This strategic management case study focuses on Nucor Corporation. Nucor traces its history to the 1950s when it was established to manufacture nuclear instruments and electronic products. Previously referred to as Nuclear Corporation of America, the company faced turbulent formative years characterized by massive losses and potential bankruptcy. However, in 1965, the new CEO and president, Ken Iverson changed the company’s fortunes, setting a foundation that propelled Nucor to be a leader in North American steel production and steel products in 2012 and ranked 11th largest steel manufacturer globally based on shipment tons in 2011.
Year-over-year, Nucor has experienced tremendous growth due to strategic options, specifically the low-cost leadership strategy, initiated and implemented by senior executives. Nevertheless, in the year 2009 during the recession, the company suffered some setbacks. Serious competition emerged from other giant steel manufacturers, especially from China where the costs of production are relatively low, while the global demands for steel and steel products also declined because of recession. Moreover, the company also has to comply with stringent environmental laws in all its plants and acquired ones. In response to these challenges, Nucor implemented various strategic growth strategies meant to drive efficiency in management while advancing core business practices of growth, innovation, technology, human resource management, and customer service.
Strategic Management Approaches
Nucor’s success can be attributed to several strategic options that the company adopted following the financial difficulties it faced in the 1960s. Product innovation, investments in technologies, low-cost leadership strategy, strategic human resource management, a focus on domestic market growth, strategic acquisition, and raw materials sourcing reflect some aspects of strategic management adopted by the executives.
Technology, Innovation, and Product Development
Initially, the company did not have a robust R&D department. However, changes in the market and stringent customer requirements forced Nucor to focus on steel and steel product developments. The company noted that reliance on external stakeholders to meet certain product requirements could not sufficiently support its vision. In the 1980s, the company’s mini mills could not deliver some steel products required. For instance, the company had to offer some products needed at the time, such as steel sheets, flat steel, bars, carbon, and alloy steels, steel balls, stainless steel wires, automotive steel bearings, and steel belts among others. Such deficiencies affected the company’s competitive edge, especially in the high-end market controlled by giant integrated steel manufacturers. By investing in technologies and R&D, the company enhanced its production of steel and steel products to gain entries in some of the most lucrative markets in the industry.
As a part of the strategic operation, Nucor spread its facilities across the US in various locations to create stronger ties with locals and employees. Dedicated, talented, and well-remunerated employees run the company’s operations. The company operates its facilities in some states with the best tax structures while tapping local talents, facilitating business expansion and leveraging friendly regulatory environments that do not demand employee unionization.
Nucor also focused on being a technology leader. Moreover, the company aimed to construct new plants in specific areas that presented market opportunities for expansion. The initial adoption of technology was noted in two strategic areas. The company embraced disruptive technological innovations. Technology is aimed at enhancing production processes and equipment to give the company a competitive edge and, therefore, disrupt competitors’ capabilities to meet product standards of Nucor. Nucor also concentrated on leapfrog technological innovations. These technologies would position Nucor as a leader in product quality, cost per ton, or market share.
Technology, however, continues to present a challenge to the company and its low-cost leadership strategy. Some of these technologies adopted could cut dangerous emissions and reduce the costs of production. While they offer a competitive edge in the US domestic industry, competitors from China can still manufacture their steel at relatively low costs and present competition based on pricing.
Through technologies and innovation, Nucor has continuously improved steel and steel products to stay ahead of the competition, adapt to new market product demands, and improve the capabilities of its plants. The company’s mini-mill transformed steel production in the US. Moreover, Nucor’s R&D department constantly assesses new technologies and possibilities of developing new products to lead the US and global steel industry. Nucor reviews old practices to change industry standards. Innovation, technologies, and product development have positioned the company as a competitive force in the global steel market. From 2010, for instance, the company embarked on the production of value-added steel and steel products across its mills. These products have capabilities to command relatively higher prices and generate good profits margins compared to low end or other steel products.
In operations management, Nucor has focused on cost control to drive its low-cost leadership strategy. The steel industry offers limited opportunities for product differentiation. Thus, Nucor embarked on a strategy to drive down the costs of production and realize cost advantage in the market. The company obtains its raw materials from scrap metal open markets to reduce costs. Production processes and operations are supported by robust technologies to keep costs low. The company relatively produces steel and steel products at low costs compared to other domestic firms. It has been able to leverage the expertise of human resources to run efficient operations.
Moreover, the company is recognized for its tradition of providing the best technology available to ensure that employees can perform their roles safely and in an environmental-friendly manner. These practices are also noted in newly acquired plants in which the company immediately embarks on ‘Nucorizing’ to bring such mills to its standard. These processes focus on operational efficiency through enhanced time, space, energy, and labor utilization in steel production while minimizing adverse impacts on the environment. Operations management also stresses the importance of cost control and product quality improvements in every facility.
The steel market industry is quite volatile, and prices are unstable and determined by the prevailing market demand-supply conditions. Prices varied significantly from quarter to quarter. Thus, Nucor adopted a different strategy to ensure that revenues could be projected within the quarter. The company uses fixed-price approaches mostly won in competitive bidding against competitors. It also focuses on long-term contracts, but with clauses to increase prices to reflect changes in the cost of raw materials over time.
