Nucor Case Study

The following section discusses the reasons that Nucor has been able to perform so well in the past. It examines the internal and external (industry) factors impacting success.

Industry Analysis

This section examines industry forces using Porters Five Forces Analysis (See Appendix 1). Porters Analysis illustrates that both Industry Competition and Barrier to Entry are HIGH. Threat of Substitutes and Buyer Power are Medium and Supplier Power is Low (See Appendix 1 for detailed analysis). However, even in the face of such stable and fiercely competitive market, Nucor was continually able to maintain its strong position within the industry.

Thus we now look to Nucor’s internal characteristics as a source for competitive advantage.

Nucor Steel Case Study

Internal Analysis

This section compares Nucor’s superior resources and capabilities to its competitors, and discusses how it has exploited them for competitive advantage.

Resources

Capabilities

* Strong Financials Resources with forecasted growth in cash flows further strengthening its investment or borrowing capacity.

* Pioneering technology and technical sophistication in Thin Slab casting

* Critical Mass of existing Mills and geographic locations in proximity to customer base.

* Its reputation, brand equity and relationships with suppliers within the industry.

* Its large existing customer base.

* Its highly motivated workforce, build through a series of performance goals and “high powered performance incentives” (Nucor Case, 1990)

* Lower cost production through pioneering technology.

* Technological Superiority for greater efficiency in volume production

* Rapid supply to assist in low inventory levels for customers.

* Extensive experience in building Mini Mills efficiently

* Consistent investment in maintaining capacity of production.

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* Long Term experience and success in the industry.

* Lean, flat, decentralised organisational structure for rapid decision making.

Michael Porter’s resource-based view suggests that “the key to profitability is not through doing the same as other firms, but rather exploiting differences” (Grant,2002).

Aside from strong financial resources, Nucor understood its greatest resource was is its people. It utilised a combination of non unionised workforce, incentive systems, training and decentralised decision making to ensure “the more effective is (was) to communicate with employees” and the greater autonomy they had to “make rapid and effective decisions” (Nucor Case, 1990). This lowered production costs and improved employee productivity.

In addition, Nucor had other significant resources at its disposal such as “modern technology, advantageous locations, cheaper and more co-operative labour, entrepreneurial management, and narrow product lines,” that let them “wrest away share from integrated steel makers in the segments they served” (Nucor Case, 1990).

Nucor also demonstrated superior capabilities by effectively using its resources to develop efficiencies in volume production, and bring products to market more cheaply and more quickly than its competitors. There were three components to this capability.

Firstly, Nucor utilised combination of research and development activities that refined speed and efficiency of the production process. Nucor had “invested steadily and heavily in upgrading its capacity, old as well as new,” (Nucor Case, 1990) and leveraged this capability to lower production time and costs. In addition, Nucor was consistently able to defend itself against substitutes through its cost reduction capabilities and lower prices.

Secondly, Nucor was able to lower its investment/construction costs using their extensive experience in building and remodeling Mini Mills in ways other firms were unable to emulate. Nucor designed and built plants concurrently, reducing engineering costs to 2% of total costs, from the industry standard of 10%. With this experience, Nucor was able to make adjustments “on the fly,” and reduce time to project completion, thus providing positive cash-flows more quickly.

Finally, it had speed of delivery to customers and suppliers by locating mills in similar geographic regions.

Nucor was able to leverage these competencies to create sustainable competitive advantage in the marketplace. From a positional advantage (Porter, 2000) perspective, Nucor used its resources and capabilities for cost advantage. It was able to utilise its superior MM technology to lower its cost structure by taking “advantage of the declines in integrated steel makers’ demand for scrap” and “eliminating coke ovens and blast furnaces” (Nucor Case, 1990). No other competitor in the industry has used this focus to create value for its customers and superior profits for itself as Nucor had. Nucor was the low cost leader in the market.

With this unique combination of resources and capabilities, Nucor’s distinctive competencies enabled high levels of innovation and efficiency in Mini-Mill (MM) production technologies. Such technology had the effect of reducing the minimal efficient scale of production “from millions of tons to hundreds of thousands of tons, or less” (Nucor Case, 1990) as well as reducing the capital cost per ton of capacity by a factor of 10.