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NUCOR’s History and Development Case Study

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Introduction

NUCOR is one of the largest steel companies in America. It has been in existence since 1955 when after a merger, the REO Motor Company changed to Nuclear Corporation of America. NUCOR’s founding father is Ransom Olds. The company has evolved a lot over its existence. It has been through tough times and survived. This case study looks into NUCOR’s history and development, then analyzes its internal and external environment and finally ends with recommendations.

Nuclear Corporation of America practised growth by acquisition of strategic businesses. However, in the beginning, this strategy failed miserably and the company made huge losses. The turnaround came in 1966 when NUCOR hired a new CEO, Ken Iverson. This visionary leader would transform the company’s fortunes thus leading it to success.

Ken Iverson studied Aeronautical Engineering. He then worked for different metal companies. This gave him a lot of knowledge and skills that would come in handy in his job as NUCOR’s CEO. Iverson first encountered NUCOR when the company tried to buy a metal company where he worked.

This bid failed. NUCOR hired Iverson to find them suitable metal companies to purchase. When he found Vulcraft, NUCOR bought it on condition that Iverson would run it. He agreed. By the time he was appointed CEO, Vulcraft was the only profitable division of the almost bankrupt conglomerate. Iverson had a great task ahead.

Iverson loved technological leadership. He led the company to open its first mini-mill in South Carolina. This was the beginning of the company’s success. The mini-mills were created to serve NUCOR’s other divisions. However, on realizing that other companies needed their services, NUCOR expanded to provide services to them too. Iverson continued to grow NUCOR by strategic acquisition and technological leadership too.

Nucor’s Strengths

This company has several great internal traits that enabled it to survive its 54 years in operation. The first major strength is its leadership. Ken Iverson led the company for 30 years. Iverson had the necessary technical competence and vast experience to lead a great steel company. He also believed greatly in decentralization, which gave divisional managers enough autonomy to run their divisions successfully. The organizational structure with few layers of management and less bureaucracy was motivating to NUCOR’s people.

The second strength was NUCOR’s highly productive workforce. The company motivated its workers by implementing bonus pay schemes that saw them earn much more than their counterparts in similar jobs. NUCOR also avoided laying off its workers even during difficult times. Instead, it froze their wages and reduced the Executive’s wage. Iverson and his team also engaged the workers in conversation and kept them well informed about the company’s performance. W

hen the company made profits, everyone benefitted from the profit sharing scheme. In return, NUCOR’s employees remained loyal and produced more than average. All workers’ children were also included in the education scheme. They also remained non- union for a very long time. After all, there were rarely industrial disputes between employer and employee.

The third strength is technology. Iverson made a deliberate effort to keep NUCOR at the frontline of new steel technology. He sought and acquired rights to innovative ways of manufacturing. These methods went a long way in reducing cost. NUCOR also had the best inventory management system in its time.

The cost savings the company created were passed on to its consumers in form of reduced price. This helped NUCOR to beat its competitors in a market with a homogenous product with no aesthetic value. The company’s factories are also located close to their major customers. This makes it easy to form strategic partnerships.

NUCOR had several offshore joint ventures that enhanced its performance. The most significant of these is Yamato Kogyo, a Japanese firm. This venture increased NUCOR’s technological leadership as it entered the Beaming business. NUCOR started to manufacture wide flange beams.

The company also practised backward integration of its supply chain; ensuring raw materials were available when needed. When building its plants, NUCOR considered its major customers. It left enough space for such customers to locate near it. This also reduced transport costs.

Nucor’s Weaknesses

Weaknesses are internal problems that can result in a company’s failure. Though successful, NUCOR has several identifiable weaknesses. First, most of the company’s plants are located in America. This is a weakness because America is a high-wage country. This means that NUCOR absorbs the cost of this expensive labour into its selling price. Having a high selling price reduces its competitiveness against cheaper offshore imports from countries such as China.

NUCOR’s second weakness is the failure to research internally. This means that in order for the company to develop, it must depend on strategic acquisitions and external partners. This is quite risky. Supposing these partners fail to innovate, NUCOR will be stuck in a rut. External cost of Research and Development is also likely to be much higher than if the company carried out its own research internally.

The company is highly decentralized, running the different divisions like different businesses all together. This is a weakness because it promotes inefficiency and duplication of efforts. The case study indicates that sometimes as many as six different sales people of the company would visit the same client.

This is a huge waste of resources and reflects the company poorly before customers. It shows lack of synergy. Sensitive customers may even get irritated and fail to purchase from NUCOR all together. This will reduce income and profits too.

