Nucor Corporation - Structuring for Efficiency and Effectiveness
Nucor achieved its position as one of the largest steel producers in the United States by carefully monitoring costs and paying attention to the needs of its markets. This strategy of providing its customers with a competitive product at competitive prices has brought success and growth to Nucor, in sales, income, and stock price. Recently, however, the control of the organization has been brought into question. The recent announcement of a joint venture between Nucor and U.S. Steel to develop, test, and bring on line a new method for turning iron ore into steel added to the concern over the ability of company management to maintain the entrepreneurial spirit for which the company is famous.
Nucor is the second largest steel producer (2nd in assets, 1st in profits) in the United States. Its profits of $123 million have made it one of the most efficient firms in the steel industry. Nucor achieved that position by focusing on the manufacturing segment known as mini-mills - the relatively small, electrically-powered mills that melt down scrap steel to manufacture products. This process saves on costly labor, raw materials, and the capital-intensive machinery necessary to produce steel from iron ore. A major concern of mini-mill steel manufacturers is maintaining quality, since their raw material consists of scrap steel of varying quality, containing a variety of alloys and impurities. Another concern it the recent rising price of scrap steel.
Nucor started out by manufacturing steel for the beams and posts produced in company-owned structural steel manufacturing plants and then expanded by selling its low-cost steel to other firms. Outside customers gradually became the primary outlet for sales by the mini-mills. Nucor was able to expand sales from the mini-mills by keeping costs below its competitors, both in the United States and abroad. Nucor has consistently sought ways to lower costs while broadening markets. During the latter part of the 1980s, much of the company's efforts were placed on developing technology for manufacturing sheet - flat-rolled steel of the type used by automotive and appliance manufacturers - which had traditionally been the sole domain of the big steel companies and foreign competitors. Ken Iverson, former CEO of Nucor, risked several hundred million dollars in adapting an untested German process for manufacturing this flat steel. Fortunately, the gamble paid off, increasing the company's growth in both sales and profits.
Iverson determined that one means of maintaining both quality control and costs was a highly decentralized organizational structure. Corporate staff was kept to a minimum. All decisions dealing with operations were delegated to the individual plants. Iverson believed that the managers closest to the action should be given the responsibility to develop plans to allow the plants, and the firm, to adapt to any...