Monday, October 06, 2008

Case Study: Nucor Steel Corporation.

Nucor Corporation is characterized by its owner‐operators who take pride in their work and teams and as a result have created great profitability for a traditional steelmaker. Nucor is known for many things including its pay practices that base earnings on performance as well as the value and trust the corporation places in its employees. At Nucor employees are rewarded based on their effort, treated with great respect and empowered to make decisions based on their expertise and knowledge. Nucor is a unique organization among its rust‐belt counterparts. To understand its success it is necessary to understand the leadership mentality, empowerment strategy, motivation and rewards base as well as its approach to change and innovation. All of these elements have turned Nucor into a desirable place to work with the potential for future success as it acquires new entities and grows.

When looking at the Nucor Case Study, it is advantageous to discuss the leadership styles in relation to the Vroom‐Jago Leadership Model as well as other concepts and issues of leadership. The initial leader to focus on is F. Kenneth Iverson, a former Nucor Steel President (1965‐1999) and legendary leader. His leadership fostered the close‐knit culture that exists even today.

When Iverson and Sam Siegel, Financial Vice President, initially assumed leadership roles, they exhibited the AI Autocratic style at individual and group level in selling off many wide‐ranging operations to focus on one area. They also made the decision to move corporate headquarters to where it is even today, Charlotte, NC. From that point leadership has continued to have a basis in the group with Nucor employees empowered to make decisions that will benefit the organization. Nucor Steel‘s leaders also exhibited other Vroom ‐Jago leadership styles as they evolved to the present day. Iverson installed radical concepts giving employees better pay and real power exhibiting GII decision Style: willing to accept and implement employee decisions. Current CEO Daniel R. DiMicco uses a different leadership style when purchasing 13 new companies and instilling the unique culture in those new facilities. Nucor management, as a whole still focuses on the people in the front line of their business predominately using DI individual style leadership and GII group level decision style.

Different perspectives of leadership also can explain Iverson and DiMicco. Both exhibit traits of charismatic leaders. The case study points out how employees are willing to accomplish tasks based on an emotional commitment to Nucor Steel. The example of electricians helping sister plants in another state on their own initiative shows, when crisis arose, the employees showed extraordinary behavior. All General Managers contact a new GM within 2 days of starting in a different factory, offering help, and meaning it. This behavior is unconventional, and counters to established norms in the current business culture. Only a visionary charismatic behavior from the leader could motivate such commitment.

Leadership approaches discussed here point out that leadership is an exchange process with employees. A look at transactional leadership and transformational leadership helps further explain Nucor's success. Transactional leaders help the follower identify what is done to accomplished desired results and ensure the resources are on hand to complete the job. Transformational leadership motivates followers to work for goals rather than on short term self-interest this leader is able to express clear vision and inspire other to accomplish that vision. Nucor's management, in this case study continually exhibit transformational leadership attributes. When Nucor employees innovate themselves out of tight spots, the leader’s charisma has instilled this sense of value respect, and pride. The General Managers reaching out to the new GM shows leaders reaching out to help individual needs. These leaders allow the employees to rethink rational ways to correct problems, and do not intervene in work tasks unless people are sidetracked. The most important aspect of transformational leadership is charisma coupled with other roles. The deep emotional attachment to Nucor management is one facet of this style. These leaders also play the role of teacher, coach, mentor, reformer, or revolutionary further establish their transformational style of leadership.


In addition to the various leadership styles and involvement of the employees and commitment to the organization there are different types of power between leaders and employees at Nucor. There is a lot of employee power at the Nucor Steel Company generating from the flat organization structure found within the company and the leaderships focus on employees. A standard joke in the company is that if you were a janitor and you got five promotions you would have the CEOs job. Unlike the pyramid structure that is found in other companies, at Nucor the CEO believes that he is the one who was at the bottom and he works for all the others in the organization.
Power within Nucor, as in other corporations, comes from two places: interpersonal and structural. With the flat organizational structure at Nucor the majority of the power is interpersonal rather than prescribed by the organizational structure and layers of management. At Nucor employees have a large amount of power – specifically expert power. Expert power arises an individual has the ability to influence as a result of a highly valued expertise regardless of job title.