Opportunities

NUCOR’s major opportunity lies in becoming a globalized company. It can no longer depend on the American market as its only source of revenue. Lately, the demand for steel in this market has slowed down. This has affected negatively on NUCOR’s revenues and profits. However, there is a huge untapped market for steel in Asia and Africa.

This is because developing nations still require a lot of steel for infrastructure construction. NUCOR needs to take advantage of this opportunity and enter these markets. These markets are not as saturated as the American market. This will help it to continue on its growth path.

This company has a chance to begin carrying out internal Research and Development. This is the only way to guarantee continuous improvement, which is necessary to survive in this dynamic market. The company already has several divisions with a multitude of acquired knowledge over time. NUCOR can leverage on this knowledge and begin its own internal R&D department. Having it internal will help reduce dependency on external partners.

NUCOR’s major opportunity lies in becoming a globalized company. It can no longer depend on the American market as its only source of revenue. Lately, the demand for steel in this market has slowed down. This has affected negatively on NUCOR’s revenues and profits. However, there is a huge untapped market for steel in Asia and Africa. This is because developing nations still require a lot of steel for infrastructure construction. NUCOR needs to take advantage of this opportunity and enter these markets. This will help it to continue on its growth path.

This company has a chance to begin carrying out internal Research and Development. This is the only way to guarantee continuous improvement, which is necessary to survive in this dynamic market. The company already has several divisions with a multitude of acquired knowledge over time. NUCOR can leverage on this knowledge and begin its own internal R&D department. Having it internal will help reduce dependency on external partners.

Threats

NUCOR depends on the American market for its major revenues and profits. Unfortunately, this market has become flooded with cheaper imports dumped from foreign countries. Since steel is a homogenous, non-aesthetic product, customers have preferred to switch to these cheaper alternatives.

Thus, NUCOR has found it difficult to compete on a global front. The US government tried to salvage steel makers by imposing sanctions and quotas. Commerce players criticized this move. NUCOR needs to find ways to compete sustainably in the global market without depending on government subsidies.

Environmental agencies have become quite active in the past decade. NUCOR’s operations are energy intensive hence result in pollution. These agencies have the power to compel NUCOR to take steps to reduce its carbon emissions, which could be quite expensive. If NUCOR fails to comply with their demands, these agencies are capable of calling for boycotts of NUCOR’s products.

Steel customers have an easy time switching suppliers. The cost of switching is almost zero. This is a threat to NUCOR because businesses are always looking for the cheaper option. If NUCOR’s customers find cheaper options, they will obviously opt to switch. This leaves the company with no source of revenue.

NUCOR’s process of production is energy intensive. There has been a general increase in energy costs. This is not likely to reverse soon. This also translates into increased production costs hence increased selling price and thus reduced demand of the company’s products. Demand for steel is also cyclical. This pattern results in high steel prices during some seasons and rock bottom prices during other seasons.

The final threat is substitutes. Customers are looking into materials that are lighter but as durable as steel. These alternatives are also likely to be cheaper than steel. If this trend catches on, NUCOR could soon be out of business.

Corporate strategy

The corporate strategy refers to the strategic path taken by the company as a whole in an effort to grow. NUCOR has pursued growth by acquisition, thus creating a conglomerate organization. The first successful strategic acquisition was that of Vulcraft, the joists, and girders producer. This division remained the only profitable one during the troubled ‘60s.

In the early years, NUCOR purchased smaller companies in order to acquire the technology they possessed. This enabled NUCOR to maintain a position of technological leadership. In later years, NUCOR continued with these mergers and acquisitions because it was cheaper to buy than build a new plant. The strategic partnership with Japan’s Yamato Kogyo was also an essential part of the corporate strategy. It resulted in NUCOR beginning to use the mini-mill technology.

NUCOR’s people are also an integral part of its corporate strategy. The company managed to keep its workers happy and non-union for the major part of its existence.

NUCOR had an incentive pay programme in place that linked pay and productivity very directly. People knew that if they worked hard, and worked well they would be rewarded. Thus, they strived to do well. This resulted in greater productivity for the company. The people were also kept informed on the company’s performance. This helped them to have realistic expectations about pay.

The organization structure also played a part in the company’s corporate strategy. Iverson maintained a ‘flat’ organization structure with few levels of management thus reduced bureaucracy. Division managers stayed in touch with their workers and headquarters avoided interfering with the activities of the divisions. Each division operated as a profit centre, managing its own income and expenses. They were required to provide contribution to corporate profits at year-end.

It is difficult to point out NUCOR’s business-level strategy. This is because the corporate strategy allowed each division to operate in an autonomous manner provided it was profitable. Such a corporate strategy allows each division to pursue any business strategy it sees fit in its circumstances.

