Nucor Company Case Study - Steel Industry

TABLE OF CONTENTS

EXECUTIVE SUMMARY 3

INTRODUCTION 4

CURRENT SITUATION 5

Current Performance 5

EXTERNAL FACTORS 6

Macro-Environment 6

Industry Analysis 8

Critical issues facing the steel industry 12

Summary of External Factors 14

INTERNAL FACTORS 15

Value Chain 15

Financial Performance & Capabilities 16

Management Values 18

Organizational Culture 19

STRATEGY SUGGESTIONS AND ALTERNATIVES ANALYSIS 21

Assessment of Strategies 21

Business Strategies 22

Functional Strategies 23

Resources 26

Strategic issues facing Nucor 26

CONCLUSION AND CALL FOR ACTION 28

WORK CITED.........................................................................................30

APPENDIX A 31

EXECUTIVE SUMMARY

The steel industry is declining for the first time in two decades in North America. Steel prices dropped because of macro-environmental forces while costs of production and labor wages are rising. The rise in industry consolidations due to companies filing for bankruptcy in countries such as Asia and Europe has become a threat in the U.S. The entrance of these conglomerates into the U.S. markets are inevitable and in progress. Currently, there is ample opportunity for financially stable companies to enter the market by participating in acquiring smaller and less profitable companies. Nucor has been a leader in the industry due to their organizational culture, management values, and technological innovations.

Nucor's strengths, weaknesses, opportunities, and threats led us to suggest the following recommendations. The recommendations include information on the current environment, its context, and how we recommend Nucor implement these recommendations:

1. Restructure of management team: Nucor's current management structure is a weakness for the company. Since the restructuring of management in 1999, stock prices fell by ten percent. Reorganizing the management structure to a similar version of their original form will strategically improve the stakeholder's interest in the company.

2. Nucor should use their newly acquired technology of strip casting into its mini-mills. Implementing this new technology into all plants over the next five years will reduce production and labor costs.

3. Integrate the use of direct reduced iron (DRI) into production. Nucor's dependence upon scrap steel is a weakness and they are susceptible to market trends. There is presently nothing to defend against the threat of high scrap prices. The use of direct reduced iron is an alternative that produces superior quality products while cutting costs.

4. Establish a strong long-term relationship with customers domestically and internationally by achieving an understanding of the buyer's top five "wants" on their demand products. These wants include: high quality customer service, consistent high-quality products, competitive delivery prices, reliable on-time delivery, and better steel availability to customers.

5. Expand globally through mergers and acquisitions, more specifically with Steel Authority of India located in New Delhi.

INTRODUCTION

Nucor steel is headquartered in Charlotte, North Carolina. Nucor is the leader in steel technology and is known for its innovations in the industry. They operate with the goals of returning investments to their stockholders and operate with safety as their biggest priority. The company's management system consists of 5 levels containing fewer than 100 members for a corporation of over 18,000 employees. Nucor is a highly segmented and independent company. They benefit from each manager operating their segment as its own business entity.

Nucor maintains a high level of respect between management and its employees. This relationship has allowed management to achieve success through financial goals and has given employees job security and created a healthy work environment. Nucor has essentially eliminated the barrier between management and employee. The employees have the exact same benefits as management. Management also does not provide benefits such as corporate jets, cars, and country club memberships like other corporations tend to do. In fact, Ken Iverson very rarely makes more than $1 million a year while his similar industry positions rake in amounts of up to $50 million.

Nucor established the mini-mill steel factory allowing for them to cut operating costs by 40% compared to traditionally steel factories. Mini-mills has also led to reduction in energy use and pollution. Environmentally speaking, Nucor has continued to be innovative and lead by example compared to rivals. Nucor recycles "one ton of steel for every two seconds... making it the largest recycler of any material in America--more than the nation's entire aluminum can industry". (Nucor, 2008)

CURRENT SITUATION

Current Performance

Nucor has been consistently profitable with net earnings, hitting a record high of $310.9 million in 2000. Nucor's return on equity fell from 14.59% in 2000 to 9.48% in 2001. This was mainly contributed by issuing approximately 233,000 additional shares in 2001 after buying back approximately 10,000 shares in 2000. This action is an indicator to why the dividends declared per share fell drastically from $0.60 in 2000 to $0.17 in 2001. As a result, Nucor has more shareholders to distribute dividends to therefore it will decrease the payout as well as the return on equity. Nucor has been able to keep its debt levels low and under control. The company has very limited long-term debt, which places Nucor in a great position to start several significant acquisitions. The strategic move to increase the market share through investments helps to ensure that Nucor