Chapter

Efects on 3 July

1

The

Nature of Management Control Systems 19

Case 1-1

Nucor Corporation (A) We are a cyclical business. . . . Basically when you are at the peak of the cycle-times are good, interest rates are low, people are building-our margins increase. When we go to the trough, of course, the margins are squeezed. But over the last 25 years Nucor has never had a losing quarter. Not only a losing quarter, we have never had a losing month or a losing week.r

and Re-

'Iznage-

Id.ea

John D. Correnti, President and CEO, Nucor 4ge.

into School

Pren-

t-lonnatlon t

In

1998 Nucor was a Fortune 500 company with 6,900 employees and sales of $+.3 billion in steel and steel-related products. Its chairman, F. Kenneth Iverson, had headed the company for more than 30 years. During his tenure, the steel industry faced a number of problems, includ-

ing foreign competition, strained labor relations, and slowed demand for steel (related in part to the substitution of alternative materials). Despite these industry challenges, Nucor,s sales during fverson's tenure grew at an annual compound rate of about 17 percent per annum. Selected comparative financial data are shown in Exhibit 1. In different |ears, both Irrerson and Nucor CEO John Correnti were named Steelmaker of the Year by New Steel magazine.

lXanagei

fF e. Pt""", )

I

EXHIBIT

1

Selected Financial Data 1998-1992

I

Return on Equity

1997 (S-year average\o/o ($ in biffions) 1993-'t997 Sales

Nucor

$4.1

18o/o

Debt/

5-Year Sales

Capital o/o 1997

'1993-',997

7o/o

23o/o

Growth

Texas Industries*

(parent of Chaparral Steel)

1.0

\ational 5teelt

3.1

12 7

22 27

USX-US Steelt

6.8

10

21

Bethlehem Steelt

4.7

Deficit

28

3

11

18

3

2

71

LTW

\orthwestern Steel* Industry Median

4.3 0.6 $1.9

100/6

3Oo/o

12 6

o/o

Profit Margin o/o 't997 8o/o

7 6

Deficit 1

Deficit 8o/o

3o/o

'}{ui-mill. -::egrated steel producer. ::ree:Forbeq January 12, 1998, pp 196-9?

-'

s case was prepared byViiay Covindarajan. The cooperation and help provided by F. Kenneth lverson, chairman, rrJcor Corporation, in preparing this case study is greatly appreciated. Copyright @ bartmouth College. :.cnard Franklin, "An Interview with lohn D. Correnti, President and CEO, ilucor Corporation," Thefuoll Street Corporote :.corter, September 9-1 5, 1996, pp. 19-20.

20

Chapter

One

The

Nature of Management Control Systems

Hishry Nucor traced its origins to auto manufacturer Ransom E. Olds, who founded Oldsmobile and' later, Reo Motor Cars. Through a series of transactions, the company Olds founded eventually became the Nuclear Corporation of America, a company involved in the nuclear instrument and electronics business in the 1950s and early 1960s. The firm suffered several money-losing years and in 1965, facing bankruptcy, installed 39year-oldKen Iverson as president. Iverson had a bachelor's d.egree in aeronautical engineering from Cornell and a master's degree in mechanical engineering from Purdue. He began his professional career as a research jn the metals industry He /CC)njCaJ and management2ositions f America as a ui.ce president in 1962 and was appontedpren: dent three Years later.

recycled scrap failing company on two businesses: making steel from the firm in nonresidential construction. rn 7e72 ;;il;';;; r r^--^^l steel it had become America's second-largest ^+^^l changed its name to lio"or^ Corporation. By 1998

,H|'ff i;:H;; _;;';"":';;c*; maker.

