Strategy of Nucor: Strategic Management

Introduction

The steel industry is one of the profitable industries today and, as predicted, in future. An industry with this kind of rapid change presents several challenges for companies like Nucor, namely production costs, and monopolies. Production and technology are the primary driving factors of this industry (Drejer, 2002). At the beginning of 21st century, Nucor looks for ways to deliver customer satisfaction at a lower cost, smaller size, and higher speed. Nucor is profitable corporation but it will require changes in competitive strategy to remain in an industry and, under some circumstances, it can occasion the decision to exit a business or an industry (Nucor Home Page 2009).

Company Overview

History of the company goes back to 1897 and is closely connected with the Reo Truck Company. After the WWII, the company declined and Nuclear Corp. of America was created in 1955. Since that time, Nucor obtains strong position on the market as a leader in steel industry. “Over second 20 years, Nucor was to rise to become the second-largest US. steel company” (Barnes and Tyler 2005, p. 246), The company is well-positioned to take on this important leadership role. It now has the global resources in place and certainly has the technological capability. Nucor has clearly established itself as a global market leader in many interrelated categories. In spite of the facts that “the previous three years had been among the worst down cycles in the steel industry’s history” (Barnes and Tyler 2005, p. 246),

Environmental Analysis

PESTEL

In the USA, political and legal environment is favorable for steel corporations based on stable political situation and protective legal measures. Nucor operates in high dynamic environment which requires continuous optimization of a product mix and new ways of doing business. Price competition, backed by improved efficiency, is the main feature of steel industry today. Many US-based companies fight for survival in markets faced by global competitors ion. Within rapidly changing environment, this kind of development ensures that long-term survivors are those firms who are more competitive and are better able to satisfy consumer needs and adapt to the new competitive environment. Nucor obtains a strong brand image in the steel industry proposing high-quality products. Nevertheless, the weakness is lack of strategic vision, high labor and economic declines (Drejer 2002).

Economic situation in America has an impact on Nucor as it reduces purchasing power of such giants as Ford and General Motors. Nucor has to develop new marketing strategy. The implementation will require additional spending, but they are essential for the company, because without these facilities it will not be able to compete on the market and increase its sales rate. Demographic and cultural situations in the country do not have a great impact on the company and its performance. This, increased number of car buyers and investments in real estate market creates opportunities for Nucor to expand its business (Buckley and Ghauri 1999).

In terms of technology and environment, Nucor relies chiefly on an efficient market system and product improvement. The traditional market for steel is not in maturity, and today it offers a limited opportunity for high profits, so it sets about developing products, that are both distinc­tive and could be sold at a premium price. A specialized product range, based on two basic lines of business, necessitated a clear identification of target market. The first line includes “the six steel joist plants which made the steel frames seen in many buildings. The second line included four steel mills that utilized the innovative mini-mill technology to supply first the joist plants and later outside customers” (Barnes, Tyler, 247), The original mission had made it clear that it was in the relatively unexploited sector that Nucor saw its clear­est opportunity for innovation. As the most important, these basic lines of business allow Nucor to set out to create a range of high-quality products that are distinctive in quality and technology (Dobson and Starkey 2004).

SWOT

The opportunities of Nucor include: high potential to growth and profitability of the company; promotion to other segments; improvement of product range. The technological advances are aimed to maximize security of customers and fasten the process of informational interchange. Intranets allow industry to react faster delivering customer satisfaction. Technology replaces traditional methods of steel business, and causes growth of online operations. Improvement of Internet services and Website will help to satisfy the customers’ needs. “Larry Kavanaph, American Iron and Steel Institute vice president for manufacturing and technology, said “Steel is a very high-tech industry, but nobody knows it” (Barnes, Tyler, 259). Nucor’s ‘mini-mills technology helps the company to maintain long-run supplier relationships and ensure profitability (Drejer 2002; Nucor Home Page 2009).

New technology and organizational management system open new opportunities for Nucor. Technological innovations and creativity in production can be regarded as business philosophy of Nucor. For instance, in 1980s, Nucor had spent millions trying to develop the process when it heard of some promising developments at a German company” (Barnes, Tyler, 255). Unique technology management employed by Nucor is aimed to coordinate production processes with all levels of the organizational structure including their interaction and performance. The balance of authority has undoubtedly shifted to traditional management who now has more selection over how it conducts relations with its workers and process. Innovation in production technologies and computerized system of supply chain is the main opportunity for Nucor. It needs innovative assembly lines in order to increase volumes of sales, and storage capacity. Internet is another tool that can help Nucor to reach its potential buyers without additional spending on promotion and advertising (Dobson and Starkey 2004).

