NUCOR IN 2009

I. DISCUSSION QUESTIONS, CASE INTRODUCTION AND KEY POINTS

Introduction
The case is about Nucors history and expansion in the US Steel industry. The case spans a 66
year period from 1943-2009 detailing Nucors success and growth in the face of the volatile steel
commodity market. Nucors success can primarily be attributed to its strong management
philosophy which centers around: judicious corporate spending, aligning incentives throughout
levels of company employees, and fearless innovation and acquisitions in order to remain
competitive.
The key challenges that Nucor faces in 2009 include: environmental concerns, shrinking demand
and lower prices for steel, the consolidating steel industry and a need to continue acquisitions in
order to sustain economies of scale, and the integration of newly acquired, unionized Harris.
Summary of key learning points and strategic issues
1. Understanding the challenges associated with a commodity industry
2. Flexibility in the face of a volatile market with high competition and many uncontrollable
external factors
3. The role of acquisitions in company growth
4. The importance of core values that offer a competitive edge (cost controls, incentive plans,
and corporate culture ) as well as growth without compromising core values
5. Adjusting business-level strategy in light of rivalry.
6. Growth strategy through acquisition
Discussion Questions
1. Perform a STEEP analysis to understand the general environment facing Nucor. How will
Nucor be affected by external factors?
2. Use Porters Five Forces Model to analyze the steel industry in the US. Given this analysis,
is the industry attractive or unattractive?
3. The steel industry is a commodity industry. Given the example of Nucor, what does it mean
to be a part of a commodity industry? What are the key challenges?
4. Who are Nucors main competitors and how does Nucor measure up against these
competitors?
5. What are the main capabilities of Nucor? Does Nucor have a core competence?
6. Create a SWOT analysis to understand Nucors strengths and weaknesses. Does Nucor have
a sustainable competitive advantage in the steel industry? If so, what is the source? What
about Nucors evolution and current business strategy may pose problems going forward?
7. What is the role does acquisition play in Nucors success or failures. What are the benefits
and challenges associated with acquisitions? Do you believe that Nucor is making sound
business decisions or growing too quickly? Support your beliefs with qualitative evidence
and financial analysis from the case.

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II. EXTERNAL ENVIRONMENT ANALYSIS
Summarize the external environment, including conditions in the general, industry, and
competitor environments.
a. The General Environment
Definition: The general environment is focused on the future and can be analyzed by
considering the STEEP framework: Social/demographic, Technological, Economic,
Environmental/geographic and Political/legal/governmental factors at play.
1.
2.
3.
4.
5.

Social/Demographic
Technological
Economic
Environmental/Geographic
Political/Legal/Governmental

Discussion Question 1: Perform a STEEP analysis to understand the general environment

facing Nucor. How will Nucor be affected by external factors?
Social/Demographic Segment

The social/demographic segment most relevant to Nucor appears to be the push for
unionization in factories. Although Nucor has resisted unionization through aligned
incentive structures, its competitors have unions in place. As Nucor grows through
acquisition it will need to acquire competitors with unionized workforces. This presents
a management challenge going forward for Nucor with regards to integration and
corporate philosophy.

Technological

Steel technology is evolving. Since Nucor does not spend funds on R&D it is forced to
obtain & integrate new technology through acquisitions.
IT advances allow Nucor to serve large and small customers for the same price. Thereby
eliminating bulk discount and also encouraging customers to relocate close to Nucor
elevating switching costs and allowing Nucor a competitive advantage.

Economic

The prices for steel, iron ore and scrap metal are plummeting which will put pressure on
Nucors revenues. This is due to:
o Shrinking demand caused by industrial production coming to a halt in light of the
credit crisis and its ramifications on consumer spending. This will affect prices,
revenues.

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o While demand is shrinking, supply remains robust rising competitive pressures

and pushing prices down. For example, the downturn in the economy caused
China to become a net exporter of steel in 2004.
Decreases in availability of scrap metal forces Nucor to seek out other sources of raw
materials.
The global credit crisis is negatively affecting the stock market. Nucors stock price and
ability to raise capital will be compromised, however there will also be opportunities to
acquire competitors for bargain prices.
Rising fuel costs will affect production as well as shipping costs for Nucor. In addition
customer pricing for shipping will increase, giving customers with closer proximity to
Nucor an advantage.
The US dollar is weak lowering Nucors purchasing power abroad but making its final
products more attractive to international markets.

