Executive Summary
The purpose of this case study is to address the strategic issues of Nucor Corporation (Nucor) in the
American steel industry. It will: analyze the environment; industry; organizations resources,
performance gaps and success factors; suggest possible strategic options and its justifications;
evaluate the strategies and tactics through returns, efficiency and effectiveness. The choice of
justifying the use of Nucor is due to the authors public shareholding interests where realism of
association beholds and information easily received.
Nucor was among the first steel companies in the United States to use electric arc furnaces to melt
recycled steel (primarily from junked automobiles). It serves customers in North America and
makes its presence in other countries such as Brazil, China, Korea, South East Asia and Europe.
Findings show Nucors strategic consolidations through the act of acquisition and mergers that
follows a trend in the industry rather than a choice. Nucors business stakeholders involve small and
medium enterprises and its main worries include large regional and global competitors, i.e. US Steel,
Bethlehem, Mittal, Baosteel.
The report further referred about the success of Nucor based on the five most apparent values in
Nucor, which is the decentralized management philosophy, performance based compensation,
egalitarian benefits, customer service and quality, and technological leadership. A limitation for
Nucor is the inability to address environmental concerns and achieve corrective milestones, and is
one of the top ranked polluters of waste toxic. Much of the drawback of this study is the lack of a
quantitative strategic method leading to an accurate decision making. In summary, Nucor has long
been the biggest steel producer in America. Its business portfolios are mainly in joist girders, scrap
steel, steel mills, steel fasteners and deck.
2.0
Introduction
Nucor Corporation is one of the largest steel producers, mini-mill operators, and recycler of scrap
steel in the United States. Nucor traces its origins to auto manufacturer Ransom E. Olds, who
founded Oldsmobile and then, in 1905, REO Motor Car Company. Through a series of transactions,
the company Olds founded eventually became, in 1955, Nuclear Corporation of America. Nuclear
bought several companies over the next few years, including a South Carolina maker of steel joists
and joist girders called Vulcraft Corp. that would soon provide the spark for the company's
remarkable evolution.
Nuclear Corp. suffered through several money-losing years and was facing bankruptcy in 1965,
when it installed Vulcraft's top executive, Ken Iverson, as president, and Nuclear Corp's controller,
Sam Siegel, as financial vice president. The new management quickly sold many of the company's
wide-ranging operations to focus on profitable Vulcraft. A bar mill opened in Darlington, South
Carolina, in 1969. The first of several regional bar mills, it became the prototype for today's vast
mini-mill industry and launched Nuclear Corp. into a wide range of steel businesses (Nucor, 2007a).
3.0
Corporate Objectives
It is expected that any forms of objectives be quantified, realistic, measurable and achievable to
fulfilling the corporate mission. They are as follows:
the dumping of stainless steel by foreign countries below market prices in 1999. The
government took anit-dumping measure to restrict overseas imports into US.
the sewage discharge which the government had to enact new laws to protect the habitat.
tax breaks of $155 million were also provided to encourage Nucor to develop new bases
which were equally confusing.
5.1.2 Economic:- Through the investment of more bases for Nucor, there is a direct increase in
employment 300 jobs at Hertford County. For Nucor:
US government had loan a billion dollars to 9 mills to keep the steel industry competitive.
recently in 2001, 25% of domestic steel companies were bankrupt, and half of the US steel
companies had to fold. In general, only 75% of the capacity of the industry was utilized and
much of the potential output was considered lost opportunity.
there were high energy costs and weakening exchange rates and local demand. In the same
year, more trade tariffs were installed and affected other countries economic policies in this
industry.
5.1.3 Social:- Members of the society had adverse impact in many ways:
Nucor had to spend $100 million to settle an environmental suit for allegedly failing to
control the amount of pollution released into the air, water and soil.
emissions like nitrogen oxides and volatile organic compounds are key contributors to
ground-level ozone, or smog, which can decrease lung function and aggravate respiratory
problems (Department of Justice, 2000).
directly contributes to global warming which will have adverse impact on the future of steel
companies, even while consumers get to enjoy better steel products.