Weaknesses involve economic problems that affected European and Asian countries. Constraints of global economic environment include legal barriers and European law. Many European countries restrict access to those goods which do not meet their standards. This means that goods and materials can be barred access on the grounds that they break national rules on health, safety and environmental protection. Nucor designed and developed all the products in order to meet international standards and local requirements. Operating on a pan-European basis involves Nucor addressing the issue of cultural difference and conse­quently developing a balance between standardization and adaptation (Drejer 2002).

Since the beginning of the 21st century, industry decline was the main threat that has affected many companies. “During those years Nucor acquired failing competitors, increased its steel capacity, and achieved a profit in every quarter. The world economy and demand had improved recently as prices went from $300 a ton to $640 a ton” (Barnes, Tyler, 246). In spite of this threat, Nucor sustains strong market position and leadership. Also, the threats involve decrease in sales of steel industry. The changes in the environment have changed the demand, but they do not have a significant influence on customers’ purchasing power. The threat is population shift which has a great impact on sales. Increase in interest rates and a non-compete clause are another problems for Nucor during the last years (Nucor Home Page 2009; Nucor Home Page 2009).

Porter’s Five Forces

Michael Porter contends that a company is most concerned with the intensity of competition within its industry. For Nucor, the intensity of rivalry” is strong including such giant as POSCO, Arcelor Mittal, ThyssenKrupp AG, Corus Group Limited, Baosteel Group Corporation, United States Steel Corp., “Pressure from substitute products” can affect competition inclosing low cost. “The bargaining power of buyers” influences steel industry because there are fewer the buyers and the larger the volumes of products available on the market. For steel company ability of a firm to use its resources and capabilities to develop a competitive advantage through distinctive competencies does not mean it will be able to sustain it. Two basic characteristics determine the sustainability of a firm’s distinctive competencies: durability and imitability. The market share of the company is 15 %. Thus, it ensures that it obtains a leading position and is able to compete with direct and indirect competitors (Dobson and Starkey 2004).

BCG Matrix

Using BCG matrix, Nucor can be positioned as “cash cow” with low growth but high market share. Nucor gains competitive advantage by conceiving new ways of conducting activities, employing new procedures, technologies, inputs or channels of distribution. Managing the organization is therefore not just about managing functions, but managing linkages between those functions. More will be said about the integration of various facets of the value chain in the discussion on implementation strategies (Drejer 2002).

Miles and Snow

Following Miles and Snow’s organizational types matrix, Nucor tries to penetrate deeper into current market. International expansion and global strategy are to aim at a particular target market. One of the main functions of global and international promotional activity is of course to influence the perceptions of the consumer. Nucor maintains policy of product standardization in order to sell them around the world under the same brand. “In 1995 Nucor became involved in its first international venture, an ambitious project with Brazil’s Companhia Siderurgica National to build a $700 million steel mill in the state of Ceara” (Barnes and Tyler 2005, p. 257).

Competition and Position on the Market

Increased competition in the international arena threatens profitability of such giants as Nucor. For instance during 1990s, many companies “had found it difficult to compete with imports, usually from Japan, and had given market share to imports” (Barnes, Tyler, 247). The main problem was that imported steel accounted for 20 percent of the U.S. steel consumption which limited price level and competition in the home market. The first group of competitors includes local companies; the second group involves international companies and international competition, and the third one is global competition:.

In this case, Nucor develops multidimensional strategy to cover three competitive segments: local (national), international and global. This strategy involves brand positioning, market segmentation, strategic alliances and value pricing strategy. “Three European companies—Prance’s Usinor SA, Luxembourg’s Arbed SA, and Spain’s Aceralia Corp.—merged to form the world’s largest steel company. Two Japanese companies—NKK Corp. and Kawasaki Steel Corp.— merged to form the world’s second-largest steelmaker” Barnes, Tyler, 263). New competitors may find it difficult to gain access to delivering service, which will make it difficult to provide their service to customers or obtain the inputs required or find markets for their outputs. On the other hand, these ‘mega-steel markers’ represent the main threat for Nucor in the USA (Thompson and Martin 2005).

