansas plant integrate# their supply chain with the plant, an# in aggregate, consu"e# =0B o) the output o) the plant% 'his integration o) supply chain is a testa"ent, #ue to the signi)icance o) the action, to the strength o) the relationship create# an# the custo"er5s #epen#ency on low prices% $ue to the success o) the co"pany thus )ar, it is reco""en#e# that the co"pany retain the !usiness+le,el strategy an# "a-e ,ery little, i) any, changes to the )unctional le,el strategies going )orwar#%

iv. Resources Nucor has ,alua!le tangi!le an# intangi!le resources% Nucor5s access to its #istri!ution channels an# its plant an# retail locations are assets to Nucor% Nucor ha# its own )leet o) 1;0 truc-s% 'his re#uces o,erall )reight an# #eli,ery costs/ it also ensures on+ti"e #eli,ery )or !uyers% (lso plants were locate# in rural areas near the "ar-ets they ser,e#% Nucor ha# e"ployees who were talente# an# -nowle#gea!le in -ey areas which a"ounte# to a co"petiti,e a#,antage% Jen 8,erson5s ,ision )or the co"pany was in,alua!le to its success% (lso, $a,e (ycoc-, the )or"er owner o) Gulcra)t, #e,ise# an incenti,e progra" that )or"e# the )oun#ation o) Nucor5s co"pensation progra" in !oth the ?oist an# steel plants% Kis nu"!er one purpose was to "a0i"i4e the ,alue o) the co"pany )or its stoc-hol#ers an# e"ployees% (lso >ohn Correnti pre,iously wor-e# )or U%S% Steel% Ke was in charge o) operations at Nucor% Ke also !eca"e G* o) Nucor an# #ou!le# pro#uction, an# when 8,erson !eca"e ill, Correnti was ele,ate# to C.< o) Nucor% 'his talente# group o) e0ecuti,es a##e# to the intangi!le assets within the co"pany, an# also a##e# ,alue to the co"pany% 'hey were a!le to "anage Nucor success)ully all while -eeping their pro#uction an# )inal steel cost co"petiti,ely low% Not only was the "anage"ent an asset to Nucor, the wor-ers were assets to Nucor% 'he wor-ers

#e,elope# technology to ease the pro#uction process an# -eep costs low which "a#e Nucor5s !usiness strategy possi!le%

v. Value chain Nucor has strong relationships with its suppliers an# !uyers% Nucor shoul# i"pro,e certain issues within the ,alue chain to "a-e their o,erall pro#uction "ore e))icient% Aor e0a"ple, in the purchasing an# logistics, Nucor shoul# stri,e to ha,e "ore control o,er the supply o) raw "aterials to their plants% 'hey shoul# also ac1uire a strong relationship with a pro#ucer o) scrap "etal or "etal su!stitute in or#er to re#uce costs an# create e))iciency in the o,erall pro#uction process% Nucor5s operations are strengths )or the co"pany !ecause Nucor #oes in,est hea,ily on its e"ployees% Aor e0a"ple, Nucor "aintains a highly "oti,ate#, pro#ucti,e, )le0i!le, an# inno,ati,e wor-)orce% 'hey also ha,e a highly talente# "anage"ent tea"% 'hrough the use o) these intangi!le assets, Nucor shoul# stri,e )or inno,ation o) new technology% Aor e0a"ple, Nucor shoul# loo- into syste"s such as $78, an# strip+casting% 'hrough i"ple"entation o) these new pro#ucts an# processes, Nucor coul# sustain a co"petiti,e a#,antage% $istri!ution an# out!oun# logistics in the US is a #e)inite strength )or the co"pany% Nucor has strategically place# its plants ne0t to its "ain #istri!ution channels% 'hey ha,e create# plant ca"puses across areas in the US% 'hese co+locations ne0t to "a?or custo"ers ha,e signi)icantly re#uce# the nee# )or an a#,ance# #istri!ution an# out!oun# logistics syste"% 'hey ha,e low storage which results in lower in,entory costs% 'hey also "aintain a large )leet o) 1;0 )reight truc-s that ship an# #istri!ute their pro#ucts to their custo"ers% $espite Nucor5s a#,ances in #o"estic logistics, Nucor can #e)initely i"pro,e their a!ility to e0port steel to e"erging "ar-ets a!roa#, such as 8n#ia, an# Bra4il, where the #e"an# )or steel is rising% 6ithin the "ar-eting an# sales o) Nucor, there are so"e i"portant issues that nee# to !e a##resse#% Aor e0a"ple Nucor #oes not ha,e an aggressi,e "ar-eting tea"% 'heir sales also #epen# on close an# long+ter" relationships with their custo"ers% (lthough the "ar-eting is not aggressi,e, Nucor is a!le to "aintain their custo"ers !ase# on their sales% (ccor#ingly, Nucor nee#s to !etter un#erstan# the cyclical #e"an# )or steel pro#ucts% 'hen, "ar-et research shoul# !e #one to !etter un#erstan# the )uture #e"an# cycles% (lso, #ue to Nucor5s #ecentrali4ation, certain aspects o) sales an# "ar-eting are !eing #uplicate#% 'here)ore so"e coor#ination !etween