Conclusion

This case study has detailed the evolution of NUCOR from a bankrupt motor company, to one of the largest steel makers in America. The company prospered under the leadership of a great President, Ken Iverson. Iverson combined both the knowledge and skills necessary to lead such a company.

It completed many acquisitions and mergers, which positioned it as a market leader. The company’s greatest strength is its people. They have continued to be productive and loyal to their employer. The greatest weakness is that NUCOR lacks a global presence. In turn, the greatest threat is the cheaper imports from lower-cost overseas producers. The government attempted to protect NUCOR and other steel producers. However, this move is not sustainable.

Recommendations

NUCOR should keep doing what it is doing well. The company should continue with its personnel policies that have guaranteed a motivated work force over time. The lean organization structure should also be maintained. The company should continue to avoid bureaucracy.

The new CEO John Ferriola needs to prioritize internal Research and Development. This will enable the company to find cheaper and more effective production methods. Cheaper steel is the greatest competitive advantage NUCOR can have in a global market. Finally, NUCOR should enter other world markets soon. This will reduce its dependency on the volatile American market.

CASE 12-SATELLITE RADIO

Introduction

The development of Satellite Radio began in 1991 when a venture capitalist, David Margolese invested $1 million in Robert Briskman’s company. This company had designed the unified S Band. This technology was the core of the future satellite radio. Briskman had a great idea, but lacked the funds to implement it. Margolese fell in love with the idea and set out to commercialize it.

The idea was to provide radio services nation-wide and of high sound quality. This was in contrast to the existing analogue radio that existed locally and faded once one moved out of the locality. This new radio service required the company to put satellites into space to broadcast the signal.

Before putting the satellites into space, the company had to purchase a license from the Federal Communication Commission (FCC). This license, together with the cost of satellite installation was projected to be quite high. However, Margolese believed in the idea and was willing to put in the required capital. He projected that this new radio would be operational latest by 1997.

Apart from the cost, there was the question of how to convince potential customers to purchase new radios that could support the new technology. This would be difficult since almost everyone already had a radio at home and in his or her car.

Secondly, cable TV companies also provided some form of satellite radio at no cost to their subscribers. It would be challenging to convince people to subscribe to this new radio when they could get the old form free. However, the company did market research and found that customers were willing to pay for superior quality radio.

The company also faced opposition from Association of National Broadcasters, which predicted that this new technology might lead to the downfall of local AM, and FM radio stations. This would lead to loss of jobs and local content that residents relied on. XM radio was the second company licensed to provide satellite radio services.

External Environment

The grand plans for satellite radio faced stiff competition from traditional radio. This radio was already established and relatively free. No monthly subscription was required as opposed to Satellite radio, which required users to pay. In order to counter this hurdle, both XM radio and Margolese’s company –now called Sirus Radio- entered into deals with car manufactures to install their satellite radios during manufacturing. This would force the car buyer to subscribe to satellite radio too.

The second threat was internet radio. This is also free as long as the customer has an active internet connection. Unlike local AM and FM, Internet radio had the advantage of ubiquity. Users could access it anywhere in the world. Satellite radio also promised to provide service to the whole country, thus creating competition.

The third threat was cable radio that came with cable television. Most Americans already subscribed to cable television. Most cable television companies provided cable radio free with the package. Those that charged did not put a high price to the radio. It was almost free too.

Sirus Radio would compete with XM radio for satellite radio subscribers. There was a difference of $2.96 in their subscription fees, Sirus Radio charging the higher fee. Sirus justified this fee with the fact that it aired zero commercials on the music channels.

XM radio aired a few commercials and planned to earn money from these commercials rather than charge a high subscription fee. The formats for both radio companies were almost similar, differing in very few respects. Sirus had three motor vehicle companies and XM had two motor vehicle companies as strategic partners. These companies would install their radios in their cars.

Threats and challenges

These companies needed to install satellites in space to broadcast their signal. Each company planned to install two satellites and have a third one on standby ready to launch in case of emergency. This project would cost Sirus and XM $1.2Billion and $1.1 Billion respectively. They were to be launched in 1999 and 2000. This means that the original timeline for launching the satellite radio was pushed forward by over two years. Margolese’s investment would not pay off as fast as he had imagined.

The companies also needed to install repeaters to amplify the sound since America was full of tall buildings that interfered with its path. In addition, special studios were necessary for transmission. Infrastructure for this venture was proving to be quite expensive.

Sirus and XM both delayed further in entering the market due to technological problems. Sirus had trouble with its receivers while XM had trouble with its satellites. Sirus took two years to resolve its issues while XM took one. In the end, XM launched nine months earlier than Sirus, in2001.

