Nucor Case Study

NUCOR

HUMAN RESOURCE MANAGEMENT CASE ANALYSIS 4

“NUCOR: The art of Motivation” Business Week May 1,2006

GROUP NAME SIVAKUMARAN KARUPPIAH 1 MR091052 2 NURFAUZANA ABD AZIZ MR091066 3 NORHAYATI JAMIAAN MR091067 4 AZHANI CHE IBRAHIM MR081043

CODE COURSE LECTURER

MRB 2032 HUMAN RESOURCE MANAGEMENT ASSOC. PROF DR ROSMINI OMAR

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# 1. 2. 3. 4. 5. 6.

Points of Significance Problem/issue identification (10) Critical & strategic alternatives; problem solving (20) I like your answer for Question 1- a blend of theory and practice, but answer to question 3 was superficial Research effort (www) (10) Connectivity- theory to practices; reflection (10) Creativity/neatness/coherence (5) Case discussion- anchoring/ participating (15) Total (70) + tier 1 bonus (3 points)

Possible points 9 17 8 9 5 15 66

NUCOR SUMMARY An article in business week had written about Nucor in managing people with the title The Art of Motivation. Nucor is a company that runs the steel business. Nucor operates

through three segments: Steel Mills, Steel Products, and Raw Materials. Nucor got a surprisingly performance culture towards its competencies. This company treats workers like the owners. There is a story when there is a bad situation involved Hickman’s electric grid that had failed, and three of electrician in Hickman received about the bad news. The trio immediately headed to the plant to solve the problem without any order by the supervisor. The team worked for 20 hours shifts to get the plant MRB 2032 –Human resource Management Page 2

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up and running again and there wasn’t any rewarded or extra money for their time sacrificed. The contribution was huge for the company and this story was telling us that in Nucor, it’s not considered particularly remarkable. Nucor has nurtured one of the most dynamic and engaged workforce around. Nucor’s flattened hierarchy and emphasis on pushing power to the front line lead its employees to adopt the mindset of owner-operator. Nucor gained renown in the late 1980s for its radical pay practices, which base the vast majority of most workers’ income on their performance. An upstart nipping at the heels of the integrated steel giants, Nucor had a close-knit culture that was the natural outgrowth of its underdog identity. At Nucor the art of motivation is about an unblinking focus on the people on the front line of the business. It’s about talking to them, listening to them, taking a risk on their ideas, and accepting the occasional failure. It’s a culture built in part with symbolic gestures. Nucor’s performance has been nothing less than sensational. It has grown into a company with 2005 sales of $12.7 billion, and the company shipped more steel in United State – 20.7 million tons – than other company. Nucor use the strategic highflier with the outstanding execution by placing it alongside highfliers such as JetBlue Airways and eBay. The writer considered that Nucor creates knowledge. Nucor requires managers to abandon the command-and-control model that has dominated American business for the better part of a century, trust their people, and do a much better job of sharing corporate wealth. Nucor pay system is the single most daring element of the company’s model and the hardest for outsider s and acquired companies to embrace. Nucor gave out more than $220 million in profit sharing and bonuses to the rank and file in 2005 and the average Nucor steelworker took home nearly $79 000 in 2004. Not only good work rewarded, but bad work is penalized. Managers don’t just ask workers to put a big chunk of their pay at

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risk. Their own take-home depends heavily on results as well. In Nucor, executive pay is geared toward team building. The bonus of the plant manager, a department manager’s boss, depends on the entire corporation’s return in equity. So, in Nucor, there’s no glory in winning at their own plant while the others are failing. Nucor has created a culture that not only focused on payment. There’s a healthy competition among facilities and even among shifts, balanced with a long history of cooperation sharing. There’s always room for improvement, plant managers regularly set up contests for shifts to try to outdo one another on a set goal, generally related to safety, efficiency, or output. Besides, Nucor employees have to innovate themselves out of tough spots and into more profitable once. Workers are enjoyed to be in this company and being like a walking advertisement for Nucor. ‘I can give you all the rhetoric you want,’ said Ladd, ‘ but the people in mills, that’s what makes in Nucor’.

