Nucor Strategic Report: Steel Giant's Management Case Study

FINAL PROJECT REPORT
STRATEGIC MANAGEMENT

CASE 14 - NUCOR

SUBMITED TO PROF. NASIR RIAZ
SUBMITED BY GROUP 6
FAHAD IQBAL
L1F07MBAM2175
FATIMA AWAN
L1F07MBAM0071
AFZIA FAROOQ
L1F07MBAM2256
AMNA QADIR
L1F07MBAM2126

UNIVERSITY OF CENTRAL PUNJAB

STRATEGIC MANAGEMENT Page 1

PREFACE

All praise is to Almighty Allah for bestowing us with the wisdom to accomplish our task.

The main purpose of the project is the fulfilment of the requirements of the STRATEGIC
MANAGEMENT, which is the part of our study work.

NUCOR is the diversified business of STEEL. The information has been gathered from
different sources including the case study, web site. We have included all the information
obtained from the mentioned sources and no part of this project has been added from own.

As regards the preparation of this project, all the topics are added in a proper sequence,
starting with the table of contents, including the history, overall view, company information,
everything that was required for the completion of the project.


ACKNOWLEDGEMENT

In the name of Allah the most beneficial and the most merciful
Nothing I have done so far without his help.

We would like to express our gratitude to all those who gave us the possibility to complete
this project report on Nucor case study. We have furthermore to thank our parents who pray
for our success for the completion of this project.

We are deeply indebted to our Respected Prof. NasirRiaz from the University of Central
Punjab whose help, stimulating suggestions and encouragement helped us in all the time to
complete this case report


Executive Summary

This report primarily discusses the challenges that Nucor is facing or going to face in
the wake of steel industry evolution and general social and economic climate changes.
Industry standard analysis tools and methods have been used to basically understand what is
happening at the macro economy and industry level, where Nucor's strengths and weaknesses
are, and how they can continue to strive in this challenging environment.

The strategic analysis using tools shows that Nucor has been doing very well in the
past years by developing the right strategy and executing them well. However, in the face of
economic boom in emerging countries, globalization, scarcity of raw materials, increasing
concerns for environmental well-being and worsening energy crisis, Nucor is presented with
new threats and opportunities. It should capitalize on its key strengths especially the people,
manufacturing excellence and lean organizational structure to face these threats and capitalize
on the opportunities.


TABLE OF CONTENTS
TOPICS
Page
No
NUCOR HISTORY............................................................. 5
CRITICAL ISSUES............................................................ 6
STRATEGIC ANALYSIS..................................................... 7
Swot matrix........................................................ 8
IFE / EFE Matrix................................................. 9-10
Porters five forces model ..................................... 11
Competitive Profile Matrix.................................... 13
Space Matrix............................................ 14
Grand Strategy Matrix............................................ 15
FINANCIAL ANALYSIS.......................................................... 16
RECOMMENDATIONS.......................................................... 18
QSPM................................................................................... 20
CONCLUSION....................................................................... 21


NUCOR'S BACKGROUND

Nuclear Corporation of America (later renamed Nucor) was a sick company with a history of
mediocrity. Founded by R.E. Olds to manufacture the REO automobile, the company was
originally called the Reo Motor Car Company. It went bankrupt in the 1930s, reorganized,
and became a profitable defence contractor during World War II. After the war if filed for
bankruptcy again. In 1955 it was acquired by a group that renamed it Nuclear Corporation of
America and focused its activities on the manufacture of nuclear instruments. The renamed
company posted losses until 1960 when control was purchased by a New York investment
banker. The new owner tried to turn the company into a profitable conglomerate with
operations not only in nuclear instruments but also in such field as rare earths, steel joists and
contracting and leasing. But most of what was acquired turned out to be unprofitable. By
1965 only one of Nucor's eight divisions was profitable and the owners concluded that drastic
change was in order.
The one profitable division at Nucor was Ken Iverson's Vulcraft Division. Impressed by
Iverson's success, the owner's invited him to become the company's president with a mandate
to earn a profit. Iverson accepted. He immediately arranged to cut costs by reducing corporate
staff from twelve persons to two and moving headquarters from Phoenix, Arizona to
Charlotte, North Carolina. The headquarters move was accomplished with two vans and put
Iverson's office close to the profitable joist plant.


