Week 3: Nucor at Crossroads Strengths * Strong leadership & progressive company culture => decentralized management philosophy, egalitarian benefits, performance based compensation, strong emphasis on customer service and quality, and technological leadership through consistent investment in R&D and modernization of plant & machinery * Strong financials => consistent growth in sales and profits during the last 3 years (1983 to 1985) with the most recent year (1986) resulting in a sales figure of $755Mn (down $3Mn from last year) and net earnings of $46Mn. Flat structure => leading to improved communication (formal & informal) between corporate and factory and amongst factories (interplant) => leading to improved efficiencies / productivity * High employee morale, low staff turnover compared to industry average => a culture that promotes team work, high levels of commitment and hard work => compensation schemes designed to reinforce the relationship between pay and performance and to reward production groups rather than individual performance.
Also attractive incentive and reward schemes for employees (eg. bonuses, stock options, health coverage, college education for children of employees). * Nucor’s geographic spread (by 1986 Nucor had 16 plants in 10 locations around the United States) => these facilitate easy access to customers (markets) or sources of raw material (iron ore). Weaknesses / Concerns: If Nucor decides against investing in CSP, then they run the risk of allowing their competitors to acquire this technology and commercializing it first to the market.
At the same time, there are also risks to Nucor of choosing to adopt the CSP technology: * The design of CSP is sensitive to scrap prices => price should be below $140 per ton * The design is only in its infant stage, continuous operation should be completed before making a decision to invest * Flat-rolled products require different expertise which Nucor may not have * Plants in remote locations will create an verwhelming operational challenge * Nucor had already agreed a joint venture with Yamato Kogyo, two projects running concurrently would stretch the company’s financial and managerial resources. * High end market will be harder to penetrate * Pioneering costs might be high and other steel companies might just follow afterwards if it is successful. Opportunities – Return on investment: * Competitive advantage of the pioneer: 02-03 years which allows to achieve economies of learning over other minimills * Cutting down the minimum efficient scale of production from 3. 6 to 0. millions of tones compared to conventional plant * Comparative advantages in low cost productions (more efficient labour and energy savings ) over integrated mills in the high end markets (flat sheet products) * May secure a $10-$20 million discount as the first adopter of CSP Threats * Customer uncertainty could be an issue, customers may be reluctant to purchase steel manufactured by the new technology (as what happened with many US Steelmakers) * Undercutting from cheaper imports leading to erosion of profits * New composite materials used in other industries that generally used steal, eg.
Automobile industry moved to aluminium * Unionisation, steel workers were paid 10 times the salary of an average manufacturing worker in the 1970’s. This cost factor could be a concern for pricing their products competitively in the market if unions were to try to negotiate for excessive wage increases Strategies: * Perform market research to determine the potential acceptance and demand for flat steel sheets formed by thin slab casting and thereby reduce some of the risk associated with the decision to commercialise the new technology Avoid unionisation of employees by ensuring all employee salaries and benefits are maintained at a level above the average, thus ensuring that workers remain cooperative and do not initiate a union recognition process thereby allowing the union to influence the company’s operating costs * Stay current with the present technology in the steel industry and look for opportunities to capitalise in the market place by using the technology to the company’s advantage.
Recommendations to Nucor: 1. Purchase the new machinery and technology (CSP): This will allow Nucor to participate in markets that are currently unavailable to the company 2. Devise a plan for continuous process improvement and adoption of new technology