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 the 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 fifth largest steel producer 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 is 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 lverson, 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.
Lverson 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. lverson believed that the managers closest to the action should be given the responsibility to develop plans to allow the plant, and the firm, to adapt to any changes in the environment. lverson also gave plant-level managers the authority to make and implement the decisions necessary to make these adaptations. Each plant manager gave a brief monthly report to headquarters and received a report comparing the divisions’ performance. Major expenditures and changes were made by consensus at the periodic meetings of all plant and corporate managers.
Lverson took pride in the lean corporate structure. But the lack of corporate staff appeared to become a problem as Nucor expanded. By 1994 the company was operating 16 plants, and the flat-rolled steel plants increased the diversity of the operations reporting to the president. Nucor president, John Correnti, noted: “My biggest fear is even though we’re now a $2.3 billion company, we’ve still got to act, feel, and smell like a $300 million company.” Some steel industry analysts remained concerned over how lverson would continue to control the growth of a company that was attempting to diversify its product line.
Questions facing Nucor management revolved around issues of staffing, control, communications, and planning. As the span of control of top management increased, concern over whether operations were becoming unwieldy and uncontrollable became evident. lverson was proud of the fact that there were only three layers between the President and workers on the floor. Managers were being rewarded for meeting short-term goals of increased sales, decreased costs, and quality maintenance. For example, Nucor managers would set standards for quality and output for groups of 25 to 30 employees and reward them with weekly bonuses.
Nucor top management maintained that this highly decentralized and lean organizational structure was necessary to meet foreign competition. According to top management, this structure would allow the firm to take advantage of those growth opportunities available in the environment. The risk was that the lower levels of management would follow short-term goals at the expense of long-term corporate objectives and coordination.
There was also concern that the joint venture with U.S. Steel would hinder the quick decision making typical at Nucor. lverson had gambled by committing to the first phase of the new process on his own, without first testing the new process in a pilot on a small scale. The next stage was to complete the new process with a plant in the United States, relying on the high level of research and development skills at U.S. Steel and the ability of Nucor to pioneer new methods. Analysts wondered whether Nucor could coexist with U.S. Steel, with its large, hierarchical structure and strong union. This challenge was especially important since the new venture was felt to be the focal point for the continued growth of Nucor.
Questions
1.Explain why Ken lverson has continued to utilize a highly decentralized organizational structure at Nucor.
2.Why might industry analysts be concerned that the decentralized structure is no longer effective or efficient for Nucor?
3.What alternative forms of structure might be appropriate for Nucor?
4.What particular functions might best be centralized at Nucor?