NUCORS HISTORY

As one of the nation's largest steel producers with more than $3.5 billion in sales, Nucor can
trace its origins to auto manufacturer Ransom E. Olds, who founded Oldsmobile and then
Reo Motor Cars. Through a series of transactions, the company Olds founded eventually
became the Nuclear Corporation of America, a company involved in the nuclear instrument
and electronics business in the 1950's and early 1960's.
Nucor suffered through several money-losing years, and when facing bankruptcy in 1965,
installed Ken Iverson as President and Sam Siegel as Financial Vice President. This change
in management led to a restructuring and a decision to rebuild Nucor around the major
profitable operations, which made steel joists in Florence, South Carolina and Norfolk,
Nebraska.
Nucor moved its corporate headquarters from Phoenix, Arizona to Charlotte, North Carolina
in 1966 and in 1972 adopted the Nucor name. Management then directed its energies toward
two basic businesses - the steel joist business, operated as Vulcraft, and the steel business,
operated as Nucor Steel. Today Vulcraft is the nation's largest producer of steel joists and
steel girders, standard building components in non-residential construction. Nucor Steel has
become well-recognized for its modern steel making techniques that can produce steel at a
cost competitive with steel made anywhere in the world.


CRITICAL ISSUES FACING BY NUCOR

In 1982, sales had fallen by 11% and earnings by 37% (Exhibit 14.2)
Nucor had been forced to cut wages for its top 12 executives by 5% (Exhibit 14.1)
Freeze wages for its 3500 employees (Exhibit 14.1, 14.2, 14.3)
Tough competition from other steel mills
Threats of new entrants
High Labour and energy costs
Rising cost of Raw material


STRATEGIC ANALYSIS OF
NUCOR

SWOT MATRIX OF NUCOR
THE
TOWS
MATRIX
Strength-S Weaknesses-W

1. Strong Management
2. Highly motivated,
workforce

3. Strong Financial
Position

4. Efficient use
resources

5. Risk Taking Culture

6. Strong Channel of
Distribution

1. High dependence on
U.S Markets

2. Declining Market
Share

3. No internal R&D

4. All major plants in
U.S

Opportunities-O SO Strategies WO Strategies

1. Expansion outside
U.S

Market Development
(S1, S3, S4, O1)

Expand Internationally
(W1, O1)
2. Improve R&D Use Financial strength &
innovative workforce to
improve R&D
(S2, S3, O2)
Improve R&D to reduce
energy cost of production
(W3, O2)
3. Export Products

Use Financial strength to
expand geographically
(S3, O1)

4. Joint Ventures with
other steel mills

Threats-T ST Strategies WT Strategies

1. Strong Competitors

Improve relations to reduce
competition pressure
(S2, S4, T1, T4)

Improve R&D
(W3, T3, T2)
2. Rising cost of Raw
Materials
Cost Leadership Strategy
(S3, S4, T2, T3)

3. Cyclical Demand

4. Labour cost


IFE MATRIX OF NUCOR

ANALYSIS OF IFE MATRIX

According to the analysis of IFE, the rating is 3.32 which is extremely strong and shows that
the NUCORis internally strong and good enough, so through their strengths, they can
overcome their weaknesses they are facing, like improving their R&D.

KEY INTERNAL FACTORS WEIGHTS RATING WEIGHTED
SCORE
STRENGTHS
1. Strong Management 0.15 4 0.60
2. Highly motivated, innovative workforce 0.15 4 0.60
3. Strong Financial Position 0.12 3 0.36
4. Efficient use of resources 0.10 3 0.30
5. Strong Channel of Distribution 0.13 3 0.39

WEAKNESS

6. High dependence of U.S Markets

0.12

4

0.48
7. No Internal R&D 0.13 3 0.39
8. Declining Market share / Sales 0.10 2 0.20

TOTAL 1.00 3.32


EFE MATRIX OF NUCOR

ANALYSIS OF EFE MATRIX

According to the analysis of EFE, the rating is 3.05 which show that NUCOR is externally
strong and competitive and it means that NUCOR can overcome their threats by taking
actions on their opportunities.

Key External Factors Weights Rating Weighted
Score
Opportunities
1. Expansion to outside U.S 0.15 4 0.60
2. Improve R&D 0.16 4 0.64
3. Export Products 0.13 3 0.39
4. Joint Ventures with other Steel mills 0.15 3 0.45

Threats
5. Strong Increasing Competition 0.15 3 0.45
6. Rising cost of Raw materials 0.10 2 0.20
7. Cyclical demand of Customers 0.09 2 0.18
8. Increasing labor & Energy cost 0.07 2 0.14