CASE QUESTIONS: Question 1 What business is Nucor in and how is its business strategy different from that of its competitors?

Nucor Corporation a fortune 200 in company headquartered in Charlotte, North Carolina U.S is one of the largest mini-mill operator and largest steel manufacturer by tons produced, continues to lead the industry in efficiency, technological innovation, profitability and delivery of high quality products at low cost structure, after a record of more than 16 years of rapid growth in a declining industry. Nucor claims to be North America’s largest recycler of any material, recycling on ton of steel every two second. The steel products produced include : MRB 2032 –Human resource Management Page 4

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Bars (Carbon and alloy steel)

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Beams

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Sheet / Flat Rolled

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Plate

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Steel joists

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Joists girders

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Steel deck

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Fabricated concrete reinforcing steel

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Cold finished steel

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Steel fastener

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Metal building systems

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Light gauge steel framing

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Steel grating

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Expanded metal

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Wire and wire mesh

Nucor has a unique internal organization in that it has few hierarchy levels, rewards employees based on productivity, and that officers receive very little benefits in comparison to officers employed by other companies. This structure complements their strategy well considering one of their goals is to continually MRB 2032 –Human resource Management Page 5

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create smaller plant producing at higher quality while spreading the quantity of plants out for local market shares. This minimization strategy is applied to only having four levels of employees: General Manager, Department Manager, Supervisor/ Professional, and Hourly Employee.

Also, giving bonuses to

employees based on their or their team’s productivity correlates directly with Nucor’s strategy to be the United States’ top producer of steel.

Even though

most employees are eligible for bonuses, officers cannot, which can be related to Nucor’s low cost strategy by eliminating the high cost of paying out bonuses and extra benefits to the officers.

As the largest steel producer in the United States, Nucor have competitive advantages that distinguish it from other firms such as USX, Nippon Steel, and Arbed Group. As a mini mill, manufacturing used steel into the highest possible quality is a great environmental effort. In addition to recycling, a large part of R&D for Nucor is to revolutionize the way the public image of steel plants by making them smaller, more fuel efficient, and emitting less carbons (one development for this is to use eucalyptus).

While being an environmentally

sound company passes government regulations and looks good on paper, it does not necessarily sell more steel. Other competitive advantages for Nucor include low price, highest scrap steel quality, staying ahead of technology, and awareness and accessibility in the low-end market.

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Business Strategy of Nucor’s is: 1) Barriers to Entry Steel entrepreneurs have three (3) options when it comes to what kind of steel company they want to run: integrated firms, mini mills (Nucor), or special steel making.

Despite the rather lucrative

options, there are many government regulations in place that can hinder cost-cutting and business growth. Examples of these barriers include: •

Dumping regulations

•

Trade laws for international business

•

Price ceilings

Nucor’s emphasis on “doing it for our clients, our employees and our earth” is a great example of being an environmentally conscious company. In addition, Nucor is mostly a low-end product because it is recycled material, therefore it does not have to worry about price ceilings unlike the other major steel producers.

2) Buyer Power Brand identity and product differentiation are not very important to the steel industry. The three factors that determine how well a company will do in its market are: •

Price

•

Quality

•

Dependability

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Nucor takes advantage of two of these to differentiate itself from other steel manufacturers; producing the highest quality mini milled steel for the lowest, competitive price.

3) Supplier Power For Nucor, its inputs are scrap metal, which often comprise of old automobiles.

