Nucor At A Crossroads Pdf To Jpg

1 Wall Street Corporate Reporter, September 9 15, 1996, pp Basically Nucor Corporation (A) Case 1-1 Chapter 1 The Nature of Management Control Systems 19 1Richard Franklin, An Interview with lohn D. Correnti, President and CEO, Nucor Corporation, The Dartmouth College. USX-US Steelt Iverson, chairman, Nucor Corporation, in preparing this case study is greatly appreciated. Copyright Mini-mill. This case was prepared by Vijay Govindarajan.

The cooperation and help provided by F. Kenneth Source: Forbes.,Januar 12, pp lntegrated steel producer. Industry Median $1.9 10% 30% 8% 3% (parent of Northwestern Steel.

Deficit LTV Chaparral Steel) Bethlehem Steelt 4.7 Deficit 28 3 Deficit Nucor $4.1 18% 7% 23% 8% National Steelt Texas lndustries. EXHIBIT 1 Selected Financial Data about 17 percent per annum. Selected comparative financial data are shown in Exhibit 1. In different years, both Iverson and Nucor CEO John Correnti were named Steelmaker of the Year by New Steel magazine. Strained labor relations, and slowed demand for steel (related in part to the the steel industry faced a number of problems, including foreign competition, substitution of alternative materials). Despite these industry challenges, Iverson, had headed the company for more than 30 years. During his tenure, of $4.3 billion in steel and steel-related products.

Its chairman, F. Kenneth Nucor s sales during Iverson s tenure grew at an annual compound rate of In 1998 Nucor was a Fortune 500 company with 6,900 employees and sales over the last 25 years Nucor has never had a losing quarter.

Not only a losing increase. When we go to the trough. The margins are squeezed.

But (S in billions) Sales 1997 (5-year average)% Capital% Growth% Margin% Return on Equity Debt! 5-Year Sales Profit John D. Correnti, President and CEO, Nucor quarter, we have never had a losing month or a losing week. Cycle times are good, interest rates are low, people are building our margins We are a cyclical business. When you are at the peak of the2 Oldsmobile and, later, Reo Motor Cars.

Through a series of transactions, the The firm suffered several money-losing years and in 1965, facing bankruptcy, 1950s and early 1960s. A company involved in the nuclear instrument and electronics business in the Nucor traced its origins to auto manufacturer Ransom E. Olds, who founded company Olds founded eventually became the Nuclear Corporation ofamerica, History business growth and regulatory policies that favored the company s commit tablishing strong ties to its local communities and its work force. As a leading ment to remaining union-free. By 1998 Nucor and its subsidiaries consisted of Plants: Darlington, S.C.; Norfolk, Nebr.; Jewett, Tex.; Plymouth, Utah; Plants: Florence, S.C.; Norfolk, Nebr.; Fort Payne, Ala.; Grapeland, Tex.; Saint Joe, md.; Brigham City, Utah Plant: Blytheville, Ark. Plants: Norfolk, Nebr.; Darlington, S.C.; Brigham City, Utah Plants: Saint Joe, md.; Conway, Ark. These factors also allowed Nucor to select from among competing locales, siting its operations in states with tax structures that encouraged screws Nucor located its diverse facilities in rural areas across the United States, es employer with the ability to pay top wages, it attracted hard-working, dedicated nine businesses, with 25 plants.

These businesses included the following: Products: steel sheet, bars, angles, light structural carbon and alloy steels Crawfordsvilte, md.; Hickman, Ark.; Mt. Pleasant, S.C. 6 10 its employees. Its pay and benefits package is top-notch. No one has been capri Hickman, Arkansas, presented the majority view: Why is Nucor nonunion?

I monthly crew meetings, annual dinners, and employee surveys. We just don t need union mediators. Approach: People like to work here. For example, the last time we had a union Nucor provided employees with a pertbrmance-related compensation system. Dividual output. (Each work group contained 25 to 40 workers.) Once the stan diness standards.