Environmental/Geographic

Global warming is increasing environmental awareness. Increased environmental

awareness and regulations provide obstacles that Nucor needs to work around (e.g.
pollution of the Chowan River in North Carolina). This will add costs that Nucor has not
previously incorporated into their net income calculations.

Political/Legal/Governmental

In 2003 tariffs were withdrawn after action by the World Trade Organization. As a result
the competitive field was leveled and Nucor has been more exposed to foreign
competition.

Overall Assessment: The general economic environment offers the most opportunities as well as
many threats for Nucor. The uncertainty of 2009 with regards to pricing, demand, and access to
capital presents challenges that are compounded by a highly competitive marketplace. On the
other hand Nucor has strong management in place and a successful track record of weathering
storms due to disciplined spending and intelligent pay structuring. Furthermore, the low price of
the dollar may enable Nucor to begin to sell its products internationally. The uncertainties of
2009 may offer more opportunities for Nucor to acquire less able competition for low prices.
b. The Industry Environment
Definition: An industry is a group of firms producing products that are close substitutes. In the
course of competition, these firms influence one another. Typically, industries include a rich
mixture of competitive strategies that companies use to pursue above-average returns. In part,
these strategies are chosen because of the influence of an industrys characteristics. Compared
with the general environment, the industry environment often has a more direct effect on the
firms strategic competitiveness and above-average returns.
The industry environment is the set of factors that directly influences a firm and its competitive
actions and competitive responses. Porters 5 Forces Model is a powerful tool for understanding

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the dynamics amongst the five key factors that determine an industrys level of rivalry and profit
potential. [Outlined below, High=H; Medium=M; Low=L]
1.
2.
3.
4.
5.

Threat of New Entrants (or barriers to entry)

Supplier Power
Threat of Product Substitutes
Buyer Power
Intensity of Rivalry

Discussion Question 2: Use Porters Five Forces Model to analyze the steel industry in the
US. Given this analysis, is the industry attractive or unattractive?
The below Porters 5 forces analysis shows that the steel industry is not an attractive industry as
buyer power and rivalry are both high and suppliers have medium power.
Threat of New Entrants (or barriers to entry): Low

Entering the steel manufacturing industry requires high capital investment for
manufacturing, IT, and logistics.
Setting up supplier and customer relationships is time consuming and costly
Entry can only occur through the development of new/improved technologies

Supplier Power: Medium

Scrap metal supplies are shrinking therefore giving suppliers more pricing power
Iron ore supplies remain robust, however 3 major suppliers control 75% of the market
and therefore suppliers are gaining clout and consolidating faster than the steelmakers.
Vertical integration within the supply chain limits the number of raw materials suppliers

Threat of Product Substitutes: Low

While technology for steel substitutes continues to evolve, the current environment with
low steel prices is less likely to encourage the development of new substitutes.

Buyer Power: High

Since steel is a commodity product, buyers have a lot of power to pit suppliers against
each other
Companies within the steel industry can combat high buyer power through long term
contracts and also by having closer proximity to customers, thereby cutting down on
shipping costs.

Intensity of Rivalry: High

The steel market place is consolidating, but still remains fragmented globally

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Steel suppliers have very high capacity in order to achieve economies of scale and
therefore competition is high

Discussion Question 3: The steel industry is a commodity industry. Given the example of
Nucor, what does it mean to be a part of a commodity industry? What are the key challenges?
Commodity markets make it very difficult if not impossible for suppliers to differentiate their
products and services. Unlike consumer products, like Nike, with brands that can differentiate
based on quality and/or image, commodity suppliers are price takers and unable to differentiate
their products. Since steel products are the same no matter where they are bought, consumers
choose a supplier based on price and delivery speed alone. Nucor has recognized that since it
cannot control price, it must control costs in order to remain competitive and profitable.
A key challenge in not being able to set prices is the difficulty in predicting market demand and
calculating prices. Although not specifically cited in the case, some of this risk due to
uncertainty can be offset through hedging contracts.
c.