While this may not produce the highest

quality steel, Nucor is an environmentally sound organization and the leading recycling firm in the world. The cost associated with using scrap metal includes purifying (removing other materials) and contracts with auto firms. 4) Threats of Substitutes Manufacturing steel by using scrap degrades the quality,

therefore,

increasing

the

probability

of

finished

product

manufacturers and construction firms choosing a higher quality steel from an integrated or special steel making firm. However, Nucor can offer lower prices because of their low material costs.

Aluminum, plastics, and

advanced composites also take away from Nucor’s potential market as technology advances away from steel. 5) Degree of Rivalry The steel industry in the United States is concentrated in Pennsylvania, Ohio, and Indiana because of the close source of coal and iron ore.

Nucor is located over the entire country and is continuously

building micro mills to cover local demand better and decrease shipping costs.

The concentration of steel plants in one region increases their

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competition and the steel industry overseas have decreased their costs efficiently allowing them to penetrate the American market with high quality, low cost steel. The foreign steel market and Nucor’s strategy are great examples of how keeping up with the constantly changing steel technology can be a great competitive advantage.

In conclusion, Nucor has effectively used Porter’s strategy of the Five Forces to become the leading steel producer in the United States and continually have high profits while others go bankrupt. While Nucor’s innovative internal organization cuts costs and encourages productivity, it main strategy is to stay on the cutting edge of technology (at least for the American market).

With that competitive

strategy in place, Nucor must invest in the CSP casting machinery even with previously made financial obligations.

In the steel industry, companies must

keep up with the technology or forfeit the race.

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Question 2 What role does compensation play in creating the motivated workforce that seems to be a key to Nucor’s business strategy execution? How does compensation at Nucor differ from compensation at its competitors?

What Nucor has done to create motivation in its work place is by eliminating the distinctions between management and hourly employees’ as much as possible serves Nucor well. All the employees have given positive respond to its production incentives. As a return, Nucor remains strongly committed to not laying off or furloughing employees in periods when business is down. During the past twenty years, Nucor has not laid off a single worker due to lack of work. The result is a committed team of Nucor employees that looks ahead to a bright future. Nucor has taken a very good initiative due to maintain self-motivated of its employees, such as come out with some compensation plans work as follows: 1. Production Incentive Plan Employees involved directly in manufacturing are paid weekly bonuses on the basis of the production of their work groups, which range from 20 to 40 workers each. Most MRB 2032 –Human resource Management Page 10

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Nucor employees are covered under this system. Typically, these bonuses are based upon anticipated production time or tonnage produced, depending upon the type of facility. The formulas for determining the bonus are non-discretionary, based upon established production goals. This plan creates pressure for each individual to perform well and, in some facilities, is tied to attendance and tardiness standards. No bonus is paid if equipment is not operating, thus creating a strong emphasis on maintaining equipment in top operational condition at all times. Maintenance personnel are assigned to each shift, and they participate in the bonus along with the other bonus groups. Production supervisors are also a part of the bonus group and receive the same bonus as the employees they supervise. In general, the Production Incentive bonus can average 80-150 percent of the base wage. 2. Department Manager Incentive Plan Nucor Department Managers earn incentive bonuses paid annually based primarily upon the return on assets of their facility. Nucor pays no discretionary bonuses. All facilities have a common and clear goal since Department Manager bonuses are based upon written plans that are easy to understand. These bonuses can be as much as 82 percent of base salary. 3. Non-Production and Non-Department Manager Incentive Plan This bonus is paid to all employees not on the Production Incentive Plan or the Department Manager Incentive Plan. Its participants include accountants, engineers, secretaries, clerks, receptionists or any one of a broad number of different employee classifications. The bonus is based primarily upon each facility's return on assets. As with all Nucor incentive compensation bonus plans, there are no discretionary bonuses paid