For steel and other steel products, Nucor does not maintain inventories to cut costs associated with storage. Steel and other products are manufactured and shipped immediately. Nevertheless, facilities are allowed to maintain adequate inventories for a few steel products to meet anticipated orders driven by demands. Pricing for these products is mainly based on prevailing spot prices.
Regrettably, Nucor did not expand rapidly outside North America. Nevertheless, the company focused on an aggressive expansion strategy after 2000 following a five-part growth strategy that accounted for new acquisitions, new plant development, constant plant improvements, and cost reduction initiatives, international growth using joint ventures, and enhanced control of costs of raw materials. It opened several offices mainly through joint ventures in Brazil, Mexico, Columbia, the Middle East, Asia, Switzerland, and Japan among others.
Organizational Structure and Human Resources Policies
The company’s flat organizational structure has been able to facilitate decision-making and foster close ties with employees. Managers can make and implement decisions at their respective plants.
Notably, Nucor has been able to build an efficient workforce because of the supportive human resource department (Albrecht, Bakker, Gruman, Macey, & Saks, 2015). Compensation and benefits are aligned with productivity and performance. Thus, employees can get relatively higher wages. Workers are not unionized because pay and benefits are considered excellent. For instance, all employees fall in a given category under the production incentive plan, department manager incentive plan, professional and clerical bonus plan, and senior officers’ incentive plan.
The company also initiated profit sharing; 401(k) plan; medical and dental plans; tuition reimbursement plan; service awards; scholarships and educational disbursements; and other benefits, such as long-term disability, life insurance, and vacation. Moreover, the company engages its employees to solve any emerging issues and no layoffs are noted as the company strives for labor cost control using incentives rooted in performances. It listens to the workforce using various channels, such as yearly dinners, surveys, and crew meetings. Consequently, the labor force is highly productive at Nucor. Moreover, new employees could get relevant information from the ‘consul’ located at every division.
It appears that challenges that Nucor faces are associated with the external environment, such as competition from cheap steel, scrap metal price fluctuations, steel price volatility, or spot price factor. Nevertheless, the company has not been aggressive in the global market expansion and product development strategy (Şener, 2014). Thus, the company should pursue market growth opportunities outside the US while protecting the US domestic market. Innovation is also critical for future developments.
The case study shows that Nucor is an exemplar of a great organization in terms of human resources management, technology, and innovation, expansion, and operations management among others. The company, however, has significant opportunities for international market expansion. The most important strategic approach is a low-cost leadership strategy (Gamble, Thompson, & Peteraf, 2015).
The company has already dominated the local market, implying that limited growth opportunities are now available. Besides, cheap steel from foreign producers affects the company’s competitive edge, pricing, and profitability. While the company can still leverage technologies and costs of raw materials, the dumping of steel by foreign competitors will hurt its cost leadership strategy. Even though anti-dumping measures, which could change with new administrations, the company still requires internal strategies to ensure success in the steel market. That is, Nucor must focus on creating a further competitive edge to maintain its leadership position in the US market.
Nucor also relies heavily on the domestic North American market because of its low presence in other markets. Hence, it is highly recommended that Nucor should pursue aggressive expansion in the international market to reduce possible risks in the domestic market.
Nucor must sustain its innovative approaches to new product developments. Such products attract more revenues and profit margins relative to ordinary steel and steel products readily available in the market.
Leverage Favorable Political Environments
The steel industry is a major determinant of global commerce. Today, however, it is the most affected by protectionism through trade tariffs globally (Einhorn, 2016). Such efforts are aimed at protecting the domestic markets by restricting the dumping of cheap steel and steel products from other countries, such as China. In this regard, Nucor should leverage political support to protect its domestic markets while using its low-cost advantage to expand and acquire new markets in the international scene. As such, the company requires a lobby team to achieve this strategic goal.
Strategy Action Plan Implementation
This action plan involves market development outside the domestic market, innovation, and lobbying the government to protect the domestic market using antidumping measures.
Table 1. Action Plan.
|Market Development outside North America through strategic acquisition and joint ventures||The right people onboard – employees with necessary competencies and skills |
Develop employees using training, recruitment, or new hires to account for new competencies outside the domestic markets
|Sufficient funds |
|Nucor requires a year to assess overseas market opportunities using indicators like the construction boom in some countries||Clear open lines of communication among executives, division heads, and managers, as well as shareholders||Progress tracking and milestones after six months|
|New value-added steel and steel products||Employees with necessary competencies and skills||Funds to support R&D||Continuous||Continuous||Ongoing|
|Lobbying||The CEO and other division managers leading the initiative||A policy paper documenting the harmful effects of steel dumping in the domestic market||Executed within the first year||Communication to key shareholders||Progress tracking and milestones after six months|
Albrecht, S. L., Bakker, A. B., Gruman, J. A., Macey, W. H., & Saks, A. M. (2015). Employee engagement, human resource management practices and competitive advantage. Journal of Organizational Effectiveness: People and Performance, 2(1), 7- 35. Web.
Einhorn, B. (2016). Global trade is slowing. Bloomberg. Web.
Gamble, J., Thompson Jr, A., & Peteraf, M. (2015). Essentials of strategic management: The quest for competitive advantage (4th ed.). New York, NY: McGraw-Hill Education.
Şener, H. Y. (2014). Determining new markets using analytic hierarchy process: Case study in Güral Porcelain. International Journal of Marketing Studies, 6(5), 149-160. Web.