If one worker s tardiness or attendance problems caused the than the workers in the bonus group. Bonuses were tied to attendance and tar Compensation don t need divisiveness. We don t need adversaries.

We can talk among our. The ciously fired. There are no layoffs. Nucor listens to its employees through selves and work out our own problems. 9 Iverson noted the effectiveness of this organizer in Darlington, we had to send management out to protect the union dard output was determined, it was not revised unless there was a significant to anticipated production tonnages produced. The bonuses were paid only for 1.

Production Incentive Plan turing incentives for meeting specific goals and targets. All employees were covered under one of four compensation plans, each fea Nucor s labor force was not unionized. An employee at Nucor Steel in see two main reasons. First, it s just not needed.

Nucor takes very good care of guy passing out the pamphlets. Second reason is that we all work together. We This covered most Nucor workers. Under this plan, employees directly involved in manufacturing were paid weekly bonuses based on actual output in relation work that met quality standards and were pegged to work group, rather than in change in the way a production process was performed due to a source other 24 Chapter One The Nature of Management Control Systems HIbid pp Steel Man Ken Iverson, mc, April 1986, pp Claude Riggin, Freedom and a Hell of a Lot More at Nucor, Newstront column, New Steel, july The weekly output by, and bonus for, each work group were displayed at the in finishing and shipping. Take melting and casting, for example.

We start with paid if equipment was not operating. Production supervisors were also a part of incentive bonus, in general, averaged $0 to 150 percent of the base wage. Maintenance personnel were assigned to each shift, and they participated in the bonus along with the other members operating on that shift; no bonus was the bonus group and received the same bonus as the employees they supervised. Front entrance to the factory. While there were no upper caps, the production Iverson gave an example of how this plan worked: In the steel mills, there are nine bonus groups: three in melting and casting, three in rolling, and three to close on a house or your wife is having a baby. But only four. For the week.

Now, we have four forgiveness days per year when you might need minutes late or you are absent for sickness or anything else, you lose your bonus group to miss its weekly output target, every member of the group was denied a bonus for that week. This bonus system is very tough, said Iverson. If you are late, even only five minutes, you lose your bonus for the day If you are thirty. 7 get a 4 percent bonus for every ton per hour. So if they have a week in which check the next week.

Department Manager Incentive Plan 2 bonus. Take the regular pay, the overtime pay, everything, multiply it by an they run, say.:32 tons per hour and that would be low that s an 80 percent additional 80 percent and we give them that check along with their regular a base of 12 tons of good billets per hour: Above that, the people in the group Ibid., p Ibd. They participate in any profit sharing, pension, or retirement plans.

Their base tax earnings was placed into a pool that was divided among the officers. Senior Officers Incentive Plan Senior officers had only one incentive compensation system, based on Nucor s re (about 40 percent), could amount to several times their base salaries. If Nucor did cantly below the average pay for this level of responsibility. During a slack period in the 1980s, Iverson was named the Fortune 500 CEO the biggest drop in pay because they have the most responsibility. 3 poorly, an officer s compensation was only base salary and, therefore, signifi 1980 I earned $430,000. In 1982, 1 earned $108,000. Management should take did well, the officers bonuses, in the form of stock (about 60 percent) and cash a plant during that period of time when we had to cut back to a four-day work week, or even three-and-a-half days, I never heard an employee who com wise, even more than that.

I call it our share-the-pain program I think in eral managers. Nucor senior officers did not have employment contracts, nor did salaries were lower than those received by executives in comparable companies. Department head was cut even more and that the officers were cut. Percentage turn on stockholders equity above certain minimum earnings.

A portion of pre The designation senior officers included all corporate executives and plant gen with the lowest compensation. He saw this as an honor.

