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Nucor at a Crossroads Case Solution
Nucor has been a successful steel maker in the U.S for almost 35 years and has a market share of almost 21 million. It was founded initially with the name of Reo Motor Car Company but after a series of acquisitions, it was named a NUCOR in 1972. The company’s openness to innovation coupled with its unique culture and the organizational structure had helped it survive even when the entire industry was facing a decline. Now the company is considering commercializing thin slab technology- and innovation that will reduce the production cost of flat iron sheets by fifty percent. But before this, the CEO Iverson must decide whether this innovation would be able to provide Nucor with a competitive advantage in the long run or not.
Following questions are answered in this case study solution
Why has Nucor performed so well in the past?
How attractive do the economics of thin-slab casting look for Nucor?
Is thin-slab casting likely to provide Nucor a sustainable competitive advantage in flat-rolled steel products?
What should Nucor do? How should it think about the uncertainties surrounding thin-slab casting?
What recommendations would you give to Ken Iverson?
Case Analysis for Nucor at a Crossroads
1. Why has Nucor performed so well in the past?
Nucor had always focused upon developing a strategy that helps them build around their major core competencies. The organizational structure and culture of the company are the reasons why the company has functioned so well despite the recent decline in the steel industry. The structure has been developed in such a way that it is the proposed fewest layers of management. In order to make this flat hierarchy function effectively, the company has decentralized the decision making processes. This decentralized decision making policy grants maximum power to the general manager of the plant. This helps ensure effective and quick decision making. Also, the management encourages taking risks and making managerial mistakes. The employees who make mistakes are considered to be more creative and hence they are encouraged to share them with everyone. Furthermore, the compensation system of the company is based solely on performance rather than on the role or position. Incentives in the form of commissions, bonuses, and stock ownership are given to the employees. The company also helps minimize status and class differences among the employees. It promotes an atmosphere of equality, hard work, and coordination. Everyone in the company wears the same green jacket and hat during working hours. The same insurance coverage policy holds for all employees. CEO Iverson answers questions of every employee irrespective of their designation. This extraordinary culture and structure of the organization have helped it function smoothly even in times of industrial decline.
2. How attractive do the economics of thin-slab casting look for Nucor?
At Nucor, innovation is considered as the key to success. The decisions to invest in a new product or in new technology are the strategic decisions that have a far-sighted effect on the performance of the company as well as the industry. Therefore, such a decision must be taken after researching intensively about the consequences. Flat sheet industry comprises about fifty percent of US steel industry. Currently, integrated steel plants are producing flat sheets but the cost associated with this product is very high. If Nucor introduces this slab casting technology, it will be able to produce flat sheets at a very low cost. Also, the numbers of rollers required by integrated steel plants are a dozen in number while this slab casting can produce the same amount with only four. However, one major disadvantage that thin slab shares with integrated steel plants is the heating problem. Like many other steel plants, this slab also gets overheated quickly and the plant needs to be shut down for some time before it starts functioning again. But since there is no more viable way of producing flat sheets, thin slab casting technology can help Nucor achieve economies of scale more quickly as compared to integrated steel plants. Furthermore, since automobiles and appliances are the largest consumers of flat sheets, using this technology will help Nucor to target this market too.
3. Is thin-slab casting likely to provide Nucor a sustainable competitive advantage in flat-rolled steel products?
Thin slab casting technology is relatively a new concept in the U.S steel industry. The management must look towards the future of the company as well as the industry before pursuing it. Currently, the U.S steel industry is facing maximum demand for flat steel sheets. If Nucor employs the strategy of thin slab casting to produce flat sheets, it will manage to capture more than fifty percent of the steel industry easily. It will also be able to tap into automobiles and appliances market. Unlike integrated steel plants, thin slab casting technology can be used at a smaller scale with a smaller plant. Smaller plant means lower operating cost, lower investment costs and lower cost of production.
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