Operations Nucor located its diverse facilities in rural areas ties to its local communities and its work force' As

]pI rDe

that favored the company's commitment to diaries consisted of nine businesses' with 25

:

Nucor Steel

carbon and alloy steels Products: steel sheet, bars, angles, light structural

Ind'; plants: Darlington, S.C.;Norfolk, Nebr.;Jewett, Tex.;Plymouth, utah;Crawfordsville' Hickman, Ark.; Mt. Pleasant, S'C' Nucor-Yamoto Steel ComPonY

products: *id"_d;;;.t'""t Plant: BlYtheville, Ark'

l"u-., pilings, heavy structural steel products

Vulcroft

Products:steeljoists,joistgirdersandsteeldeckforbuildingconstruction.Grapeland, Tex'; Saint Joe, Ind'; plants: Florence, S.C.; Norfolk, Nebr.; Fort Payne, Ala.; Brigham CitY, Utah

Nucor Cold Finish parts products: cold-finished steel prod,ucts for shafting, precision machined

Plants : Norfolk, Nebr. ; Darlington,

S' C' ;

Fostener

Brigham City' Utah

Nucor screws prod.ucts: standard steei hexhead cap screws, hex bolts, socket head cap

Plants: Saint Joe, Ind'; ConwaY, Ark'

\:Cof Pr',-,i; Plar::. Nucor

Plod.; Plan:. Nucor

PloC:

\-ror

Strategl

i

Chapter

1

The

Nature of Management Control Systems

2l

Nucor Beoring Products, lnc.

Products: unground and semi-ground automotive steel bearings, machined steel parts Plant: Wilson, N.C.

"nd,

eventuallY

instrument installed 39amastet's deas a research industry. He inted presirecycled scraP 1972 the firm steel

strong to pay top

Nucor to se-

that ento with 25

Nucor Building Systems Products: metal buildings, metal building components Plants: Waterloo, Ind.; Swansea, S.C. Nucor Grinding Bolls Products: steel grinding balls used by the mining industry to process ores Plant: Brigham City, Utah Nucor Wire

Products: stainless steel wire Plant: Lancaster, S.C.

Strategy Nucor's strategy focused on two major competencies: building steel manufacturing facilities economically and operating them productively. The company's hallmarks were continuous innovation, modern equipment, individualized customer serwice, and a commitment to producing high-quality steel and steel products at competitive prices. Nucor was the first in its industry to ailopt a number of new products and innovative processes, including thin-slab cast steel, iron carbide, and the direct casting of stainless wire. In 1998 Nucor produced a greater variety ofsteel products than did any other steel company in the United States-both low-end (non-flat) steel, such as reinforcing bar, and high-end (flat) steel, including motor lamination steel used in dishwashers, washers, and dryers, as well as stainless steel used in automotive catalytic converters and exhaust systems. Nucor's major customer segments were the construction industry (60 percent), the automotive and appliance industries (15 percent), and the oil and gas industries (15 percent), with the remaining 10 percent divided among miscellaneous users. All the company's low-end steel products (50 percent of its total output) were distributed through steel service centers. Its high-end products (the other 50 percent) were sold directly to original equipment manufacturcrrs (OEMs), fabricators, or end-use customers. Nucor's ratio of debt to total capital was not allowed to exceed 30 percent. In 1997 that ratio was 7 percent. The company did not believe in acquisitions or mergers, choosing instead to commit to internally generated growth. It had no plans to diversify beyond steel and steel-related products.

Or ganization Structure FtJoe,Ind.; I

b

Compared to the typical Fortune 500 company with 10 or more management layers, Nucor's shucture was dec6ntralized,with onty the four management layers, illustrated below: Chairman / Vice Chaiman / President Vice President / Plant General Manager Department Manager Supervisor

22

Chapter

One

The Noture of Management Control S1'slems

"The flat organization structule," said president and CEO John Correnti' corhave you promotions, get five you :iandard joke in the company is if you are a janitor and comour take You pyramid' renii's job. If .vou take a typical organization chart, it is the typical me, I work for 6,800 peofor work not do people 6,g00 down; pan).. l.,ou turn the pyru-la upside ,,1\.e

!

