Nucor There Are Several Trends

Nucor

There are several trends in the steel industry. The industry has become a global commodity business. Firms have long competed on the basis of price, and now there is significant global overcapacity. Among private companies, there is a trend towards successive waves of consolidation (China Daily, 2009), as is common in mature industries. However, many steel firms around the world are government run or benefit from strong government subsidies, since steel is considered to be a fundamental industry, important for national security reasons. The overcapacity and fact that a large portion of the global industry is under government control means that there is significant price competition in the marketplace. The claims of price dumping are hypocritical for a nation that bails out its banks and automakers, but suffice to say price competition is intense and using legal proceedings through trade agreements is an accepted tactic in the business (Gray, 2010). Production has remained relatively flat in North America and grown slowly in other parts of the world, but has more than doubled in Asia in the past ten years (World Steel Association, 2009).

The second major trend in the steel industry is the advent of technological change. Nucor itself has been the beneficiary of such change, gaining first-mover advantages in the Castrip technology and has initiated many other production techniques to lower the cost of production and gain competitive advantage. Because the end product is commoditized, almost all of the innovations in the industry are geared towards lowering per ton production costs.

These trends have had a significant impact on Nucor's strategy. The company has taken the position as a technological innovator, developing new techniques to shave dollars off of the per ton price of production, giving them a cost advantage over their rivals in the developed world. They still must contend, however, with Asian firms with significantly lower production cost factors. Nucor has adopted elements of globalization in its strategy, primarily through its joint venture program, but ultimately is limited in the amount of global growth in which it can engage by the heavy government involvement in the steel business is most countries.

The management philosophy at Nucor is progressive. The company understands that innovation is the key to success in the industry and has pursued this as a core strategy for many years. Innovation has been made a part of the corporate culture in order to support this strategy. The company has also embarked on an acquisition and joint venture strategy to build global capacity but also to gain access to new technologies -- and license its proprietary technologies around the world. In order to facilitate these strategies, Nucor has organized itself around product lines. This gives each product line an opportunity to build capacity and develop techniques on its own, but then to diffuse them around the world to other facilities marketing the same goods. This is in recognition of not only the need for capacity but also in recognition of the fact that the products are commodities and production can be shifted globally. Other than joint ventures, however, Nucor has kept wholly-only subsidiaries more or less limited to North America, where closer control can be maintained.

There are a number of human resources strategies that can impact on strategy implementation. The first is the issue of corporate culture. Nucor has a unique culture that has enabled it to take a role as an innovator and cost leader in the industry. In order that acquisitions and joint ventures work to their fullest potential, this culture must be diffused throughout the new organizations. Developing and maintaining culture is a constant challenge for Nucor in part because many of its companies operate as subsidiaries. They are not completely autonomous, but they come with their own culture and it is a challenge for management to instill the Nucor culture. This is particularly worrisome for companies that were acquired mainly for their technology, with cultural fit being a secondary consideration.

The second HRM issue is that of training. The steel industry being characterized by mature firms, often supported by government, can breed complacency. Nucor needs to ensure that management at its acquisitions and joint ventures has a high level of training in the systems and techniques that Nucor uses to drive its innovation. This training needs to be diffused throughout the organization. This increases risk, however, in the joint ventures because Nucor's management systems are a source of competition advantage and they are disseminating those systems to firms with whom they compete on the global market.

The third HRM issue that may arise is that of compensation. It is difficult to attract top talent in low-cost mature industries because sometimes the pay is not as high due to cost control measures -- particularly at Nucor where perks are few -- and because steel is simply not a sexy industry. Developing compensation packages that attract and retain top talent to steel towns in a low cost environment is a difficult proposition, but if addressed correctly would help HRM become a source of competitive advantage for Nucor.

Under the current situation, diversification would not benefit Nucor. There are two main reasons for this. Unrelated diversification would not be effective because Nucor's core competencies are not easily transferred to entirely new lines of business. Firms in mature industries are not worth buying unless they have synergies, which rules out unrelated diversification; firms in growth industries require a different set of managerial skills than do mature firms like Nucor. Related diversification is also not recommended because there is little room for the development of value-added products (forward integration) in a commodity business and there is little benefit to backward integration either has prices of raw materials are largely set by the market. Geographic diversification is the only option that has any merit, but given the sensitivity most nations take to their steel industries, there is little room for expanding into the world's growth markets; non-growth markets offer little potential benefit.

Given that no diversification makes sense, I would recommend that Nucor maintain its current organizational structure. The company has a structure that has allowed it to become an innovator in its field, to the point where it is the only healthy major steel company left in the United States. Organizing around products with numerous subsidiaries bound by an overarching corporate mandate allows each arm of the company to develop its own proprietary technologies, while taking advantage of the developments in other areas. The joint venture component of the organization will continue to give Nucor access to global markets and to emerging technologies, allowing it to stay ahead of its U.S.-based competition, so that should be maintained and indeed it has (Lococo & Kumakura, 2010).