The case detailing Nucor was interesting to me because they kept an extremely small corporate staff consisting of only 25 employees. This allowed them to keep a flat structure, keep less of a hierarchy, and decentralized their operations in general.
Strengths
Nucor’s main strength was its good relations with outside companies. This allowed them to keep operations small but at the same time fulfilled many of their needs like research and development, advertising, and company relations. Outsourcing these core components allowed Nucor to gain the experience from each of these companies while keeping their costs down. Keeping the company small also allowed them to offer superior bonuses to employees based on production. Incentives were derived from target profits for each of its 22 divisions. With a generous bonus system, this gave them an incentive to produce, and since the organizational structure was decentralized, the employees just needed to worry about hitting their specific profit level, and not as much about bureaucracy, which allowed them more freedom to perform well at their jobs.
Weaknesses
Nucor’s family environment for its employees was also its greatest weakness. Many employees knew that they would not lay off any employees which decreased employee motivation. This made cutting costs for Nucor extremely difficult because they still had to pay all their employees base salaries, even if they weren’t performing. In September of 2008, when the financial crisis struck creditors which caused a pullback of many buyers in the steel industry, Nucor suffered from not being able to cut costs as efficiently as its competitors. Another weakness of Nucor was its inability to maintain constant growth. This was due to being in a fragmented market with many marginal competitors.
Opportunities
An important opportunity that is present in the steel industry is the opportunity to acquire smaller companies in its fragmented market. Large steel producers can seize this opportunity which will allow them to experience better economies of scale. Since they have a product that cannot be differentiated, it is vital for their costs to be as low as possible. Another opportunity would be for the large steel companies to vertically integrate. They could integrate backward by acquiring a scrap metal provider. This would help them with lowering their costs because the price of scrap metal has been on the rise.
Threats
The biggest threat to the steel industry is a decrease in demand for steel in general. This has led to increased inventory costs causing the cost of raw materials to increase which hinders their overall profits. Another reason why the demand for steel has decreased is former developing countries in Asia have been become developed so their need for steel has decreased. Recommendation The best thing Nucor can do at the present moment is to focus on vertical integration rather than growth. It is imperative that they focus on cutting costs during a time of economic recession. Another thing they should consider is to reevaluate their stance on laying off employees. Although this might cause some detestation within the company, it is vital to the company’s chance of surviving the current economy.