The Competitor Environment

Definition: The competitor environment is the final subject of analysis required to gain a full
understanding of the company's external environment. A competitor analysis focuses on each
company against which a firm directly competes and involves gathering and interpreting
information about its competitors.
Competitive rivalry is the ongoing set of competitive actions and responses that occur among
firms as they maneuver for an advantageous market position. Especially in highly competitive
industries, companies constantly jockey for advantage as they launch strategic actions and
respond or react to rivals moves. It is important to understand competitive rivalry because it
influences a firms ability to gain and sustain competitive advantages.
3 Is Framework
Leveraging the 3 Is framework provides a thorough overview by grouping competitors into
three buckets: immediate competition, impending competition, invisible competition.
1. Immediate Competition: Nucors immediate competition is its US rivals. Nucor is
among the top US producers which include AK Steel Holding Corporation, Steel
Dynamics Inc, and US Steel Corps. Nucor is surpassed in production quantity only by
US steel which produced 21.5 MM tons vs Nucors 20MM tons.
2. Impending Competition: Nucors international rivals represent its impending
competition. Nucor is among the top 12 worldwide steel makers. The market is
fragmented, and Nucors main competitors are: ArcelorMittal, Nippon Steel, JFE,
POSCO, Baosteel, Tata Steel, Anshan-Benxi, Jiangsu Shagang, Tangshan, US Steel, and
Wuhan. ArcelorMittal emerges as a clear leader, producing 28% of the steel produced by
the top 12 producers (Nucor produces just 4.5% of the volume produced by the top 12)
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3. Invisible Competition: Large companies within Nucors value chain looking to
vertically integrate (both up and down-stream) to gain economies of scale and scope.
Examples could include iron ore and scrap metal companies who may expand into steel
production or steel users (e.g. auto parts manufacturers) who want to mitigate supply
chain risk by controlling inputs through acquisition of a steel plant.
Discussion Question 4: Who are Nucors main competitors and how does Nucor measure up
against these competitors?
The global steel market place is consolidating but remains highly fragmented. In 2004 the
worlds top 10 steelmakers supplied less than 30% of the total global production.
With regards to volume Nucor remains a relatively small player in a fragmented space.
Worldwide, the largest steelmaker is Londons ArcelorMittal which produced 29% of the steel
produced by the top 12 producers. Nucor produced 4.5% of the steel produced by the top 12
producers.
Worldwide Nucors main competitors are: ArcelorMittal, Nippon Steel, JFE, POSCO, Baosteel,
Tata Steel, Anshan-Benxi, Jiangsu Shagang, Tangshan, US Steel, and Wuhan.
Within the US Nucor has 3 major competitors: AK Steel Holding Corporation, Steel Dynamics
Inc, and US Steel Corps. Nucor is surpassed in production quantity only by US steel which
produced 21.5 MM tons vs. Nucors 20MM tons.
The case does not offer financial comparisons for competitors, however Nucors financials are
strong (see financial analysis section below).

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III.

INTERNAL COMPANY ANALYSIS

Summarize internal company factors including: capabilities and weaknesses, value chain
activities, strategy, and financial situation.
a. Outline the company's internal capabilities and weaknesses.
Definition: Capabilities exist when resources have been integrated to achieve a specific set of
tasks and are frequently developed within a specific functional area. In addition to identifying
the company's opportunities and threats from the external environment, another important
objective of the situation analysis is to evaluate strengths and weaknesses as input for developing
the company's strategies.
Discussion Question 5: What are the main capabilities of Nucor? Does Nucor have a core
competence?
Nucors capabilities include scrap metal processing, raw materials procurement (scrap and iron
ore), and steel product production and transportation. Nucors core competencies (i.e. strengths
relative to competitors that give it a competitive edge) include: mastery of small scale steel
production that Nucor pioneered with the mini mill, ability to control costs, and its HR
management programs which align incentives to increase productivity, decrease labor costs and
also maintain employee loyalty and morale.
Discussion Question 6: Create a SWOT analysis to understand Nucors strengths, weaknesses,
opportunities and threats. Does Nucor have a sustainable competitive advantage in the steel
industry? If so, what is the source? What about Nucors evolution and current business
strategy may pose problems going forward?
Strengths

Weaknesses

Culture built on cost management systems

and careful spending
Labor relations and aligned incentive
structure
Customers in close proximity locked-in to
Nucor products
Vertical integration mitigates supply chain
risks
Lean and decentralized corporate structure
allows for flexibility and cost management

Relatively small player within the global

industry (4.5% of the top 12 suppliers) could
entice takeover
Uncoordinated and redundant sales and
marketing efforts
Mini-mill focus losing relevance as Nucor
gains scale
Lack of R&D creates vulnerability to new,
high tech competitors

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Opportunities

Further vertical integration to lock in raw

material supply

Expansion into international markets

through strategic acquisitions

Economic downturn can prompt further

import regulations

Opportunity to acquire weaker

competitors during downturn

Threats

Unionization
Highly competitive, fragmented
marketplace
Consolidated and powerful suppliers
Shrinking demand and plummeting steel
prices
Nucor seen as attractive takeover target
(strong cash position, low D/E)
Lack of R&D makes Nucor vulnerable to
competitor technology