Expert power is clearly exhibited in the case study when employees call upon each other (as in the case of the Hickman plant calling expert electricians from another plant) and when leadership entrusts decision making to employees. In addition to expert power, referent power is also common among Nucor employees. Referent power is based upon charisma – whether it is the charisma of the CEO or of the line worker, this type of power comes from interactions with others. Not only did Nucor leaders Iverson and DiMicco have structural power they also had referent power from charismatic leadership styles.

Where interpersonal power results from expertise, attitudes and actions, structural power comes from the organizational structure itself. At Nucor with its flat hierarchy structural power is not the main source of influence or power. A type of structural power that is present is the decision making power of the employees. Individuals at Nucor have a broad range of decision making power as seen in the electrician situation. The decision making power is based on the premise that they will make the best decisions for the organization since their compensation depends on the organizational success.

Motivation & Rewards

When looking at the Nucor Corporation, it is important to understand why the employees are motivated to act the way that they do. Nucor has high job satisfaction which in turn brings improved job performance. This improved performance benefits everyone in the company instead of just management at Nucor.

Herzberg's two factor theory is utilized in the Nucor case study. The people from Nucor demonstrated there were motivators by traveling to fix a problem that was a great distance away. The people in this situation had achievement, recognition, and responsibility all in mind when they decided to take steps not required to help others in the organization. Achievement motivated the employees in the example because they knew that they were helping the company immensely and this would in turn help them. The recognition would be shown in their personal pay checks. The responsibility in this situation was the people agreeing to help out without any supervisors there to persuade them to go. Additionally, teams in Nucor's situation are beneficial in motivation. People are willing to help one another because both people will be rewarded for a job well done. The mentality of "us guys" instead of "you guys" motivates people to form teams in a manner that is beneficial to the company.

The hygiene factors in Nucor case does not apply to their company. The areas of dissatisfaction that most other companies face such as pay and security do not come in to account. The factory workers by percentage make a much more comparable amount to their managers in comparison to different companies.

The primary reward for the executives at Nucor is financial compensation, including benefits. In their roles as executives, they naturally have many of what could be considered rewards by others in the organization. Autonomy, the ability to effect decision, and many other roles are a natural part of the role as an executive within an organization. The executive salaries are on average are a bit lower than average, while performance based pay is more and makes up more than 50% of total compensation.

The performance‐based component is primarily paid in the form of stock options and restricted stock. Options allow the holder to purchase the stock at a specified price, usually lower than market value. Restricted stock is direct partial ownership in the organization that vests over a period of time. These types of rewards are common among executives, as there is a direct correlation between how the company performs and the ownership stake the executive receives in the organization they have the ability to effect.

The employee reward system contains both financial rewards (including benefits), as well as non financial. The average employee at Nucor makes $100k a year, 20% more than industry average. This reinforces the organizations belief that people are the backbone of the company, and further strengthens the commitment to try and retain its employees. One of the most difficult aspects to manage in the milling industry is the turnover and training of employees; Nucor has recognized this and used financial rewards to deter this from taking hold within its own organization.
The employee also has intrinsic rewards available within the organization. They include: completion, autonomy, achievement, and personal growth. Moreover, they are all encouraged within the culture. This is most evident in the recalling of employees taking it upon themselves to help during a time of need. This allows them to grow, achieve a goal, make their own decision, and work until completed.
Approach to Change.

In analyzing the Nucor example, several observations can be made on change within the company and can be analyzed from the following viewpoints:

the external and internal forces driving change,

the agents of change involved,

the benefits and drawbacks, and

Nucor is committed to its mission, taken from the company website, of “being the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world”. Therefore, reasons for change will be driven, as with any competitive company, by market conditions and competition. Under the three external force categories of economic, technology, and social / political change, changes based on market and competitors fit under the area of economic forces. An early example of an external economic force that caused the company to change was the high cost of steel in the 1960’s.

This high raw material cost drove the company to investigate how to supply its own bar steel rather than buying it on the open market. This was the start of an entire production strategy that is responsible for the survival of the company today. Another example of external forces of change facing Nucor today is the Crawfordsville plant which lacks access to a large waterway and therefore has to use ground transport for products, exposing the company to high fuel costs and their fluctuations. This is an example of external forces causing competitive disadvantage which will drive change into the organization.

