Nucor Presentation 1vj4b
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Qi Dang Joseph Talarico Meggie Toppin Nathan Wainwright Maintian Yu 5071 Strategic Management
April 1, 2015
Agenda • • • • • • • • •
History of Nucor Issue Identification SWOT Porter’s 5 Forces Corporate Level Strategy Business Level Strategy Nucor Structure & Control Systems Alternatives & Recommendations Implementation
Nucor: Company History
Formed from two corporate failures:
Nuclear Consultants Nuclear Corporation of America
Nucor: Company History
Ken Iverson brought Nucor to prominence
Navy officer training Master’s degree in Mechanical Eng./Metallurgy 1962: Ken s Nuclear Corp. building up Vulcraft division—Nuclear Corp. only profitable division 1965: Ken heads Nucor and gets rid of high tech division and focuses on steel manufacturing
Nucor: Company History
Sanborn Chase – Original owner of Vulcraft
“Scientific Genius” Engineer by trade Comionate Developed Mini-Mill technology Established incentive programs that were later adopted by Ken Iverson and Nucor as a whole
Nucor: Company History
Dave Aycock
Met Iverson during the purchase of Vulcraft Worked closely with Iverson Managed all joist operations of Nucor Became President and COO in 1984
Nucor: Company History
Dan DiMicco becomes President & CEO September 2000
Iverson ousted by Board of Directors in 1998 over “disagreements” Aycock retires after hiring DiMicco (Iverson’s replacement) Pushed for U.S.A. government protection from international competition in 2001 Began aggressive expansion through mergers & acquisitions and t ventures 20003.15
Bn Market Cap 200610.52 Bn Market Cap 201313.72 Bn Market Cap
Issue Identification
Remaining competitive with emerging markets
Emerging markets producing more of their own steel Much cheaper labour costs and steel
Growing domestically or globally
Slowing growth of North American markets means less demand for steel Exporting to emerging markets is a challenge with shipping costs and possible trade barriers
SWOT Analysis: Internal STRENGTHS
• Human Resources practices • Management Style/Leadership • Organizational Culture • Materials Management • Mini-Mills • Vertical Integration
WEAKNESSES
• Safety • No foreign locations • Rising Manufacturing Costs • No brand loyalty— competitive on price only • Changing Leadership
Porter’s Five Forces: The Steel Industry LO W
LOW
Bargaini ng Power of Supplier s
Threat of Substitu te Products
HIG Indust ry H ry Rivalr y
Threat of New Entrants
Bargaini ng Power of Buyers
LOW
MEDIU M
Industry Rivalry—Highest Threat
Industry is fragmented (Top 10 steel makers supply less than 30% of global production Demand
Global: growing quickly due to emerging markets Domestic: growing slowly
Rising fixed manufacturing costs domestically High barriers to exit—investment in mills, production & materials Established companies are merging with others
SWOT Analysis: External OPPORTUNITIES
• Emerging market in China and India – rapid market growth • New technology – electric arc furnaces • Mergers & Acquisitions (horizontal integration)
THREATS
• Vertical Integration • Increased competition • Fluctuating industry demand • Increased consumption overseas than in the US (International Competition) • High Cost • Mature industry
Business Level Strategy Cost Differentiat Broad Leadershi ion p Cost Differentiat Narro w Focus ion Focus
S c o p e
Cost
Differentiatio n
Competitive Advantage
Corporate Level Strategy
Nucor is using all three corporate level strategies:
Vertical integration (forward & backward) Horizontal Integration (mergers & acquisitions) Cooperative Relationships
Empire building vs. profitability: What is the most effective strategy? Continue building empire (using all 3 strategies) or focus on one strategy?
Leadership
Strategic leadership is provided by an organization’s founder and top managers Founder imprints values and management style on organization Established leadership style is transmitted to the company’s mangers; as the company grows, typically attracts new managers and employees who share the same values
Leadership: Ken Iverson (CEO 1984-1998) Entrepreneurial spirit Risk taker Focused on building up Nucor to one of the top competitors in the industry through innovation, collaborative culture and strong alliances with outside parties Informal communication Gave autonomy to division managers “Allowing people to function on their own and by judging them on their results”
Leadership: Dan DiMicco (CEO 20002013)
Informal communication Focused on empire building Horizontal and vertical integration Levels added to Nucor’s structure: Executive Vice President
Restructuring
2 Steps: 1.
2.
Streamline hierarchy of authority & reduce number of levels Reduce number of employees to lower operating costs
• Necessary because of changes in the business environment, shifts in technology, competition • Sometimes restructure when in a strong position
Organizational Structure
Becoming taller because company is growing, but still try to maintain a decentralized structure Principle of the Minimum Chain of Command Decentralize Authority
Reduces bureaucratic costs Reduce information overload; top management can spend time on competitively positioning company Increases lower-level management motivation and ability Lower level employees given right to make important decisions
Organizational Structure: 1991
Organizational Structure: 2000
Organizational Structure: 2009
Organizational Structure: 2013
Control Systems
Personal Control Output Control Behaviour Control Strategic Reward Systems
“Safety, quality, productivity” -Nucor Philosophy
Personal Control
Face-to-face interaction
Direct Supervision Vacation policy
Empowered, self-policing teams Is team-based work the best option?