#i,isions is nee#e# in or#er to capitali4e on econo"ies o) scale )or purchasing% Nucor5s ser,ice is ,ery e))icient% 'hey ha,e "ini+"ills that allow their pro#uction process to )ar surpass that o) their ri,als% 'hey also ha,e #irect relationships with suppliers an# engineers o) certain steel pro#ucts% 'hese #i,isions are a!le to i#enti)y what custo"ers #e"an#, an# also #isco,er solutions to #esign pro!le"s an# other speci)ications% 8n a##ition, Nucor #oes not house an internal research an# #e"an# #epart"ent% Kowe,er, Nucor is one o) the )astest steel co"panies to a#opt any new steel "anu)acturing technology, such as "ini+"ills, an# continuously i"pro,e on the"% Aor that reason, Nucor shoul# capitali4e on its strong wor- culture an# technology as a way to continue their co"petiti,e a#,antage% *oreo,er, Nucor5s hu"an resource #epart"ent has co"e up with a tea"+!ase# incenti,e progra" that ulti"ately is per)or"ance+!ase#% 'he co"pany pro"otes constant training an# ?o!+rotation in or#er to "a-e its e"ployees the "ost "oti,ate#, pro#ucti,e, )le0i!le, an# inno,ati,e wor-)orce in the steel in#ustry% 8n ter"s o) general a#"inistration, Nucor pre)ers to -eep their structure relati,ely consoli#ate#% 'his approach allows Nucor5s e"ployees to re"ain autono"ous% 'his allows Nucor5s operational an# o,erall costs to re"ain low, which is another co"petiti,e a#,antage )or Nucor% 'a-en as a whole, Nucor5s ,alue chain is strength )or the co"pany% vi. Financial performance & capabilities (lthough this year #oes not see" to !e the !est year )or Nucor, the slowing econo"y presents an opportunity )or Nucor consi#ering their )inancial strength% 'heir gross pro)it "argin )ell )ro" a consistent le,el !etween 1:B + 14B )or the past )our years to 9%=&B this year% Kowe,er, Nucor has !een consistently pro)ita!le with their net earnings hitting a recor# high o) I:10%9 "illion in 2000% 'heir cost o) goo#s consiste# o) appro0i"ately 90B o) their net sales this year% 'his is up ;B )ro" the pre,ious year% Between the years o) 199; an# 2000, Nucor has "aintaine# their cost o) goo#s constituting )or appro0i"ately &;B o) their net sales% Nucor5s return on e1uity )ell )ro" 14%;9B in 2000 to 9%4&B in 2001% 'his was "ainly contri!ute# !y the )act that Nucor issue# appro0i"ately 2::,000 a##itional shares in 2001 a)ter !uying !acappro0i"ately 10,000 shares in 2000% 'his helps e0plain why their #i,i#en#s #eclare# per share )ell #rastically )ro" I0%=0 a share in 2000 to I0%17 a share in 2001% 'hey now ha,e "any "ore sharehol#ers to #istri!ute #i,i#en#s to there)ore it will signi)icantly #ecrease the #i,i#en# as well as the return on e1uity% Nucor has !een a!le to -eep its #e!t le,els low an# un#er control% 8t has

,ery li"ite# long+ter" #e!t, which places Nucor in a great position to start se,eral signi)icant ac1uisitions% 'he !ol# "o,e to increase their "ar-et share through "a-ing in,est"ents helps to ensure that Nucor will ha,e )uture growth an# pro)ita!ility% 'he econo"y is going through a tough ti"e an# within the steel in#ustry there are high le,els o) co"petition )ro" cheap i"ports )loo#ing the #o"estic "ar-et% Nucor is in a strong )inancial situation to gain an a#,antage o,er their co"petitors !y spen#ing their a,aila!le capital on growth an# technology while "ost o) the in#ustry is cutting !ac- on e0pen#itures an# "ore )ocuse# on solutions to the international steel "ar-et co"petition% vii. Strategic issues facing Nucor 'he entry o) large consoli#ate# steel co"panies )ro" .urope an# (sia into the #o"estic "ar-et is a pri"ary concern )or Nucor% Farge co"panies in Fu0e"!ourg, Arance, Spain, >apan, an# 8n#ia, are !eginning to create huge conglo"erates that threaten Nucor5s #o"estic "ar-et share% Co"panies o) this si4e, i) integrate# correctly, will en?oy econo"ies o) scale pre,iously hel# only !y US Steel an# Nucor, an# coul# pose a threat to Nucor5s lowest+cost status% *any co"panies were clearly paying attention o) the stri#es ta-ing place at Nucor% National Steel, a s"aller >apanese owne# co"pany, showe# a si"ilarity to Nucor in it5s "anage"ent ,ersus la!our "o#el/ the !asic concept o) paying !ase# on 1uality wor-ers Can# accepting unionsD an# not on seniority% ( large an# goo# i"ple"entation o) such a syste" in the US, where unions #o not ha,e a goo# relationship with corporations, coul# potentially steal custo"ers )ro" Nucor% P' 8spat Co% #isplaye# the insight to enter into "ini"ills an# $78 ,ery early, an# showe# great success in 8n#onesia using these tools% 8nternally, the centrali4ation o) the "anage"ent !egan occurring in 199&, with a new le,el o) .GP5s presi#ing o,er regions o) se,eral plants% 8ntuiti,ely, this creates a #isconnect !etween the #ecision+"a-ing !o#y Cpre,iously only the general "anager o) the plantD an# the wor-ers% 'he issues that will occur #ue to all the changes in chain+o)+co""an# an# reporting can !e ,ery har")ul to the culture% ( propose# return to a leaner "anage"ent structure, while anticipating )or new styles o) !usiness in the )uture, has )i,e layers:
!. "resident #CE$% 6ho will !e responsi!le )or strategic planning !usiness #e,elop"ent%