This gave XM first mover advantage. By the end of 2002, Sirus had also launched its services. Unfortunately, XM had ten times Sirus’ customers. This trend continued over time. It was enhanced further by the fact that Sirus charged higher subscription fees than XM.

The huge capital requirements meant that these companies would take longer to break even than initially projected. XM, the leading company, hoped to break-even by 2004. This was four years after the initial launch. XM’s lead was also enhanced by the speed with which its automobile manufacturer firm partners installed XM’s radios. In contrast, Sirus’ partners took much longer to install their radios, hence slowing the growth of their customer base.

This delay in launching and long time to break even took a huge toll on Sirus. The company almost went bankrupt in 2002. However, it managed to raise more capital in form of debt and equity to keep it afloat. XM radio also faced cash flow problems in 2003 and sought to raise more capital to survive. The company managed to raise an extra $475 million. This way, it was able to survive the difficult times.

XM radio also has some trouble with its satellites. They are degrading faster than expected. This has reduced their useful life by seven years. This will also be an additional capital expense in 2008.

The huge capital requirements meant that these companies would take longer to break even than initially projected. XM, the leading company, hoped to break-even by 2004. This was four years after the initial launch. XM’s lead was also enhanced by the speed with which its automobile manufacturer firm partners installed XM’s radios. In contrast, Sirus’ partners took much longer to install their radios, hence slowing the growth of their customer base.

This delay in launching and long time to break even took a huge toll on Sirus. The company almost went bankrupt in 2002. However, it managed to raise more capital in form of debt and equity to keep it afloat. XM radio also faced cash flow problems in 2003 and sought to raise more capital to survive. The company managed to raise an extra $475 million. This way, it was able to survive the difficult times.

XM radio also has some trouble with its satellites. They are degrading faster than expected. This has reduced their useful life by seven years. This will also be an additional capital expense in 2008.

Competitive Advantage

Sirus and XM both tried to outdo each other and win more market share. Sirus spent a lot of money signing deals to access exclusive content. The company hoped this exclusive content would motivate subscribers to join its network. The most significant deal was with National Football League and it cost $188 million. Sirus hoped to recover this from increased subscriber numbers. The company also signed Howard Stern for $500 million. This exclusive content was projected to attract new subscribers.

XM did not take these moves lying down. They also sought their own exclusive deals to counter. They signed a deal with Major League Basketball that gave them exclusive rights to broadcast their content. Additionally, they signed a shock jock that had previously been banned from radio. These new additions would cost subscribers some extra money. For $1.99 per month, subscribers could enjoy the channels. The deal with Major League Basketball cost the company $650 million.

These two companies reduced their competition when they signed a deal to develop a common radio that could receive both their channels. This meant that subscribers’ switching costs between the two service providers was now quite low.

Financial Performance

Initially, satellite radio was projected to be launched in 1997. Unfortunately, this delayed until 2001. On launching, the operating costs were still too high and the companies were projected to break even only after 2004. This did not happen. Analysts pushed this broadcast forward to 2007 for XM radio and 2008 for Sirus Radio. The forecast predicted that in 2007, XM would earn a positive cash flow of $51.1 million while Sirus would still make a loss of $154.2.

What had seemed to be a grand business idea that Margolese had planned to invest $500 million in, turned out to be a financial disaster. Over ten years after the original idea was conceived, investors were still pumping money into satellite radio with no tangible returns. This is the mark of a bad business idea. It is evident that neither of the two companies carried out proper market research. They were fascinated by the idea and proceeded to invest in it without doing the groundwork. Unfortunately, it failed the test of time.

Satellie Radio Today

Poor financial performance and inefficient operations led the two satellite radio companies to merge in 2008 to form Sirus XM radio. There was stiff opposition to this move by other stakeholders who believed that a monopoly was not in consumers’ best interests. However, consolidating operations was the only way Sirus and XM would survive.

This consolidation proved successful and the new company, Sirus XM posted a profit for the first time in 2009. The company has continued to pursue growth through deals with automobile, aeroplane and boat manufacturers.

Conclusion and Recommendation

Satellite radio was a noble idea. However, its implementation has cost XM and Sirus much more than the returns. It is unfortunate that so much has already been invested into this idea. The companies, which started out as competitors over ten years earlier, have ended up merging into one. Satellite radios are continuing to be installed in new automobiles. However, drivers are still reluctant to subscribe for this service after the trial period expires.

The challenge for Sirus XM is to continue marketing and target the new, younger drivers who are more likely to adapt to the idea.

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IvyPanda. 2019. "NUCOR’s History and Development." May 7, 2019. https://ivypanda.com/essays/nucor/.

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