5.1.4 Technology:- In large corporations like Nucor, technological inventions are the mainstay of
staying ahead:
new innovations like the twin shell electric arc furnace would help mini-mills increase
production on lower cost.
strip casting technology was the next leap forward that would produce think strips of steel
and eliminate slab-casting stage and rolling in a hot mill.
many developed countries had developments underway. Other advances include advanced
metallurgical practices, and process control sensors and refinements in casting and rolling.
The implications define a good sufficient stretch of resources within the environments context and
questions such as:
will this demand continue to be the same in the next few years?
5.2
Industry Analysis
At introduction stage, costs are high and sales revenue is limited, and prices are competitive.
Research development costs must be recouped.
there is little competition for Nucors new mini-mill technologies, which is their niche, but is
still growing and adapting to better ways of rolling.
it also needs to bring such equipment to less developed countries to improve on the steel
processing. Such overseas markets require much persuasion and acceptance before
implementation.
advertising and distribution activities should also be extensive in order to penetrate the
market.
Nucor manages to increase its growth capacity and economies of scale by improving on the process
of rolling and cutting.
other advances include having advanced process control sensors and refinements in casting
and rolling that maximized market shares (Nucor, 2007b).
such products are more suitable for developing and developed nations.
there are many competitors at this stage procuring these products or processes to increase
their market share and strength.
At the mature stage, sales tend to level out due to competitors entering the markets with even newer
innovative products.
certain existing metallurgical practices need either find new markets or new ways to
introduce business. This can be done by giving added value or base discounts to their longterm customers.
in the short-run, the company can milk as much revenue from the mature steel grades, or
Nucors joist business.
there is a requirement to differentiate these products as these products cannot offer too much
value in steel making. Salesperson demonstrations and account tracking would be required.
new strategies are required in the form of consolidation and promotion to increase steel usage
in other areas. For example, the automobile industry is continually looking for lower prices,
but in competition with plastics, steel seems to be faring worse.
Potential Entrants
Many such products would slowly decline, and with international markets supplying these cheaper
and better steel, sales and profits would drop resulting in:
divestment of certain products or projects sold to reduce maintenance costs and to inject new
Buyers
Rivalry Among
Existing Firms
Suppliers
Potential entrants
Intellectual Property
Substitutes
Buyers
Longer Credit
Switch loyalty
Threats of alternative
buys from other
Rivalry
Stakeholders
Governments backing
Word of mouth advertising
Media propaganda
Potential customers
Suppliers
Purchase size
Costs of local and global suppliers
Service/discounts
Become competitors
Substitutes
Customers switching
Alternative products offer
Nucors should maintain good ties with the local government to prevent access of other
firms.
ability to use advanced cutting technologies or inventory management systems will pose a
good barrier, although this tends to required high investment in staffs training.
having strong alliances with outside parties, minimal costs in research, development and
construction can be sourced in bulk purchases and discounts.
customers will not easily recognize and switch to a new company if competitors penetration
can be prevented.
5.3.2 Buyers
Buyers are perceived as having an advantage when their bargaining powers are strong with little
buyers. Much of the customers in North America are consolidated, and servicing these segments is
imperative that leads to:
buyers threatening to purchase steel scraps from alternative suppliers apart from Nucor, and
outsource the steel making process elsewhere. It is difficult to keep old customer and win
new ones if buyers control the distribution channels.
computer and automobile makers being consumers that control the vertical buying process.
the international market of buyers that are generally weaker because they are more
fragmented, purchase dubious products, longer distribution channels, and less legal
proceedings.
Nucor suddenly exiting its smaller ventures overnight overseas without mention.
5.3.3 Suppliers
A high bargaining posture with suppliers is perceived as having an advantage and with more access
to external and Nucors own manufacturers and service centers that:
could provide faster response to its other processing or buying centers. With better credit and
storage facilities, Nucor can move up the value chain and retain old customers.
existing buyers tend also to have lesser choices in switching to other suppliers if they are
locked in to a long-term agreement.
Nucor uses manufacturing agents to sell its business, and these agents must have extensive
expertise to gain an advantage. They must predict how steel prices or demand will be in
foreign lands.
