1) Discuss the trends in the steel industry and how it may impact Nucor’s strategy.
From 1910 to 1960 the United States of America was the number one producer of steel throughout the world. However, since 1960 other major players—such as China, Japan and India—have begun to encroach on the top positions of steel producers. While these countries produce steel it is a known fact that the quality of steel produced varies from country to country. Take China for example--which is producing large quantities of steel and vying for the first position of steel producers. The steel that they are producing is of a very low quality forcing them to import better quality steel from countries such as Brazil (1). While the top producer of steel may change from year to year one fact that has remained constant across the globe is that steel manufacturers are downsizing. As technology improves the processes for producing steel have become simplified, requiring less and less physical labor. In the US alone it takes less than half the time to produce a ton of steel as it did fifteen years ago (2). This has been the main cause of downsizing. Another issue that has been causing downsizing, especially in the United States, is the cost of labor. Much of the work in steel mills within the US has been outsourced to companies in other parts of the globe simply because of the significant difference in the price of labor. Another trend within the steel industry is the transition from steel to plastics and other, stronger alloys. Given the economic crisis that the world has been facing since the early 2000s, manufacturers across the globe are looking for ways to cut costs and produce goods with a lower price point so goods are still purchased. One of the many ways they are cutting costs is by replacing steel parts with plastic or another cheap material. This strategy is being applied to a number of different manufacturing processes—from toys to construction. While the quality of the product may be reduced manufacturers are still moving forward with this thought process, thus reducing the demand for steel. Nucor, the United States leading steel producer, is no stranger to adversity in a changing marketplace. These trends in the steel industry that have been discussed are not new trends, but rather existing trends that Nucor has been faced with starting as early as the 1960s. While most companies falter in times of adversity Nucor has had a strong strategy encouraging creative thinking and innovation that has allowed them to maintain their status as top US steel producer. Such thinking has allowed Nucor to become the worlds foremost steel recycler as well as the development of mini-mills (3). These trends will only influence Nucor to continue to come up with innovative ideas and to keep changing and improving the standards expected of steel producers across the globe.
2) Discuss the organizational structure and management philosophy at Nucor.
Many of today's corporations and companies have several layers of management between the layworker and head management. This often causes a huge disconnect between the CEO of a company and the employees who work in its mills and factories. Wanting to eliminate this problem and level the playing field Nucor eliminated several layers of management. Out of the 20,400 Nucor employees, only 95 are found within the corporate offices (3). Additionally, Nucor gave all employees an even hourly wage with the opportunity for a performance bonus. According to the Nucor website two-thirds of their employees' wages comes from performance bonuses. In any industry Nucor's organizational structure is innovative and uncommon—this is especially true in the steel industry where the trend is for companies to downsize. While this move was risky it was also a smart move. Eliminating layers of management allows the CEO to keep a stronger hold on what is going on at the "floor level" of the company. This move also makes employees feel like they have more of a stake in the company encouraging them to stay with the company and to make suggestions for improvement. The higher of a stake an employee feels it has in the company the more loyalty they will have towards the company. Nucor backs this up with never having laid off an employee because of lack of work (3). This simple fact alone can increase employee loyalty. While this organizational structure and management structure are not commonly found, they have been working quite well for Nucor. Their lean management, employee loyalty and accountability and open forum for dialogue have contributed greatly to the success of Nucor and their creative and innovative solutions.
3) Identify three HRM issues related to strategy implementation and recommend actions to address these issues.
While Nucor definitely has an innovative management strategy it does not come without some human resource management issues. One of these issues is the lack of a job description (5). Nucor has made contentiously made this decision to put more control in the hands of their employees. They are strong supporters that the harder you work the further you go. Nucor relies heavily on guidelines from plant managers and other such teammates. When hiring, daily tasks and responsibilities are emphasized as opposed to a job description. In a typical setting the job description is used as a base to set employee goals and to track their progress. This brings us to another issue within Nucor's human resource management.
Because there is no basis for an employee to be compared against, performance appraisals and evaluations are lacking and often become objective. Without a defined set of criteria each employee is at the mercy of their supervisor’s opinions. This lack of formal measurement may lead employees to feel that they are being judged unfairly or being graded by different standards than other employees of equal stature. The deficit of defined measurements for performance not only cause issues for annual evaluations, but also cause issues for Nucor’s performance based bonuses.
When Nucor eliminated levels of management, they also granted each employee an equal base wage with the opportunity for performance based bonuses. These bonuses often account for two-thirds of the wages of Nucor employees. While Nucor lacks in standards for employee evaluations, their performance-based bonuses are based on the overall performance of the mill towards that mills specific goal. While this seems relatively fair, there will always be the issue of some mills having higher goals than others and this formula must be adjusted accordingly. Another issue with this performance-based bonus is that it encourages making money and the mill’s overall goal but fails to encourage any individual performance, which again goes back to the previously discussed lack of performance standards.
To improve upon these issues within their human resource management Nucor should look into setting standards for performance evaluations. By doing so they will have a fair means to evaluate every employees contribution annually. Also, to further encourage fairness Nucor could slightly reduce the amount of performance-based bonus they are distributing for mills reaching their overall goals, and instead supplement this with individual bonuses for employee performance. This in turn will not only encourage everyone as a whole but individually as well—improving the work ethic and turnover of Nucor employees.
4) Based on the situation, recommend whether a related or unrelated diversification should be used by the company. Provide supporting rationale.
Given the current trends within the global steel industry and Nucor’s history, Nucor should look to continue their trend of related diversification. By using related diversification in the past they have been able to become The United State’s leading producer of structural steel, steel bars, steel reinforcing bars, steel joists and girders and steel decks. As well as become a major producer of steel in sheet and plate form, cold finished steel, steel fasteners, metal building systems, light gauge steel framing, and rebar fabrication (4).
It is also through related diversification that they have become the largest US scrap processor and Brokerage Company—recycling a total of fifteen million tons of steel last year (6). Because Nucor has such experience with steel processes and producing such a variety of steel products it makes sense for them to stay within the same field. It is also important to factor in the loyalty and trust associated with their brand name. By sticking with what they know and producing new innovative steel products and services they are backing up their brand—as opposed to getting into a new field in which they are not familiar and damaging the reputation they have built up over so many years.
5) Based on your recommendation for related or unrelated diversification, identify the organizational structure issues that the company would need to address to implement that diversification.
While Nucor already has a strong hold on the steel industry there is still room for more related diversification. However, this cannot happen without some change in their organization structure. Currently Nucor does not have a Research and Development department (7). As the steel market continues to shrink and with more players entering the field Nucor must do what it can to remain competitive. In taking the recommendation of increasing its related diversification it must employee a research and development department. This depart will help them to continue coming up with innovative ideas and keep them two steps ahead of everyone else. This adds more employees to their corporate offices meaning their management structure will have to change some. They obviously thought it a good decision to minimize the number of levels of management, and it seems to be working. Even if they do not add more hierarchal levels of management they must consider adding additional departments to stay competitive within their field. Another organizational structure they may want to consider is the acquisition of smaller, foreign companies. By doing so they are able to get more of a stake in the global steel industry and become more competitive against rising steel producing countries such as Japan and India. They also will want to continue to encourage employees on their performance. By providing employees with appropriate compensation they will stay happy and work harder for Nucor in return—making it a win-win for everyone involved.