Nucor Corporation: business overview and operations

Nucor

The steel industry is faced with a number of trends. Most prominent of these is that Asian steel makers have doubled their production in the past several years, while producers elsewhere have only seen incremental increases. As a consequence, there is overcapacity in steel production in many areas, and this has depressed steel prices on the world market. As a function of not only the depressed prices but also of the commodity nature of the product, the steel industry is moving towards models such as the micromill model that allow steel firms to make use of innovative technology in order to reduce production costs. The final trend, ongoing for a few decades, is towards commoditization. Steel companies have a difficult time deriving differentiation in their products, a trend that compels them to eschew branding for cost-cutting as a success strategy.

Nucor has not responded directly to the first concern, but has responded directly to the second one. The company has actively sought to become a leading innovator in the steel business, and has achieved that position in the United States, for example with its Castrip technology. Nucor must continue to respond to the global environment by pushing for greater cost-cutting measures in order to compete with overseas producers. The firm can push for more government protectionist action to defend against overseas dumping, but beyond that it must address the issue of depressed prices through its own cost-cutting measures and the institutionalization of a continuous improvement process (2008 Nucor Annual Report). As such, Nucor's strategy thus far has been successful, but the company needs to be more aggressive about technological innovation. In addition, Nucor may find itself having to adopt more holistic cost reduction strategies, such as making shifts in the corporate culture, in order to continue to compete in the global marketplace.

The organizational structure at Nucor has been developed largely around products. The history of this is that Nucor has made a number of different acquisitions in order to build out its product base, but many of these companies have retaining a fair degree of autonomy. As such, the Nucor organizational structure is based around its many subsidiaries with an overarching superstructure of Nucor corporate. In addition, Nucor's organizational structure is relatively flat for a firm its size (No author, 2003). With the subsidiary companies, the inclination would be for the company to build many layers of management, but that has not been the case. The flat structure benefits Nucor because it allows the company to make decisions quickly

The management philosophy at Nucor is more progressive than at most steel firms. In a mature industry that deals in commodities, the expectation is that management will be relatively conservative, but this is not the case at Nucor. The company has long emphasized informality, frugality, and innovation as keys to success. The CEO emphasizes frugality on his business trips, for example. The flat organizational structure emphasizes informality. Castrip and other innovations are evidence of an orientation towards continuous learning and continuous improvement of operations. Management at Nucor understands that they are in a globally competitive industry and want to empower their workers and their subsidiaries to succeed in that difficult environment.

The organizational structure and management philosophy tie to Nucor's strategy because they represent the infrastructure that supports the development of the specific tactics that have lead to Nucor's success. For example, it was the culture of innovation that lead to the implementation of Castrip and the relatively flat structure allows developments of one subsidiary to be subsequently transmitted throughout the rest of the organization. The management philosophy of keeping costs down is also reflected in strategy as the low cost mindset permeates throughout the organization, and managers unknowingly adopt low-cost techniques in their own decision-making.

Three human resources management tactics that can help to address these issues are the fostering of corporate culture, the integration of new companies and JVs and lastly the path of promotion in the company. The corporate culture is essential to the success of a company like Nucor, which must attract talented individuals from throughout the industry in order to maintain its leadership position. In addition, in an industry focused on low cost production, corporate culture is often a key driver of cost reductions (as at Wal-Mart, Southwest Airlines, Costco and other low cost providers). In order to implement a low cost strategy, the culture must support that strategy (Mindtools.com, 2010). The integration of new companies and joint ventures into the Nucor fold is partially a strategic issue, but it is one with many HRM applications, from integration of compensation policy to establishing company-wide training programs and the aforementioned cultural initiatives. This has worked in the past, such as tying up with BHP and IHI in the commercialization of Castrip (Campbell, et al., 2004). Human resources can play a strong supporting role in the development of organization-wide consistency despite the large number of subsidiaries and JV within the Nucor organizational structure. Lastly, human resources must ensure that talented people make their way into the best positions. With so many subsidiaries and a relatively flat organizational structure, there are many great internal candidates for key senior management roles. It is critical, then, that the human resources department be able to identify the best talent and move that talent efficiently through the system.

It is recommended that Nucor engage in related diversification. The company has considerable experience absorbing related steel companies and setting up joint ventures with others. There is a need for geographic diversification as, beyond the JV program, Nucor has very limited international exposure. It has technological advantages that, if combined with lower operating costs overseas, could result in even cheaper per ton production costs than they experience at present.

By contrast, an unrelated diversification would spell difficulty for Nucor. The company has no experience outside of the established steel markets. They may be innovative within the framework of the steel industry, but that is a low bar to hurdle in the grand scheme of things. Neither is Nucor an exceptionally proficient low-cost provider. It is part of their culture but only recently have they faced true competition on price, as evidenced by the fact that all of their domestic competitors are in poor financial health the minute some cheap imports arrived on the market.