Total 1.00 3.05

PORTERS FIVE FORCES ANALYSIS
An industry environment analysis through Porters five forces of competition model helps to
better outline the current state of the industry and represent the intensity of competition
within it. The model is broken up into five partsthreat of new entrants, bargaining power
of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among
competing firms.
THREAT OF NEW ENTRANTS
First, the threat of new entrants is relatively small. This is derived from the extremely high
barriers to entry. Starting a company in the steel industry is very costly and calls for huge
capital requirements due to expensive up-front machinery requirements. Additionally, the
competition is simply too fierce from larger firms. The steel industry offers little room for
product differentiation and so larger companies can offer the low prices that buyers want
which cannot be duplicated by new entrants.
BARGAINING POWER OF SUPPLIERS
In the steel industry, the supplier group is powerful due to the importance of raw materials in
the manufacturing process. Basically, the supplier group has control due their critical role as
satisfactory substitutes to scrap metal and iron ore are not currently available. As supply
decreases for raw iron ore, prices increase. Furthermore, scrap metal offers the same
results.Again, company size helps here where essentially its the bigger the better. Suppliers
will often be more inclined to sell to larger steel manufactures as order quantities are higher.

BARGAINING POWER OF BUYERS
Similarly to the bargaining power of suppliers, the power of buyers is high here as well. As
previously mentioned, due to the lack of product differentiation, cost is the key driver.
Competition from foreign steel manufacturers is fierce and steel imports in the United States
are high due to steel often being able to be produced and sold cheaper than domestically.
A great portion of steel profits are derived from these large buyers. A couple key examples
are large scale construction and the automobile industry. Its critical for steel manufactures
such as Nucor to try to establish strong relationships with these buyers to generate large,
long-term profits. Finally, switching costs for buyers is low. Buyers can import steel or
purchase from another domestic company with lower prices. In order to stay competitive,
steel manufactures must keep costs to a minimum and use strategic organizational and
management styles to be able to offer the lowest price.


THREAT OF SUBSTITUTES
Unlike the other sections of the model so far, the threat of substitutes is relatively low.
Essentially, no other metal can offer equal benefits per cost that steel currently can.
Aluminium is probably the biggest substitute product to steel for most applications.
However, aluminium is not nearly as strong. Many of the applications for steel need huge
strength requirements (such as infrastructure) that aluminium simply cant offer.

RIVALRY AMONG COMPETITORS
Again, as previously discussed, rivalry is huge in this industry. The key driver is cost due to
lack of product differentiation. This creates major competition between firms and outlines
the importance of cutting costs in manufacturing. Additionally, joint-ventures are very
common and crate huge companies that dominate the marketplace through economies of
scale.
Corresponding, labour laws within the United States increase production costs that
international firms often dont have. Moreover, there is pretty low switching costs as
previously mentioned. The industry is pretty saturated and provides buyers with a wealth of
options when looking to make purchases. Steel manufactures that can offer the lowest price
will generally get the sale.


COMPETITIVE PROFILE MATRIX

NUCOR United
States Steel
COMMERCIAL METALS
Critical Success
Factors
Weight Rating Weight
ed
Score
Rating Weighted
Score
Ratin
g
Weighted
Score
Strong Management
Technology
Well Established
Financially strong
Access to Raw Mat.
Customer Relation
Global Expansion
Resources Available

Total
0.15
0.10
0.15
0.13
0.14
0.15
0.11
0.07

1.00
4 0.60
4 0.40
4 0.60
3 0.39
4 0.56
4 0.60
1 0.11
3 0.21

3.47
3 0.45
3 0.30
4 0.60
3 0.39
3 0.42
3 0.45
3 0.33
3 0.21

3.15
2 0.30
3 0.30
3 0.36
3 0.45
2 0.28
3 0.45
3 0.33
3 0.21

2.68

ANALYSIS OF CPM

The above analysis of CPM shows the clear picture to the firm about their strong points and
weak points relative to their competitors. As a result NUCOR is in the lead with highest
point of 3.47 as compared to USS 3.15 and COMMERCIAL STEELS 2.68. There is a
strong and tough competition among NUCOR and USS. This shows that NUCOR is a
competitive and strong industry in the US markets.


SPACE MATRIX OF NUCOR

Financial Strengths
Environmental Stability
Y Axis +5 X-Axis +1

ANALYSIS OF SPACE MATRIX
According to the analysis of above matrixwe can say NUCOR is following Aggressive strategy
because firm that has achieved financial strength in a stable industry that is not growing falls
in this quadrant.