Nucors competitive advantage include its: mastery of small scale steel production that the
company pioneered with the mini mill, ability to control costs, and its HR management programs
which align incentives to increase productivity, decrease labor costs and also maintain employee
loyalty and morale.
Nucors business strategy has focused on growth through acquisition. However this may conflict
with its core management philosophies that allow for a highly decentralized structure with highly
empowered local managers. As Nucor becomes larger it will be difficult to retain its founding
principles of agility, a flat corporate structure and low corporate overhead.
This said, if Nucor does not continue to acquire competitors, it will not be able to achieve
economies of scales obtained by competitors and it will also slip from the top 12 global ranking,
likely making it a take-over target in the future.
b. Conduct a Value Chain analysis to identify value-creating activities.
Definition: By exploiting its core competencies, a competitive firm creates value for its
customers. Value is measured by a products performance characteristics and by its attributes for
which customers are willing to pay. Companies with a competitive advantage offer value to
customers that is superior to the value competitors can provide. Value is created by innovatively
bundling and leveraging resources and capabilities.
A value chain analysis provides information relative to primary (inbound/outbound logistics,
operations, marketing & sales, and service) and secondary (firm infrastructure, human resources
mgmt, technological developments and procurement) activities. A value chain representation of
Nucor's primary and support activities is presented in the diagram below. This information can
be used to establish a business strategy which targets select activities to create a sustainable
competitive advantage.

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Primary Activities

Inbound/Outbound Logistics
o Nucor owns its own fleet of trucks to ensure timely delivery of their products
o By including transportation costs into the price of their products, Nucor
incentivizes customers to locate close to Nucor facilities this effectively locks
customers into purchasing Nucor products

Operations
o Nucor, through the use of its mini-mills, has gained substantial efficiencies over
competitors, reducing the price per ton of steel to about a tenth of the cost larger
competitors face
o Nucor acquired David J Joseph Company, producer of scrap metal, therefore
reducing its supply chain risk

Service: N/A

Marketing and Sales

o Decentralized sales groups cause for confusion and inefficiencies as the same
group might call a single client multiple times regarding the same product line
Nucor is attempting to stem this by consolidating marketing and sales functions

Support Activities

HR Management

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o The vast majority of Nucors workforce is nonunionized, except for 50% of Harris
employees
o Nucor places a strong focus on its incentive schemes for all levels of employees.
These schemes result in improved production, manage costs, and keep nonunionized workers content. (Nucor distributed $220MM in bonuses to workers in
2005).

Technology Development
o No internal R&D; Nucor obtains new technology through acquisitions
o History of inventory and supply chain management systems has helped to
establish efficiency at the core of the organization

Firm Infrastructure
o Nucor has a decentralized management philosophy with much authority delegated
to managers in the field.
o Divisions act as separate operating entities or profit centers (each has own HR,
finance, etc.). Managers are incentivized to run the divisions as separate,
entrepreneurial companies.
o Centralized management has a shallow corporate structure with only 3 levels

Procurement
o Thrifty non operational spending: no company planes, country club memberships,
or company cars

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c. Financial Analysis
Definition: Financial analysis is used to assess the viability, stability and profitability of a
company or operating division. The analysis is done using quantitative historical performance
found in the financial reporting documents (Balance Sheet, Income Statement, and Statement of
Cash Flows). The goal of the analysis is to understand a companys financial health through its
profitability, solvency, liquidity, and stability.
Nucor is in a strong position financially. The company has excess cash of $2.35B to weather a
storm or make acquisitions and they also have relatively low D/E of 39% (leverage ratio 28%).
Although no financial information is provided for Nucors competitors within the case, it is clear
to see that Nucor is growing revenues at a healthy pace of 10-30% each year.
During 2003, as illustrated in the figure below, Nucor experienced a rather substantial jump in
operating margin due to the following factors:
1. Rising steel prices due to increasing global demand
2. Import restrictions imposed by President Bush came into effect
3. Shrinking US supply of steel and steel derived products
4. Strategic acquisitions performed by Nucor increased its capacity and reach

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d. Key Ratios & Trends
Ratio
2008 Data
Return on equity