Strategy Formulation

The mission of Nucor is to reach wider target audience and expand internationally. Vision is that product quality is used as a strategic weapon and the aim of Nucor is to maintain high-quality standards at costs lower than competitors. Marketing strategies are the broad approaches Nucor intends to adopt in the longer term to achieve its marketing objectives in accordance with its mar­keting policies. Strategies are developed for the following: The market segments in which Nucor will concen­trate and the marketing position it proposes to adopt in each segment (i.e., the extent to which it positions itself close to a competitor but establishes differ­entiation through product features and price distinction, or the extent to which it attacks markers established by gap evaluation) (Drejer 2002). The blend of controllable marketing variables required producing the response wanted in the target market. The mix includes new products, prices, promotion, advertising, field sales and distribu­tion (Thompson and Martin 20050.

Following Mckinsey 7 s model, strong corporate culture is one of the main strengths which help the company to compete. For instance, “In early 2000, Nucor had an outside consulting firm conduct a survey of the company’s image as seen by the top 10 to 15 managers, including the corporate office. It also gathered the views of a few analysts and media personnel” (Barnes, Tyler, 262). The culture and structure of Nucor develop over time and in response to a complex set of factors. Usually large organizations like Nucor have more formalized structures and cultures. Increased size is likely to result in separate departments and pos­sibly split-site operations.

Another important feature of Nucor is the non-price competition which takes form of branding, advertising, promotion, and additional services to customers and product innovation. Speaking about the nature of competition it is possible to say that Nucor has a competitive advantage. Price competition involves businesses trying to undercut each other’s prices; this will be dependent upon their capability to reduce their costs of production. Brand equity represents the added value that accrues to a product as a result of Nucor’s prior investments in marketing. Brand equity is thought of as an asset representing the value created by the relationship between the brand and customers over time (Mintzberg et al 2004).

Vision of cultural and social values has a direct impact on Nucor and its market performance. This factor could be interpreted as strength but globalization process and changing international relations show that cultural and social values become opportunities rather than strategies for global steel companies. A solid understanding of cultural preferences is important for any company that markets such products internationally. Nucor leverages superior cultural understanding to compete effectively with large foreign firms. It is possible to say that it has an advantage drawing from tradition. In recent years many people are concern about their health and quality of water they use. Industry structure and market position of Nucor suggest that threat of entry is low. Steel giants like Nucor resist strongly, so it makes it diffi­cult for new organizations to enter the steel industry (Grant, 1998).

Strategy Implementation

New logistic systems help the company to improve its market position after decline. These tendencies occur within both traditional and internet-based logistics systems. A combination of the two provides a further layer of both challenge and opportunity. Employees, who have perhaps worked within the traditional system for a number of years, must now learn a new methodology using technology with which they may not be too familiar. Resistance to change often occurs within businesses that are seeking to introduce an Internet component. In addition, “The steel industry had established a pattern of absorbing the cost of shipment so, regardless of the distance from the mill, all users paid the same delivered price. Nucor broke with this tradition and stopped equalizing freight” ” (Barnes and Tyler 2005, p. 248). If it successfully navigates this balance, it will find that it can not only maintain its current position but also expand into new territories and possibilities for profitability/growth (Grant, 1998).

In relation to competitors, Nucor provides comparable buyer value but performs the activities more efficiently so as to attain a cost advantage, or perform the activities in a unique way that raises the value to the con­sumer and thus allows them to command a premium price – the concept of differentiation. The activities performed may be grouped into two categories: those associated with the core activities of ongoing production, marketing and servicing are referred to as primary activities while those providing inputs, technology, human resources and infrastructure to support the manufacturing function are referred to as support activities. Quite clearly, the pri­mary activities draw on a wide variety of support activities in their ongoing management (Gardiner, 2005).

Some critics state that the weakness of Nucor is the lack of promotion campaigns aimed to attract new customers, and absence of competitive advantage. “Some, most familiar with the company, believed company needed to do a better job of communicating its vision during a period of transition” (Barnes and Tyler 2005, p., 262). High labor and energy costs are the main threat for Nucor. Economic recessions and industry declines affect Nucor and its market performance. “With output of around 20 million metric tons each, U.S. Steel and Nucor face an uncertain environment as the industry consolidates” (Barnes and Tyler 2005, p. 267). The role of Strategic Alliances is made all the more complex and thought-provoking because of the competition of ideas between different academic and political standpoints. Nucor proves that Strategic Alliances are the best form to reach global dominance and reduce competition. So, it creates new opportunities for Nucor on the global scale. Joint venture is another important part of Nucor’s international strategy. From the economic side steel industry has to spend its own resources in order to meet the requirements focusing on technological efforts, security. Nucor has also realized rapid expansion through capital injections (Gardiner, 2005).

