Assignment:
Read the case and answer the questions that follow. Studying this case will help you better understand how concepts relating to strategic planning can be applied in an organization such as Nucor Corporation.
An outsider might guess that steel is just a commodity and as such offers little room for creative management. But Nucor Corporation is an example of how innovative strategic planning can set a company apart from its competitors even in a traditional industry such as steel manufacturing.
Global competition has tested the steel industry over the past few decades in the United States. Whereas most of Nucor's competitors focused on making their old processes more efficient, operating blast furnaces in huge steel mills, and moving work overseas as they struggled to cut costs, Nucor survived by turning to new technology, running electric are furnaces in smaller facilities, and keeping most of its operations in North America. Instead of laying off swaths of hourly workers, Nucor streamlined the management ranks and gave decision-making authority and performance rewards to its hourly workers.
The non-union workforce has contributed higher productivity, and innovation has been profitable: Over the past dozen years, Nucor's shareholders have seen their investments generate total returns of 538 percent, more than four times the average returns for steel companies in the Standard & Poor's stock index over the same period.
Today Nucor is the largest steel producer in the United States, running 90 businesses and 200 production facilities. Nucor's mission statement says, "Nucor is made up of more than 20,000 teammates whose goal is to take care of our customers.
We are accomplishing this by being the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world." The mission statement continues by expressing the company's commitment to society and sustainability: "We are committed to doing this while being cultural and environmental stewards in our communities where we live and work. We are succeeding by working together. Taking care of our customers means all of our customers: our employees, our shareholders and the people who purchase and use our products."
Nucor describes itself as "North America's largest recycler."
The company's favored technology, electric arc furnaces, involves melting down scrap steel, the main raw material. When the cost of scrap steel rises, Nucor makes and uses direct-reduced iron (DRI). A DRI facility produces high-purity iron pellets by stripping oxygen from iron ore. Currently, melting these pellets together with scrap metal produces steel at a lower cost than using scrap metal by itself.
Deciding whether to use DRI plants or other kinds of facilities and where to locate the facilities involves a complex set of considerations. The process for making DRI pellets uses natural gas, so managers have to consider the cost of this resource. DRI plants are located where natural gas is cheapest, such as in the Middle East; as of 2009, U.S. DRI facilities had all moved overseas. But as energy companies have begun obtaining natural gas through hydraulic fracturing, the cost of natural gas has tumbled in North America, and Nucor decided to open a DRI facility in Louisiana.
The plant, costing $750 million to build, is expected to be the second largest in the world. By investing so much in this facility, Nucor's management has committed itself to the belief that this technology will remain profitable for years to come. Of course, conditions can change, and natural gas prices might rise. To be prudent, the company signed a deal with a Canadian company called Encana Oil and Gas that makes Nucor an investment partner in one of Encana's drilling operations. The idea is that if gas prices are high, the earnings from the drilling unit will help pay for gas to run the steel plant. That decision has its own risks; in fact, Nucor and Encana recently put drilling operations on hold because the continued low prices for natural gas made the drilling operations unprofitable.
Questions
1. Why is it important for Nucor to have a mission statement? How do the strategic decisions described in this case support Nucor's mission?
2. Using examples from the case, describe how Nucor's managers can use critical question analysis to formulate a strategy.
3. Which of the three generic strategies identified by Porter best describes Nucor's strategy? Explain your reasons for choosing this strategy.