Behaviour/Output Control
For Workers: 90% history output in allotted time For Managers: Division contribution (net revenue) For istrative Staff: Division or corporate ROA Is paying employees For Sr. Management: 9%/5% rule
75% market value + bonuses ideal?
Strategic Reward Systems (Workers)
Unique & objective salary + bonus system Output vs. Time Calculation One weak member ruins the bonus of the entire team and foremen. Can this lead to bullying and other undesirable results?
Alternatives
Alternative 1: Nucor manufactures overseas to meet emerging markets Alternative 2: Mergers & acquisitions with foreign-owned companies Alternative 3: Stay in the US and continue to grow operations
Which alternative is the best option?
Implementing Strategy Four strategies that companies use as they begin to market their products and establish production facilities abroad 1. Localization 2. International 3. Global Standardization 4. Transnational
1. Nucor Manufactures Overseas
Localization strategy Implemented through Internal New venture to create own business overseas Brings Nucor culture, structure, leadership style overseas – difficult but necessary In line with “mini-mill” philosophy currently implemented by Nucor in the US
2. Mergers & Acquisitions Overseas
Transnational strategy
Implemented through mergers & acquisitions
Achieves local responsiveness and cost reduction Decentralized at global locations Difficulties with integrating new companies into original operations
Appoint specific division to do acquisitions – Select companies in steel industry Transfer culture to new facilities
3. Continue to Grow in US
Implemented through cost leadership Possibly Diversify business due to slowing demand in local market Keep acquiring, trying to consolidate the industry, become monopoly (BHAG) Develop new potential technology to compete with foreign companies
Which alternative is the best decision for Nucor?
Recommendation
Mergers & Acquisitions overseas in emerging markets
Acquire established companies (political/legal issues) Workforce – lower labour cost
Implementation
Select appropriate overseas firms to horizontally integrate with Establish structure with overseas firms – create international division structure while maintaining decentralization, establish lines of authority
Worldwide Product Division Structure: Focus on local responsiveness, scale of economies and transfer competencies and skills across national boundaries (worldwide learning)
Implementation
Select capable leader for Nucor’s overseas division Continue to maintain Nucor’s collaborative culture at new plants overseas
New firms may have unique norms, values and culture
Adapt control systems (personal, behaviour, output)
April 1, 2015
Agenda • • • • • • • • •
History of Nucor Issue Identification SWOT Porter’s 5 Forces Corporate Level Strategy Business Level Strategy Nucor Structure & Control Systems Alternatives & Recommendations Implementation
Nucor: Company History
Formed from two corporate failures:
Nuclear Consultants Nuclear Corporation of America
Nucor: Company History
Ken Iverson brought Nucor to prominence
Navy officer training Master’s degree in Mechanical Eng./Metallurgy 1962: Ken s Nuclear Corp. building up Vulcraft division—Nuclear Corp. only profitable division 1965: Ken heads Nucor and gets rid of high tech division and focuses on steel manufacturing
Nucor: Company History
Sanborn Chase – Original owner of Vulcraft
“Scientific Genius” Engineer by trade Comionate Developed Mini-Mill technology Established incentive programs that were later adopted by Ken Iverson and Nucor as a whole
Nucor: Company History
Dave Aycock
Met Iverson during the purchase of Vulcraft Worked closely with Iverson Managed all joist operations of Nucor Became President and COO in 1984
Nucor: Company History
Dan DiMicco becomes President & CEO September 2000
Iverson ousted by Board of Directors in 1998 over “disagreements” Aycock retires after hiring DiMicco (Iverson’s replacement) Pushed for U.S.A. government protection from international competition in 2001 Began aggressive expansion through mergers & acquisitions and t ventures 20003.15
Bn Market Cap 200610.52 Bn Market Cap 201313.72 Bn Market Cap
Issue Identification
Remaining competitive with emerging markets
Emerging markets producing more of their own steel Much cheaper labour costs and steel
Growing domestically or globally
Slowing growth of North American markets means less demand for steel Exporting to emerging markets is a challenge with shipping costs and possible trade barriers
SWOT Analysis: Internal STRENGTHS
• Human Resources practices • Management Style/Leadership • Organizational Culture • Materials Management • Mini-Mills • Vertical Integration
WEAKNESSES
• Safety • No foreign locations • Rising Manufacturing Costs • No brand loyalty— competitive on price only • Changing Leadership
Porter’s Five Forces: The Steel Industry LO W
LOW
Bargaini ng Power of Supplier s
Threat of Substitu te Products
HIG Indust ry H ry Rivalr y
Threat of New Entrants
Bargaini ng Power of Buyers
LOW
MEDIU M
Industry Rivalry—Highest Threat
Industry is fragmented (Top 10 steel makers supply less than 30% of global production Demand
Global: growing quickly due to emerging markets Domestic: growing slowly
Rising fixed manufacturing costs domestically High barriers to exit—investment in mills, production & materials Established companies are merging with others
SWOT Analysis: External OPPORTUNITIES
• Emerging market in China and India – rapid market growth • New technology – electric arc furnaces • Mergers & Acquisitions (horizontal integration)
THREATS
• Vertical Integration • Increased competition • Fluctuating industry demand • Increased consumption overseas than in the US (International Competition) • High Cost • Mature industry
Business Level Strategy Cost Differentiat Broad Leadershi ion p Cost Differentiat Narro w Focus ion Focus
S c o p e
Cost
Differentiatio n
Competitive Advantage
Corporate Level Strategy
Nucor is using all three corporate level strategies:
Vertical integration (forward & backward) Horizontal Integration (mergers & acquisitions) Cooperative Relationships
Empire building vs. profitability: What is the most effective strategy? Continue building empire (using all 3 strategies) or focus on one strategy?