5.3.4 Substitutes
The threat of substitutes ranges from primary elements of aluminum, concrete , plastics. The primary
consideration for substitutes are:
normally to provide a better price or usefulness over the alternative, such as a plastic gun for
smuggling. Steel is a standard homogenous product and is easily copied.
threats derived from other steel products that are cheaper and poorer in quality used for
housing construction.
better technological processes used to produce improved steel products and their designs, e.g.
steel cutting. Some substitutes like aluminum maybe a poor alternative to steel, but is still a
threat in the lighter industries. If the use of other transportation increases, indirectly, Nucor
would have less business coming from the automobile sector.
to improve quality and increase economies of scale. It should control production capacity to
ensure no overstocks, try to prevent competitive products from entering the market by
learning competitors business methods.
5.3.5 Rivalry
Rivalry had been an intense phenomenon, not just competition of the products, but in other areas of
technology and human capital. This results in:
rivalry between staff in Nucor is sufficiently pleasant to manage with bonus schemes. Global
collaborations had become the norm. It would not be effective as a standalone firm with no
strong connections.
Nucor having to strive to avoid being ambushed by smaller companies that can offer value or
poorer products which are less profitable. This would dampen Nucors brand identity at the
local market.
barriers to exit are costs associated with capacity leaving an industry where existing
resources and assets are high and immobilized. Being a large company, there are many
employees to be paid, and any closure would be substantial in costs.
having policies that are changeable and should no longer just rely on local networks or
niches.
winning foreign based stakeholders are critical important to access markets and secure loans.
This is because foreign loans are hard to secure, taxes are high, new identity difficult to build,
thus using stakeholders to reduce barriers would be a competitive edge.
Weight
2
Rating
3
0.15
2.8
0.42
US Steel Scraps
0.3
0.8
0.24
Products expansion
0.25
1.0
0.25
Anti-dump law
0.14
3.6
0.50
0.16
3.2
0.51
Import duties
0.15
0.3
0.15
1.2
0.18
Potential recession
0.2
0.60
0.25
3.1
0.78
Pollutants worldwide
0.25
2.3
0.58
Total Scores
1.00
4.36
1
Opportunities:
Threats:
5.4.1 Opportunities
US gross domestic product produced by labor and property increased at an annual rate of 3.8
percent in 2007 (Bureau of Economic Analysis, 2007).
demand for pig iron was a good reason for growth, and American steel companies were
building flat-roll mini-mills.
success not with building better products, but with fulfilling performance that exceeded
international dimensions.
dumping of stainless steel by foreign countries fueled Nucor to build a multi-million steel
mill in North America. Market-distorting practices can spill over into the global marketplace
by helping large steel companies maintain or increase market share.
5.4.2 Threats
the steel industry back in year 2001 took a dive due to 9/11 and the recession.
more than 20,000 jobs had been lost in the US steel industry over the past four years and 30
companies have gone bankrupt.
impose tariffs as high as 30% on imported steel has infuriated key US trade partners of South
Korea and the European Union (Shorrock, 2002). In turn, these nations had to increase their
capacity, i.e. 80 Korean plants elsewhere. This did not help that China had also slapped
import taxes.
Weight
2
Rating
3
Financial strength
0.20
2.5
0.5
0.25
1.0
0.25
0.15
2.6
0.39
0.25
3.5
0.88
0.15
2.0
0.30
0.25
2.0
0.5
0.15
1.5
0.23
0.25
2.7
0.68
0.10
3.0
0.30
0.25
3.5
0.88
1.00
4.91
Strengths:
Weaknesses:
Outsourcing of services
Brand alignment
Taxes
Social responsibility
Cost cutting model
Total Scores
5.5.1 Strengths
5.5.2 Weaknesses
Nucors cost cutting values are reactive as its desperate steel executives search for better
methods to cut costs with very thin profit margins.
costing cutting resulted in poor control of toxic emissions thus, more fines, taxes and less
responsibility. Such emissions lead to closing of old sites and costly modifications.
6.0
would lead a drop in marketing overall. Overall, the score is above national standard.
Organization Analysis
It is critical to identify and evaluation Nucors potential resources. The resource-based view (RBV)
is an economic tool used to determine the strategic resources available to a firm. The fundamental
principle of the RBV is that the basis for a competitive advantage of a firm lies primarily in the
performance of valuable resources at the firms disposal (Wernerfelt, 1984, p172).