Performance

In order to control performance, Nucor applies financial measures and statistical control tools. The approach is ‘inside-out’, suggesting that Nucor is seeking competitive advantage must first examine and develop its own distinctive resources, cap­abilities and competencies before exploiting them in its environ­ment. In the long run, however, it may be possi­ble for Nucor, through its choice of strategy, to change the strength of one or more of the forces to the company’s advantage. Taking into consideration the statistical data of Nucor it is possible to say that it is profitable because the value exceeds the cost of performing various factions which include: financial management, technology management, organization and human resource management, supply and bound logistics, operations, outbound logistics, sales and marketing. Significant variations in national markets originate often in straightforward economic differences.

Nucor cannot survive just waiting for the customer to come to it. Instead, it gets better at focusing on the specific market segments whose needs match our offerings. During controls and evaluations methods (Gantt chart), Nucor needs to focus on the marketing message and its products offerings. The marketing controls consist of the way in which the various component parts and techniques of the marketing effort are combined and varied in order to achieve marketing objectives (Nucor Home Page 2009). In some cases, Nucor uses network analysis, in such types as PERT (Program Evaluation Review Technique) and CPM (Critical Path Method). Both of these methods are applied successfully to problems of planning and control. Both are effective tools for specifying, coordinating, and integrating activities, situations, and resources that are interwoven in order to reach project aims at time. The main advantage of these techniques is that they do not require large-scale computers except for complex situations.

Mintzberg School of Thought

Mintzberg School of Thought contains ten different elements (schools) which help a manager to evaluate the company and its environment. These schools involve the design, planning, positioning, entrepreneurial, cognitive, learning, power, cultural, environmental and configuration schools. New economic landscape, Nucor has to choose a new strategy aiming to address new market and environmental changes. Taking into account current situation, it is possible to say that Nucor has to develop a completely new vision of its marketing system based on global strategies. Specification in Nucor is determined as a result of an organization’s pol­icy, which in turn resulted from decisions on its market policy, which in turn resulted from its consideration of the market or customer needs, requirements, and the activ­ities of competitors. This is the process of designing quality into the service. Sales strategy is on a one-to-one basis (Mintzberg et al 2004).

Conclusion

Economic forces affect Nucor by the impact that they have on market potential and, at any point in time, market actualization. In addition, economic forces in a country may be influenced strongly by the infrastructure that exists, including the communications, energy, and transportation facilities. On a broader scale, the extent of the economic development of a market influences the lines of business and methods by which business can be carried out in a country. Infrastructure is affected, as are all types of institutions within the country. Still, Nucor obtains a strong market position by introducing new ways of doing business. Communication, employed by Nucor, is affected by internal and external environment, by the nature of the task, and by tech­nology. For example, difficulties in communication can arise with produc­tion systems where workers are stationed continuously at a particular point with limited freedom of movement. Even when opportunities exist for interaction with colleagues, physical conditions may limit effective commu­nication.

Bibliography

Barnes, F. C., Tyler, B.B. Nucor in 2005. Case 23. Strategic Management Textbook. Edit. M. Hitt, R.D. Ireland, R.E. Hoskisson, 7th, pp. 246-267.

Buckley, P.J. Ghauri, P.N. 1999. The global Challenge for Multinational Enterprise. Pergamon.

Dobson, P., Starkey, K. 2004, The Strategic Management: Issues and Cases. Blackwell Publishing.

Drejer, A. 2002, Strategic Management and Core Competencies: Theory and Application. Quorum Books.

Gardiner, P. 2005, Project Management: A Strategic Planning Approach. Palgrave Macmillan.

Grant, R. M. 1998, Contemporary Strategy Analysis, (3rd edn.). Oxford: Blackwell.

Mintzberg, H., Lampel, J. B., Quinn, J. B., Ghoshal, S. 2004, The Strategy Process. Pearson Education. Nucor Home Page. 2009. Web.

Thompson, J. L., Martin, F. 2005. Strategic Management: Awareness, Analysis and Change. Thomson Learning.

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