When I walked through plained. His pay may have been cut 25 percent, but he knew that his their expected bonus levels throughout the year. Other chart that showed the bonus payout; this kept employees appraised of Incentive Plan including accountants, engineers, secretaries, clerks, and receptionists received a bonus based primarily on each plant s return on as sets. It could total over 25 percent of an employee s base salary. Every month each plant received a chart showing its return on assets on a year-to-date basis.

This chart was posted in the employee cafeteria or break area together with an All employees not on the Production Incentive Plan or the Department Manager 3. Non-Production and Non-Department Manager Incentive Plan that plant. In recent years, bonuses averaged 82 percent of base salary. Formance target: a return of 25 percent or better on the assets employed within plant operated as a stand-alone business unit.

All the plants had the same per incentive bonus based on the performance of the entire plant to which they be reported directly to the general manager of their plant. They earned an annual Nucor s department managers oversaw the production supervisors and, in turn, longed. The targeted performance criterion here was return on assets. Every Chapter 1 The Nature of Management Control Sstein 25. 8 All the plant general managers met as a group with headquarters manage bid., p. Those for the corresponding period in the previous year. This second group of corporate review.

Formation systems: We don t look over the shoulders of our general managers But that doesn t mean we are not paying attention. Delegation without infor information overload and their compulsion to overcontrol their operations.

But ment three times a year in February, May, and November to review each agers on a regular basis. Plant general managers and machine operators also need, we ve worked just as hard to keep our reports streamlined and ourselves Nucor took an egalitarian approach toward employee benefits. Senior execu executive dining rooms, or executive parking places. Our corporate dining verson, Plain To/k, pp figures for sales revenue, costs, contribution. And return on assets employed. Data for the 25 plants were pulled together onto just five sheets of paper for data from all 25 plants was compiled in a four-page report. Thus, all weekly the previous week, and the numbers for the most recent 13-week period with Each plant also submitted a monthly report comparing actual to budgeted mation is suicide.

Profit-sharing and scholarship programs, its employee stock purchase plan, and the CEO, wore the same green hard hats. (In a typical manufacturing company, position as too little information you don t know what s going on. And when plant s performance and to plan for the months and years ahead.

In addition, same holidays, vacation schedules, and insurance programs, and all, including. In short, while we work hard to get the information we free of information overload.

A lot of managers seem to miss the link between you don t know what s going on. It is hard to stay out of your people s hair. It s 8.5. 11 sheet of paper. Each plant also submitted a second weekly report basic operations.

The figures for all 25 plants were pulled together onto one Benefits tives did not enjoy such traditional perquisites as company cars, corporate jets, commonly visited each other s mills. Every week each plant sent data to headquarters on the following six comparing the numbers on the six variables for the current week with those for Iverson made the following observations regarding the design of Nucor s in its service awards, were not available to Nucor s officers.

All employees had the room is the deli across the street, remarked Iverson. In economy class, including Ken Iverson. Certain benefits, such as Nucor s Information Systems shipments. Taken together, these numbers provided a snapshot of the plant s and we don t ask them to submit voluminous reports explaining their actions. Detailed performance data on each plant were distributed to all plant man 5 All employees traveled operations-related variables: bids, orders, production, backlog, inventory, and the connection is really obvious.

Too much information puts you in the same 4 hard to tell them trust your instincts, and really mean it. 26 Chapter One The Nature of Management Control Systems. 9 Chapter 1 The Nature of Management Control Systein.

27 people wore different colored hats in accordance with status or seniority, and the CEO s often was gold-plated!) Every Nucor annual report contained the names of every employee listed alphabetically on the front cover. The company maintained a profit-sharing plan for employees below the of ficer level, contributing a minimum of 10 percent of Nucor s pretax earnings each year. Of this amount, approximately 15 to 20 percent was paid out to em ployees in March of the following year as cash profit sharing. The remainder was placed in trust and allocated to employees based on their earnings as a percentage of the total earnings paid throughout Nucor. The employees them selves made no contributions to this plan.