6.1.1 Competencies:- Relevant knowledge, skills and information are indispensable resources to
Nucor. Collinson (1999) describes this as corporate capabilities that are brought together to
identify differences between competitors and company. This encourages:
corporate skills to acquire ventures to develop technical areas (e.g. strip casters) were
desired, following the paths of other European companies.
other competencies lacking are the know-how of reducing pollutants. This expertise if
harness would save Nucor from meltdown. Other competencies in the format of
performances are shown below.
Duration 5
Nucors Performance
Analysis
I
N
T
E
R
M
E
D
Weight
Rating
Weighted
Score
Decentralised, motivated
managers for individual cust.
0.25
4.0
1.00
0.16
3.5
0.56
Social responsibility
0.20
2.5
0.5
Reduce emission
0.14
3.0
0.42
Good partnering/acquisition
0.25
4.6
1.15
1.00
3.63
Total Scores
H
O
R
T
I
A
T
E
L
O
N
G
Comments
Short Term
there must new reengineering methods to the product chain, which will initially increase
research costs.
the overall factors suggest a focus on increasing efficiencies for the short-run to adapt to
mistakes overseas and any potential recession.
such efficiencies will create a lean organization in bad times and will not see a collapse of the
steel industry.
Intermediate
score for good partnerships is highest, which would enable leverage on more advanced
vertical and horizontal acquisitions or instant buyouts.
Nucor should maintain its edge over a 3-year term by structuring its operations for
effectiveness and adaptability, knowing that cost cutting is only short-term, which
inadvertently is the worst weakness.
Long Term
companys most important focus is on a decentralized management team with a lack of top
leaders.
Nucors staffs continue to innovate new equipment and satisfy individualized customer needs
for better profit margin.
analysis shows that current conditions are not particularly bright due to weak American
growth, and an intra-entrepreneurial solution is badly needed to stimulate Nucor. It would be
expected that these entrepreneurs be groomed in the next 5-10 years.
Unless the steel industry collapses in the face of overheating or over investments in steel companies,
Nucor should see performance improvements in its long-term strategic trends.
7.0 Gap Analysis
7.1 Critical Success Factors
Critical success factors are elements that are vital for a strategy to be successful and can be
benchmarked for gaps against other competitors.
Key Success Factors
NUCOR
Weight
BAOSTEEL
MITTAL
Rating
Weighted
Score
Rating
Weighted
Score
Rating
Weighted
Score
3.3
2
0.53
0.30
2.1
2
0.34
0.30
3.7
1.6
0.59
0.24
4.2
4.5
1.7
3
4
3.3
0.76
0.23
0.09
0.42
0.60
0.40
3.33
3.5
3.0
2.2
1.8
4.5
1.3
0.63
0.15
0.11
0.25
0.68
0.05
2.51
3.6
3.8
2.5
3.9
1.8
4.2
0.76
0.19
0.13
0.55
0.27
0.5
2.78
Key Factors
of Success
Integrative Role
0.16
Dealing with business
0.15
change
Good leadership
0.18
Motivated employees
0.05
National benchmark
0.05
Technology
0.14
Low costs effect
0.15
Advanced Process
0.12
Total
1.00
Source: Wheelen and Hunger, 2001
The factors and gaps can be measured by using indexes. Clarifications for these gaps would mean
suggesting key strategic options that are:
having a good leadership and adapting to business change go hand in hand as shown by
Nucor and Mittal. A change in good leadership brings higher motivated employees for Nucor.
Mittal has not fared better in this area.
the second highest score came in the form of key areas such as service centers go well with
proximity to the factory, thus saving manpower and transport costs.
low cost effect occurred due to the integrative roles within Nucor, a factor that needs slight
improvement for Nucor comes in the form of integrative partnership roles between buyers,
suppliers and agents.
motivated employees automatically translate to responsive personnel. The can help a service
center look more integrated and be more proactive to demands of customers requirements.
Mittal has an edge as it is able to use technology and advanced process to better integration
with effective benchmarks, but with great financial costs. Baosteel has a tremendous edge in
cost cutting due to lower labour and equipment costs and higher labour turnover in China.
Nucor scored lowest in benchmarking nationwide, but this had little effect on other factors. It
is also not due to product defects, but rather on the amount of pollution released into the air,
water and soil.
8.0
Strategy Options
Nucor has sustained capital flow for better production methods and investment loads for tieups and overseas collaboration.
needs to improve on the brand image and reputation. Steel products should be designed for
replication to other business or consumer products not on the market.
efficient shipment and pricing systems are required to guarantee quick transfer of products.