Leadership
Strategic leadership is provided by an organization’s founder and top managers Founder imprints values and management style on organization Established leadership style is transmitted to the company’s mangers; as the company grows, typically attracts new managers and employees who share the same values
Leadership: Ken Iverson (CEO 1984-1998) Entrepreneurial spirit Risk taker Focused on building up Nucor to one of the top competitors in the industry through innovation, collaborative culture and strong alliances with outside parties Informal communication Gave autonomy to division managers “Allowing people to function on their own and by judging them on their results”
Leadership: Dan DiMicco (CEO 20002013)
Informal communication Focused on empire building Horizontal and vertical integration Levels added to Nucor’s structure: Executive Vice President
Restructuring
2 Steps: 1.
2.
Streamline hierarchy of authority & reduce number of levels Reduce number of employees to lower operating costs
• Necessary because of changes in the business environment, shifts in technology, competition • Sometimes restructure when in a strong position
Organizational Structure
Becoming taller because company is growing, but still try to maintain a decentralized structure Principle of the Minimum Chain of Command Decentralize Authority
Reduces bureaucratic costs Reduce information overload; top management can spend time on competitively positioning company Increases lower-level management motivation and ability Lower level employees given right to make important decisions
Organizational Structure: 1991
Organizational Structure: 2000
Organizational Structure: 2009
Organizational Structure: 2013
Control Systems
Personal Control Output Control Behaviour Control Strategic Reward Systems
“Safety, quality, productivity” -Nucor Philosophy
Personal Control
Face-to-face interaction
Direct Supervision Vacation policy
Empowered, self-policing teams Is team-based work the best option?
Behaviour/Output Control
For Workers: 90% history output in allotted time For Managers: Division contribution (net revenue) For istrative Staff: Division or corporate ROA Is paying employees For Sr. Management: 9%/5% rule
75% market value + bonuses ideal?
Strategic Reward Systems (Workers)
Unique & objective salary + bonus system Output vs. Time Calculation One weak member ruins the bonus of the entire team and foremen. Can this lead to bullying and other undesirable results?
Alternatives
Alternative 1: Nucor manufactures overseas to meet emerging markets Alternative 2: Mergers & acquisitions with foreign-owned companies Alternative 3: Stay in the US and continue to grow operations
Which alternative is the best option?
Implementing Strategy Four strategies that companies use as they begin to market their products and establish production facilities abroad 1. Localization 2. International 3. Global Standardization 4. Transnational
1. Nucor Manufactures Overseas
Localization strategy Implemented through Internal New venture to create own business overseas Brings Nucor culture, structure, leadership style overseas – difficult but necessary In line with “mini-mill” philosophy currently implemented by Nucor in the US
2. Mergers & Acquisitions Overseas
Transnational strategy
Implemented through mergers & acquisitions
Achieves local responsiveness and cost reduction Decentralized at global locations Difficulties with integrating new companies into original operations
Appoint specific division to do acquisitions – Select companies in steel industry Transfer culture to new facilities
3. Continue to Grow in US
Implemented through cost leadership Possibly Diversify business due to slowing demand in local market Keep acquiring, trying to consolidate the industry, become monopoly (BHAG) Develop new potential technology to compete with foreign companies
Which alternative is the best decision for Nucor?
Recommendation
Mergers & Acquisitions overseas in emerging markets
Acquire established companies (political/legal issues) Workforce – lower labour cost
Implementation
Select appropriate overseas firms to horizontally integrate with Establish structure with overseas firms – create international division structure while maintaining decentralization, establish lines of authority
Worldwide Product Division Structure: Focus on local responsiveness, scale of economies and transfer competencies and skills across national boundaries (worldwide learning)
Implementation
Select capable leader for Nucor’s overseas division Continue to maintain Nucor’s collaborative culture at new plants overseas
New firms may have unique norms, values and culture
Adapt control systems (personal, behaviour, output)
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