They became fully vested after seven full years of service and received payment when they retired or termi nated employment with Nucor. In the 1990s, several employees had more than $300,000 in the trust. Nucor had a monthly stock purchase plan featuring a 10 percent Nucor matching contribution, and a 401(k) retirement savings plan that included a matching contribution of 5 to 25 percent of the employee s contribution based on Nucor s return on shareholders equity. Additionally, employees received five shares of Nucor common stock for each five years of continuous service as well as standard medical, dental, disability, and life insurance coverage and stan dard vacation and holiday packages. Nucor s benefit program also attested to the company s commitment to edu cation.

On-the-job training was a matter of policy, with employees being taught to perform multiple functions. The Nucor Scholarship Fund provided awards of up to $2200 a year for up to four years to employees children who pursued higher education or vocational training past high school.

In 1996 the plan cov ered more than 600 students attending some 200 different learning institu tions. According to Correnti.

These scholarships cost Nucor about $1.3 million a year but created a priceless reservoir of good will. This gets ucor around the dinner table at night, he said. It creates loyalty among our employees. Our turnover is so miniscule we do not even measure it.

Nucor encouraged employees to recruit their friends and relatives to work ftr the company. As an industry observer remarked, In fact, for existing em ployees, Nucor often means Nephews, Uncles, Cousins, and Other Relatives. Technology 1 7 Nucor did not have a formal R&D department. A corporate engineering group, or a chief technology officer.

Instead, it relied on equipment suppliers and other companies to do the R&D, and they adopted the technological advancements they developed whether in steel or iron making, or in fabrication. Teams com posed of managers. Engineers, and machine operators decided what technology to adopt. Integrated steel companies produced steel from iron ore using blast fur riaces.

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Nucor successfully adopted the mini-mill concept first developed in Europe and Japan in the plant it built in Darlington, South Carolina, Frank)in, An Interview with John 0. Correnti, p Joseph A. Maciarie))o, Lasting Value (New York: John Wiley & Sons, 2000), pp. 10 28 Chapter One The Vature o/ i1anage,nent Control Systems in Unlike integrated steel companies, mini-mills did not start with iron ore: instead, they converted scrap steel into finished steel using small-scale electric furnaces. Nucor purchased its scrap requirements from third-party agents at open market prices. For the non-flat, commodity segment of the steel industry (reinforcing bar for construction and rods for pipe, rail, and screws, mini-mills had a cost advantage over integrated steel producers, eventually driving the latter out of the low end of the steel industry. Until the mid-1980s, however, mini-mills could not produce the flat steel products required by automotive and appliance customers, and this high-end market was monopolized by the integrated steel producers.

Then, in 1987, Nucor made history by building the first mini-mill that could make flat steel (in Crawfordsville, Indiana, thus gaining entry into the premium segment of the steel industry. At its Crawfordsville facility, Nucor gambled on the thin-slab casting tech nology developed by SMS Schloemann-Siemag, a West German company. Staff engineers from more than 100 steel companies visited SMS to explore this technology, which had been demonstrated in a small pilot but not yet proven commercially. But Nucor adopted the process first, obtaining the rights from SMS by signing a nonexclusive contract with an additional technology flowback clause. Nucor s investment in the Crawfordsville plant represented ap proximately five times the company s 1987 net earnings and virtually equaled the stockholders total equity in the company that year!

