Nucor

1.) To what extent is Nucor's historical performance a result of the structure and characteristics of the steel industry?

An undeniable correlation exists between the historical performance of Nucor and the structure and characteristics of the steel industry. Nucor struggled in a variety of industries before consolidating operations to focus on the company's most profitable steel joist business. The inflexibility of the major integrated steelmakers provided Nucor the opportunity to horizontally integrate by building a minimill. The addition of manufacturing capabilities provided a cheaper sourcing option for Nucor's Vulcraft business and led to their entrance into the steel industry.

The U.S. steel industry, at the time of this case analysis, was defined by a high degree of competition due to the inability of integrated steelmakers, (i.e., U.S. Steel, LTV Steel, and Bethlehem Steel) to react to changing market conditions. High levels of corporate bureaucracy constrained the large steel mills as multi-layered labor structures resulted in slow processes. Integrated manufacturers experienced lower ROE rations than their U.S. manufacturing counterparts as large union obligations constrained the ability to make necessary technological investments. Foreign competitors took advantage of this situation by providing less expensive and higher quality steel due to superior technological innovation. Domestic competitors, however, took a different approach. Rather than attempting to compete with the integrated mills on the same scale, mini mills set up less expensive and more flexible operations while focusing on the low-end steel market.

Nucor essentially entered the steel business by capitalizing on second mover advantages and avoided the issues that plagued the integrated steel manufacturers. A large part of Nucor success, as measured by the company's stock performance (Exhibit 7), can be attributed to their decentralized management, willingness to invest in emerging technologies, and their opposition of organized labor. This model runs in direct contrast to the structure of the other members of the steel industry and allowed Nucor the flexibility to evaluate and invest in new opportunities as they developed. This agility has resulted in the above average historical performance of Nucor while the integrated mills continue to experience these same issues.

2.) To what extent is Nucor's historical performance a result of its resources and capabilities?

In a heavily competitive and largely unprofitable industry, Nucor has achieved above average performance by leveraging its main resource, its corporate culture, in three specific areas to develop capabilities unmatched by few, if any, rivals. Unlike its integrated competitors, Nucor has a decentralized management philosophy that reduces unnecessary levels of management and improves communication. Decentralization has led to a culture that is willing to accept challenges and has assisted in the establishment of a technological leadership position within the steel industry. Finally, Nucor's policy of egalitarian benefits promotes a sense of fairness and provides motivation for the achievement of performance goals. Nucor's corporate culture has resulted in two core capabilities: the ability to economically build steel plants and operate them efficiently. Ultimately, it is these capabilities that provide the source of Nucor's strong historical performance.

3.) What would you recommend to Ken Iverson regarding the thin-slab casting opportunity? Why?

I would strongly recommend that Mr. Iverson proceed with the thin-slab opportunity. Despite the challenges associated with this project, including significant costs and the potential for limited first adaptor advantages, this strategy is consistent with Nucor's tradition of technological leadership. If Nucor is able to leverage its resources to improve thin-slab casting technology as a result of their early experience with Compact Strip Production (CSP),

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