Nucors endearing policies of costs control of labor and operational funds flowed through
regional lock-boxes have not marginalized their objectives.
exports to foreign nations also risk fluctuation in currencies if US dollars appreciate with
inflation.
8.1.2 Differentiation
reckoned that there is a need for stronger selling and marketing of homogenous steel to
match all kinds of needs. This coupled with the capability of research and development to
innovate better shapes and sizes of steel for multi-purposes become critical for
differentiation.
there is also a lack of awareness in Nucors national image and reputation (unlike US steel),
since their mass marketing approach does not allow for segregation of customers.
strong cooperation from internal subsidiaries and overseas channels also sets a good selling
fundamental.
cost of being different may be too great for preventing brand switching. Wholesale buyers
may sacrifice namesake and features for costs especially in China or India. Buyers needs for
differentiating factors become unimportant.
imitation of steel materials also reduces need for differentiation, regardless of patents or not.
8.1.3 Focus
Combination of the focus strategies are directed as:
to not consolidate as akin to Mittals acquisition, or NKK and Kawasakis merger, but to preempt on markets that are untapped (ie. Brazil or Africa).
niche area could be focused on production methods that attach societal responsibilities and
sustainable activities, reducing unwanted pollutants, propaganda and conflicts with the
community (Porter & Kramer, 2006).
produce steel through a variety of designs and sizes, and construct a unique form of
expansion through mergers and acquisitions that could provide targets which are inaccessible
by other competitor.
be cost effective with shared risks and responsibilities in valuable technology transfers. Such
a strategy could then justify many options from a forward integration, which could expand
steel processing to strip-casting with other companies, or a vertical integration strategy
between the mills and metal service centers (internal or outsourced) to allow quicker
delivery.
and avoid cost leadership is deemed too risky in the poor American economy of bad debts.
As economy improves, niche strategies could target untapped places or usage.
administrative executives to connect with all related government departments and reorganize
websites and archive email addresses for future references in promoting causes or being
informed of latest regulations
senior managers must constantly source for more outfits that complement the production of
steel, which will form as the mainstay. This will require extensive search for contacts,
recruits and talents
production, research and development, and inventory managers to establish quality circles
once a month to brainstorm concepts on improving quality of products, services and
differentiation of intelligent distribution, processes and automation.
business-marketing staff to promote activities that increase societal marketing causes and
exemplify Nucors goodwill and eco-friendly ways, in the next 6 months
HRM to immediately establish incentives and training programs for workers to cross apply
skills.
10.0
Assessment of Performance
10.1 Efficiency
Nucors management style is autonomous and supported by the existence of a lean and
vertical and horizontal internal system, which allow the managers to delegate tasks and
control decisions on matters.
access and feedback to top management about performance and innovative ideas were open
and quick.
the relationships between divisional managers were competitively friendly due to minimal
contact.
10.2 Effectiveness
which internal businesses are self-sufficient and readily meet the divisional objectives.
returns to investors are profits that are made by the company relative to the investments and
paid to shareholders.
dividends are paid out after all other payment factors have been considered.
money can also be ploughed back to the company to achieve more yields. It does not
however mean that should there be no earnings for that year, shareholders will not get any
dividends. They can still retrieve their dividends through retained profit earnings from past
years.
11.0
Conclusion
In summary, Nucor is in a strong position to challenge for a bigger market share of the steel industry
based on its financial, human and operational resource capabilities. There is extensive knowledge on
producing and automating newer process and products to stave off Asian and European competitors.
Nucor is highly sensitive to balancing its cost cutting measures and achieving social responsibilities,
ultimately to boost its poorer marketing image and reputation. Thus, it has adopted various
integrated growth strategies with other firms within the community in the form of differentiation and
divestment approaches as well, all to service its stakeholders (esp. shareholders) with better
paybacks and satisfaction.
References
Bureau of Economic Analysis (2007). U.S. economic accounts, U.S. Department of Commerce,
Retrieved July 24, 2008, from http://www.bea.gov/.
Chao, H. P. (2005). Global electricity transformation: The critical need for integrated market design
and risk management research, Energy, Vol.31 p.923.