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to participants. The bonus is based on a written plan that is clear, easy to understand and accessible to employees. Every month each operation receives a report showing on a year-to-date basis their return on assets. This chart is posted in the employee cafeteria or break area together with the chart showing the bonus payout. The chart keeps employees appraised of their expected bonus levels throughout the year. This bonus can total over 25 percent of salary. 4. Senior Officers Incentive Plan Nucor senior officers do not have employment contracts. They receive no profit sharing, pension, discretionary bonuses nor retirement plans. Their base salaries are set at less than what executives receive in comparable companies. Senior officers have only one compensation system. A significant part of each senior officer's compensation is based upon Nucor's return on stockholder's equity, above certain minimum earnings. A portion of pre-tax earnings is placed into a pool that is divided among the officers in bonuses that are about 60% stock and 40% cash. If Nucor does well, the officer's compensation is well above average, as much as several times base salary. If Nucor does poorly, the officer's compensation is only base salary and, therefore significantly below the average pay for this type of responsibility. In addition to these established bonus plans, Nucor periodically issues an extraordinary bonus to all employees, except officers, during times when Nucor is enjoying a particularly strong performance. This bonus has been as high as $800 for each employee. Overall, Nucor's incentive compensation programs offer each and every employee an opportunity to share directly in Nucor's success. It provides strong encouragement for employees to work hard to build a better future for Nucor and themselves. MRB 2032 –Human resource Management Page 12

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How does compensation at Nucor differ from compensation at its competitors? At Nucor, they used ‘us versus them’ and its clearly implies management and workers united against competitors.

Comments such as those by one melt-shop supervisor who

described a sense of personal responsibility not only for his own job but also for the firm. So, the employee will always describe that his position at Nucor as being much like running his own company – a comment typical given the entrepreneurial environment Nucor has created.

Decentralized authority and sense of individual responsibility are a key part of that structure. John Correnti explains that he does not what to micromanage the firms operations. Doing so, he feels, would result in employees placing blame when things go wrong instead of taking responsibility and finding solutions. This, Correnti feels, results in line personnel having a realistic ability to control their own job environment, increase productivity, and increase their pay.

In Nucor, the management has not think only about compensate the employees with the money, but they used to make employees feels like home. Such as ‘us versus them’, it refers to workers versus management and production. In contrast, at Nucor workers are see striving together as a team, helping each other, and working toward a common goal – the production of a high volume of low-cost, quality steel. So, that’s’ how Nucor has controlled its employees for all over the years.

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Question 3 Does Nucor’s workforce productivity and impact stem entirely from its compensation system or are there other key aspects of human resource strategy that are also important. Explain.

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Nucor’s workforce productivity and impact stem not entirely from its compensation system but other key aspects from human resource strategy also playing a big role. Some of the aspects that can be bring out such as organizational structures that used flat organization that can be used to neutralize and makes the employee into same level of hierarchy. It creates the open culture environment. All the employee should feel they are important to the company and they should respect and honor to the company vision, mission and objectives without any compensation expected. Nucor already create this awareness through their Human resource strategy by introducing that everyone is the owner and everyone has the same authority level with the same standard of features and benefit. Features and benefit here is not the compensation but other than that such as medical, holiday, stocks and etc. Other than this good process flow of the project and company strong financial background also creates motivation and inspiration of the employee to prolong in Nucor’s in long term. Customer alignment and Nucor’s strong customer service and customer oriented play a big role to enhance the workflow strategically. So as concluded here that lots of factor influence the overall companies’ movement and not just compensation.

Reference MRB 2032 –Human resource Management Page 15

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1. Human resource strategies and firm performance by lee dyer and Todd Revers 2. NASSCOM Strategy Review – 2009, 2008, 2007.

3. STATE PERSONNEL MANUAL Performance Management Section 10 4. Economic Times 5. Mint 6. Business Week 7. Outlook Money

8. http://www.jstor.org/pss/256714 9. http://www.nasscom.org 10.http://www.nucor-fastener.com/nucor.html 11.Boyd, B.K., & Gove, S. (2000). 12.Iverson, K. (1998).

13.

http://en.wikipedia.org/wiki/Nucor#History

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