&.

Executive V"% 7esponsi!le )or strategic planning an# !usiness #e,elop"ent o) ?oint ,entures, ac1uisitions, an# "erging opportunities%

'.

International (usiness Executive% 7esponsi!le )or all international 7 $%

).

*M+ "lant Manager% 6ill operate each plant as in#epen#ent !usiness

,.

Supervisory+ "rofessional% $e,elop 1uality pro#ucts, an# i"ple"ent new technology

viii. Management values 'he a!ility that a co"pany has to esta!lish an# internal L)it5 with its5 "anage"ent an# e"ployees un#enia!ly lea#s to short+ter" growth as well as long+ter" success% Nucor was capa!le o) esta!lishing this )it with its "anage"ent tea" #ue to their ,alues an# their original attain"ent o) Jen 8,erson% Jen 8,erson !eca"e the presi#ent an# C.< o) Nucor% 6ith his new position he was a!le to uphol# the central ,alues that were "ost i"portant to hi", an# so"ehow "a-e the" i"portant to his entire wor-)orce% Kis "anage"ent strategy was !ase# on two pri"ary goals/ i"pro,ing e))iciency, an# nurturing strong e"ployee relationships% 8,erson !elie,e# in e"ployee )airness% 6ith this he was a!le to uphol# a cooperati,e an# pro#ucti,e wor-)orce !y instilling ,alues such as honesty, autono"y, trust, co""unication, sel)+"oti,ation, an# si"plicity% .ach e"ployee that #i# not "esh well with the L)it5 o) Nucor le)t the ?o! on their own !ehal)% 'his shows the strength o) Nucor5s "anage"ent ,alues, an# also how Nucor has an intangi!le a#,antage o,er their ri,als% Nucor can gain strength in glo!al "ar-ets !y allowing their "anage"ent ,alues to continue into their ?oint ,entures an# ac1uisitions% (lso, o,er ti"e Nucor5s original "anage"ent structure change#, an# a##itional le,els were a##e#% 'hese changes surprise# in,estors an# le# Nucor5s stoc-s #own !y nearly ten percent% By "erely re,erting !ac- to the unre)ine# 8,erson structure, an# "aintaining the sa"e ,alues, Nucor will !e a!le to continue its success well into the )uture% ix. Organi ational culture

Nucor is a co"pany whose strong organic approach to culture, that ste""e# )ro" 8,erson, has allowe# the co"pany to !eco"e success)ul% Nucor rein)orce# short lines o) co""unication, an# also e"phasi4e# the i"portance o) a #ecentrali4e# "anage"ent structure% $espite all o) the changes that ha,e !een "a#e, Nucor has -ept a )airly consistent corporate culture% 'he e"phasis o) each plant was its a!ility to !e run as an in#epen#ent !usiness, with a strong )ocus on entrepreneurship% (lso Nucor li,e# its "otto o), 2)ailure to ta-e ris- is )ailure%3 Nucor too- chances in technology, an# in the !asic structure o) the co"pany% 'hese chances ha,e "a#e Nucor into the success that it is to#ay% 8n co"parison its "ain ri,als, Nucor is less hierarchal an# "ore participatory% .ach e"ployee within a plant has greater -nowle#ge an# e"power"ent than any other in#i,i#ual in the plant% 'his in#i,i#ualistic approach was then integrate# into tea"+!ase# incenti,e progra"s, in or#er )or e,eryone to continue to pull their own weight, an# also to achie,e high a"ounts o) 1uality pro#uction at an e))icient pace% Nucor also ran the co"pany with a no+nonsense approach% 'heir )ocus was on their ri,als, their own possessions, wealth an# a"!itions% Nucor also #e,elope# a recycling progra" that a##e# attraction, sta-ehol#er interest, an# !ran# recognition% 6ith that, Nucor was a!le to generate a co"pany culture )ull o) tea""ates, whose "ain goal is to ta-e care o) its custo"ers% Nucor shoul# continue to protect those corporate cultural ,alues that ha,e e0iste# since the creation o) the co"pany/ !ecause their culture is a -ey success )actor )or the" in !oth #o"estic an# glo!al "ar-ets%