Internal forces are also a factor of change at Nucor. The example cited by David Hutchins, a frontline supervisor at the Auburn, NY plant, explains that instead of slowing down his group’s production cadence in response to a problem occurring downstream in the manufacturing sequence, his group goes to the “bottleneck” and helps solve the problem. This seems characteristic of the way change is brought about and is an example of internal change forces. As employees recognize problems within the organization, they initiate change to solve the issues. Another example of internal forces requiring change would be the Crawfordsville plant’s limited capacity to produce wide sheets and the fact that it is Nucor’s oldest sheet mill. These limitations, internal to the company’s production facilities, will drive needed change.

The agents of change at Nucor are primarily internal change agents. The highly motivated workforce initiates change motivated out of rewards and personal implication that is tied to the culture of the organization. The example of the 3 electricians ‐ who went, of their own initiative, to the Hickman plant that was not theirs, and spent 20 hr days working over the weekend to get the electrical grid back up and running so the plant could perform to production plans – shows the level of empowerment and implication of the Nucor employees and that they didn’t depend on people outside the company to initiate the needed changes. Another illustration of internal change agents at Nucor is when the new manager of the Grapevine, TX plant received calls from all the other plant managers offering help if needed. The reflex of the Nucor employees is to personally involve themselves wherever they are needed.

There are several benefits to the Nucor approach of responding by internal change agents to internal and external forces. The company doesn’t have to depend on external change agents that need to spend time learning and analyzing the problems before initiating change. This is a gain of time and also expense since the external change agents charge consulting fees. There is also a major benefit in the creation and maintaining of the culture of “us guys” who are responsible for the business results at every level of the organization. The fact that the employees initiate change when they find problems within the company (internal force of change) is beneficial because not only is there a constant flow of continuous improvement effort that address specific issues, but also all areas of the company are enhanced from a performance standpoint because the entire workforce has the entrepreneurial spirit to impact results everywhere in the company.

This same spirit and benefits apply when economic or environmental conditions are identified and require change (external force of change). Because the whole company is striving to reach performance goals, the external forces of change motivate company‐wide adjustments to operations and strategy.

Possible drawbacks to Nucor’s approach would be that external change agents might be able to see blind spot areas that the internal change agents might miss. Another drawback would be that the internal change agents are also responsible for the daily running of the business and therefore might not have all the necessary resources (time and energy) to implement all the necessary changes and end up in a “burn out” situation.

The Nucor culture of continuous improvement toward performance goals also drives innovation. The early example of high steel prices compelled the company to innovate by changing their business model to use a process that was new to the US steel industry. Nucor switched to European type electric arc furnace mills (called minimills), which not only were cheaper to build but also used less expensive scrap steel to supply raw material.

Nucor also implemented this type of recycled scrap steel production on a larger scale than had ever been tried. Another example of innovation is the use of a West German technology to create steel sheets out of thin slabs that was at the origin of the Crawfordsville plant ‐ the world’s first thin‐slab cast mill. Innovation and change is ever‐present at Nucor. The company faces constant external and internal forces of change and the resulting innovation and change is seen as the responsibility of every Nucor employee. As the article states, “…Nucor employees have to innovate themselves out of tough spots and into more profitable ones. Changes have to be made often to the environment.”

As Nucor Corporation continues to innovate and grow as an organization, success will require a continuation of the innovative work practices they have implemented. Through empowering employees, providing rewards based on the achievements of the company, motivating team members and continuing to drive change they will have continued success. Nucor’s historical financials (www.nucor.com) show a steady increase in sales and earnings. Their corporate policies surely contribute to the successes as many other steel mill and industrial organizations have failed. In the words of Louis L. Schorsch, president and CEO of Mittal Steel USA (a Nucor rival), “In terms of a business model, they’ve won in this part of the world.”

Study done by:
Kim Selleck
Theresa Wood
Dave Miller
Gerald Baraza
Bill Reynolds
Jeff Williams
Organizational Behavior: Management Class of Professor Allene Kief

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