Nucor At A Crossroads Pdf To Jpg File

By 1997 Nucor had built two more mini-mills (in Hickman, Arkansas, and Charleston, South Carolina), both using the thin-slab casting process to pro duce flat-rolled sheet steel. The first competitive facility to make thin-slab-cast flat-rolled steel did not appear until 1995 eight years after Nucor s pioneer ing effort. In 1987 Nucor s pursuit of technical excellence had led to the establishment of Nucor-Yamato Steel Company, a facility jointly owned by Nucor and Yamato Kogyo of Japan, which operated a structural steel mill in the United States that used its own continuous-casting technology. Several years later, Nucor became concerned that mini-mill start-ups by several other companies would significantly increase the price of scrap steel or even cause scrap to become wholly unavailable. To guard against that possibil ity, the company established a plant in Trinidad, West Indies, in This plant successfully adopted a commercially unproven technology to make iron carbide, a substitute for scrap steel, which it supplied to the flat-rolled plant in Crawfordsville. However, in 1998 Nucor concluded that the iron carbide sup plied by the Trinidad facility was uneconomical and closed the facility. In addition to developing new plants, Nucor was committed to continuously modernizing its existing ones.

Its philosophy was to build or rebuild at least one mill every year, in the latter case rebuilding entirely rather than just put(ting) new pipes in parts of the old mill. In building new plants or re building existing plants, the company did not rely on outside contractors, hut instead handed the responsibility for design and construction management to a small group of engineers selected from existing Nucor fhcilities. For example, when it decided to add a second rolling mill at Nucor-Yamato in Blytheville, Arkansas, it assigned the meltshop supervisor in the first mill to coordinate the design and construction of the meltshop in the second mill. As Greg Mathis. Worked out fine. Because ning, the engineering, the contracting, the budgets.

I mean, we are talking local area, who were aware that they would subsequently be recruited to oper my team and I knew what not to do from our ex perience running the meltshop on the first line. 8 this nwlthop supervisor, observed, They put it all on my shoulders the plan Further, the actual construction of the plant was done by workers from the about an investment of millions of dollars and I was accountable for all of it. Ate the mills as well. Iverson explained the rationale behind this approach to technology manage ment: We accept that roughly half of our investments in new ideas and new technologies will yield no usable results. Chipter 1 The.Va to ic of.

I4anngemen t Control.S te,ns 29 we gather from our so-called failures may lead us to spectacular success. We let employees invest in technology. People in the mills identify and select No small group of executives can possibly keep fully informed. In 1991 President Bush awarded Iverson the National Medal of Technology, storehouse of equipment that was bought, tried, and discarded. The knowledge. Our biggest challenge fm the future) is to continue to grow the company 1.

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Why has Nucor performed so well? Is Nucor s industry the answer?

Is it the mini-mill effect? Is it market power )scale economies)? Is it a distribution channel advantage? Is it a raw material advantage? Is it a location advantage?

Is it the result of an entrenched brand name? Is it Nucor s choice of a unique strategy? Is it Nucor s ability to execute its strategy? What are the most important aspects of Nucor s overall approach to organi well do Nucor s organization and control mechanisms fit the company s )bid., pp lbid., pp. The Art of Keeping.Ianagernent Simple, )nterview with Ken verson. Strategic requirements?

Zation and control that help explain why this company is so successful? How f Is it a technology advantage? Questions said. Business is like a flower: You either grow or die. 2 at percent per year. And to keep earnings parallel with this growth, he For Iverson. The national medal was not a culmination but a signpost along the Future America s highest award for technological achievement and innovation.

9 Nucor plant has its little most of the technology. Technology is advancing too quickly on too many fronts.

A crucial element of Nucor s success is its ability to mobilize two types of 4. Nucor repeatedly has demonstrated the ability to be a successful first mover 5. Would you like to work for Nucor? Why have competitors not been able to imitate Nucor s performance so far?

Ganization and control contribute to this first-mover advantage? In the adoption of new technology. How does the company s approach to or b. What mechanisms exist within the company to facilitate sharing this c. How does Nucor transfer knowledge to a greenfield, start-up operation? What mechanisms help the company accumulate these two types of edge effectively? Process know-how.

What mechanisms does Nucor employ to manage knowl knowledge in individual plants? Knowledge among its 25 plants? Knowledge: plant construction and start-up know-how: and manufacturing 30 Chapter One The Nature of Management Control Svtems.