23.09%

Return on assets

13.20%

Current ratio

3.45

Quick ratio

1.93

Debt/Assets

22.24%

Debt/Equity

38.92%

Inventory turnover 4.07

Accounts
9.63
receivable turnover
Price/Earnings
7.38
ratio
Dividend yield
3.17

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NUCOR IN 2009
IV.STRATEGY FORMULATION
Summarize Nucors strategic position as it relates to its current strategy and the
components thereof
a. Summarize Nucor's current strategy.
Nucor's strategic objectives are to restore the company's financial health, to continue to grow the
business, while maintaining its effective organizational culture. The company is a relatively
small regional carrier competing primarily on point-to-point routes. It has espoused two
different strategies, low cost and differentiation. The tables below identify some of the elements
of these strategies and reveal that the conflicting goals of each strategy has placed Nucor in an
ineffective, "stuck in the middle" position between the two strategies.
b. Strategic Analysis
Definition: Conduct an analysis of Nucors business strategy by using the 4 Ps Framework.
The 4 Ps Framework is used to understand a companys strategy based on its Position (Mission,
Values, and Vision), Priorities, Payments (what it will spend its money on to reach those
priorities), and Performance (how it will measure success).
By completing the framework, we can analyze a companys current, future, or recommended
priorities as well as set forth a path in order to achieve goals and measure accomplishments.
Use the 4 Ps Framework to analyze the firms past/current/future strategy.
1.

Position
a. Mission: Be the highest quality, lowest cost, and most profitable steel and steel
products company
b. Values: Decentralized management, low corporate overhead, high employee
productivity, aligned compensation
c. Vision: Become a world leader among steelmakers

2.

Priorities
1. Expand product lines and scale through strategic acquisitions
2. Lower costs and improve efficiency through new technology
3. Continue to mitigate supply chain risk through vertical integration

3.

Payments
1. Continue to invest heavily in acquisitions and JVs to obtain new technologies
2. Improve economies of scale through strategic acquisition of competitors
3. Invest in vertical integration to secure supplies of scrap metal and iron ore

4.

Performance
1. Rise in global rank among worlds largest steelmakers
2. COGS as percent of revenue remains stable or decreases

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3. Increased stock price in relation to industry performance
Discussion Question 7: What is the role does acquisition play in Nucors success or failures.
What are the benefits and challenges associated with acquisitions? Do you believe that Nucor
is making sound business decisions or growing too quickly? Support your beliefs with
qualitative evidence and financial analysis from the case.
Over the past 66 years Nucor has acquired many companies for both horizontal and vertical
growth. Acquisitions have allowed Nucor the opportunity to grow operations to achieve
economies of scale, gain the expertise of competitors, and expand product lines within a
compressed timeframe. In addition, Nucor has no R&D department. As a result it has been
necessary for Nucor to acquire new technologies through acquisitions and joint ventures.
Acquisitions present challenges in that they require integration of a foreign business unit into
Nucors established structure and culture. This challenge is particularly relevant to Nucor
because of its unique decentralized strategy and HR management practices. As Nucor expands,
it risks jeopardizing its ability to manage operations using a decentralized structure. Acquisitions
are also risky due to the high level of unionization in the industry and the negative impact that
integrating unionized companies could have on Nucors HR practices, management philosophy,
and incentive plans. Finally, given current economic climate, rapid acquisition could lead to
overcapacity and crippling costs.

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Discuss possible recommendations that Nucor could follow going forward to improve the
performance of the company. Determine the decision criteria and also analyze the pros
and cons of each recommendation.
a. Key Questions and Recommendations
Key
Question

Option /
Hypothesis

Decision Criteria

Pros

Cons

Emerging
market
strategy

Expand into
emerging
markets through
relocation
and/or strategic
acquisition

Market access
Costs/Benefits
Regulatory barriers
Intl. competition

High cost
FX exposure
No trial period
Volatile
demand and
political
environment

Domestic
market
strategy

Continue to
expand in
current product
lines through
strategic
acquisitions

Market share
Cost/Benefits
Proximity to key
customers/markets
Corporate culture

Growing markets
offer large upside
potential
Opportunity to
dominate
fragmented
marketplace
First-mover
advantage
Opportunity to
increase US market
share & revenue
Current economic
condition provides
opportunity for
below cost
acquisitions
Ability to generate
higher profits using
Nucor methodology

R&D
efforts

Invest portion
of cash reserves
into R&D
efforts

Costs/Benefits
Competitive
advantage
Implementation
timeline

Building
capacity during
down economy
might create
risks if recovery
not timed well
Difficulty
managing
decentralized
structure with
many
subdivisions
Risk of further
workforce
unionization
Become a proactive No R&D
player in
experience or
technology
expertise
improvements
High cost with
Possibility to retain no guaranteed
advances through
returns
intellectual property Decreased
Opportunity to
corporate
spread R&D cost
structure
flexibility

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