+6

+5

+4

+3

+2

+1

AGGRESSIVE STRATEGY
-6 -5 -4 -3 -2 -1
-1

-2

-3

-4

-5

-6

+1 +2 +3 +4 +5 +6
Competitive
Advantage
Industrial Strengths


GRAND STRATEGY MATRIX OF NUCOR

Quadrant I Strategies

Market development
Product development
Market penetration
Backward integration
forward integration
ANALYSIS OF NUCOR
This analysis shows that NUCOR have the above opportunities to adopt. They can go for
joint ventures with other steel mills. NUCORs technology is very advance so they can also
go for horizontal and concentric diversification to increase their market volume and
profitability.
Quadrant II Quadrant I

Quadrant III Quadrant IV
Strong
competitive
position

Weak
competitive
position

Slow market growth
Rapid market growth


FINANCIAL ANALYSIS
NUCOR


FINANCIAL RATIOS

RATIOS 1980 1981 1982

WORKING CAPITAL $48,872, 282 $58,349,979 $66,439,942

ANALYSIS
Working capital, also known as net working capital or NWC, is a financial metric which
represents operating liquidity available to a business. According to above analysis, NUCORs
working capital is increasing which shows that companys current assets are increasing with
the increase in current liabilities.
CURRENT RATIO 1.7 1.8 2.0

ANALYSIS
Its a liquidity ratio that measures a company's ability to pay short-term obligations.
According to above analysis, NUCORs Current Ratio is increasing which shows that
company is more capable of paying its obligations.

SHARES O/S 6,849,997 6,963,507 6,995,941
ANALYSIS
Shares outstanding are common shares that have been authorized, issued, and purchased by
investors. According to above analysis, NUCORs shares outstanding is increasing which
shows that company have strong and more investors who are ready to invest in the company.

RECOMMENDATIONS
FOR
NUCOR

RECOMMENDATIONS FOR NUCOR
This is one of the most important and difficult parts of the study. I arrived at certain strategic
recommendations for NUCOR after the analysis of the above tools. Some of the important strategies
to follow are as below
IDENTIFYING STRATEGIES
Product Development
Market Development
Improve Research & Development
Acquisitions & Mergers
Backward Integration
RECOMMENDED STRATEGIES
MARKET DEVELOPMENT NUCOR should go for market development because
they are only focusing in U.S markets and are not expanding their business
internationally. They should focus on those areas where they are not doing or
expanding their business.

PRODUCT DEVELOPMENT The best recommended strategy for NUCOR is that
they should focus on product development. Due to strong and tough competition the
competitors are focusing on product development and introducing more and more
new products. So NUCOR should introduce new product items to maintain its
competitive edge and position in the market.

BACKWARD INTEGRATION They should do backward integration because of
higher cost of Raw material. Although they have their own distribution channels but
to save the cost of the industry they should go for backward integration.

QSPM OF NUCOR

FINAL RECOMMENDED STRATEGY
MARKET DEVELOPMENT
From the above QSPM evaluation, we can see that the rating for Market development is
much high 3.77 which mean that they really need the market expansion outside U.S. We
see it more appropriate to go for market development rather than Product Development.
INTERNAL / EXTERNAL FACTOR Weight Product
Development
Market
Development
STRENGTH AS TAS AS TAS
1. Strong Management 0.15 3 0.45 4 0.60
2. Highly motivated, innovative workforce 0.15 4 0.60 3 0.45
3. Strong Financial Position 0.12 2 0.24 4 0.48
4. Efficient use of resources 0.10 1 0.10 4 0.40
5. Strong Channel of Distribution 0.13 3 0.39 2 0.26

WEAKNESS
1. High dependence on U.S Market 0.12 1 0.10 2 0.24
2. Declining of Market share 0.13 0 0.00 2 0.26
3. No internal R&D 0.10 0 0.00 1 0.10

TOTAL 1.00
OPPORTUNITIES
1. Improve R&D 0.15 2 0.30 2 0.30
2. Global Expansion 0.14 2 0.24 3 0.42
3. Export Products 0.13 2 0.26 2 0.26
4. Joint ventures with other steel mills 0.12 0 0.00 0 0.00

THREATS
1. Strong Competitors 0.08 2 0.16 0 0.00
2. Rising cost of Raw materials 0.10 1 0.10 0 0.00
3. Cyclical Demand of Customers 0.09 0 0 0.00
4. Increasing Labour & Energy Costs 0.07 0 0 0.00

TOTAL 1.00 3.18 3.77


CONCLUSION
Overall, the steel industry is a very tough industry to compete in and be successful. It is vital
that Nucor is in a position to acquire other companies and form joint ventures. Nucor
currently has done a remarkable job moving itself to an industry leader. Their proven
organizational style, management, employees, and active pursuit of growth have allowed
them to emerge as a global industry leader. However, that is not to say there will not be more
major challenges for Nucor. Nucor is currently faced with increasing competition from both
domestic and international rivalries. It is critical that Nucor continues to grow and increase
global market share. Current management must continue to specialize in Nucors core
product and capitalize on a proven successful organizational structure.

Nucor Strategic Report: Steel Giant's Management Case Study

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