ha-ve a very

chairman' president' Nucor's board of directors had only six members: the current (including employees 22 only executives' anci chief'fi.nancial officer, and three retired Nucor ofunassuming an in located was cterical staff) worked, at the corpolate head. offi'ce, which of in one worked fice kruilding across the street from a shopping mali' AIl other employees people' 300 and 250 ,.lie company,s2iplants, each of which e-ployed, on average, between essential'ly operThc general manager at each plant was granted considerable autonomy, either from utt ind"pendent business' Each plant could source its inputs ating the facilit;z ". decisions being made ancther Nucor" plant or from the outside market. with the day-to-day problems could informal, and open kept orr site a,nd the lines of communication to employees "We are honest-toheadquarters' l.,e solved quickly without having to wait for decisions from we duplicate efthat means Gnd au,r,o*omous," said the general manager of one plant. "That program computer fcits macle in other palts of Nucor. The company might develop the same think it is worth it'"3 One .qix times. But the ad.rantages of local autonomy are so great, we our divisions are in s,:ch advantage, noted Iverson, was greater operating efficiency' "None of of them the sarrre to,wn as our Charlotte, North Carolina, head.quarters," he said. "If any wasting and suggestions making there ,r{,erc, ds headquarters types would always be over feel would Charlotte in d'ivision a their- tirne with our opl.tiurrr. A general manager running lihe hc was living with his mother-in-law"'l Other. remarks by Iverson provided insight into the company's tolerance for experimentaKing rion and willingness to take risks: "We trlr t6 irnotess on our employees that we are not beSolomon. We use an expression that I really Like: 'Good managers make bad decisions.'We 50 make he'll position, management a put rn him person and lieve that if -vou take an average good percent 60 makes good manager A percenl- griod decisions and 50 percent bad decisions. tell decisions. That means 40 percent of those decisions could have been better. We continually when know managers our ernployees that it is tieir responsibility to the company to let the point I'd they tnake l,hose 40 percent decisions that could have been better' ' ' ' The only other iil-e to rnake about decision making is, don't keep making the same bad decisions'"5 In a 19gil interview, Iverson saio that "management can't be effective without taking some sinkamount of 1isil. A group of us were just recently thinking about the pluses and minuses of finishrust before the ail removing pickling steel, irg inillions of dollars into a new plocess for elecing it. Right not, that's done by using acid. But maybe it can be done better, faster, cheaper

ln

f gg3

'lbiC., p. 20.

3Ken lvei'son, Plain Tolk (New York: John Wiley

'tibid., p.37.

& Sons, 1998),

p

27 '

Buchler, eds', The Questfor Compet Kennetl-r lverson, "Eftective Leadershlp: The Key ls Simplicity," in Y. K. Shetty and V. M. Stander, "NucoratCrossHenrionsJ. Chemawatand in Pankaj itiveness(Neu;york: euorum Books, I991),p 287 Quoted 1984, Case, School op.8-9 ' Business Harvard roaos,"

jF.

Chapter

n Correnti. "The ls. You have Corbu take our comrk for 6,800 peo-

rmarr, president, byees (including unassuming of-

sorked in one of aad 300 people.

essentially operrputs either from ions being made L problems could 5e are honest-towe duplicate efmputer program s s-orth it."3 One r divisions are in -If any of them ons and wasting rrlotte would feel

for experimenta, rre are not King decisions.'We beLon, he'Il make 50 ; 60 percent good :e

continually tell

rgers know when rl1-

other point I'd

;ions."5

hout taking some I minuses of sinkrust before finish.rter, cheaper elec-

, The Quest for Competnder, "Nucor at Cross-

1

The

Nature of Management Control Systems 23

trolytically. . . . I can't stand it when there are not strange ideas (like this one) floating around

the company."6

Human Resource Policies Nucor was very selective in recruiting employees and was able to choose from a large applicant pool' Noted Iverson, "Darlington [S.C.] needed r ight people, and we put a little ad ii the county weekly newspaper that said,'Nucor Steel wiII take soml applications on Saturday morning at 8:30 for new employees.'When we went out there for the inierviewing, there were 1,200 people lined up in that plant. We couldn't even get into the plant to get to the personnel department. . . . Finally, we called the state police and said,'You've gotlo do someihing. We've got a traffic jam out here.'And the cop on duty said, 'We can't do it, because we've got"three people out there applying for jobs ourselves!,,,7 Employee relations at Nucor were based on four principles:

I' Management

is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity. 2' Employees should feel confident that if they do their jobs properly, they will have a job to-

morrow. 3. Employees have the

right to be treated fairly. {' Employees must have an avenue of appeal when they believe they are being treated unfairly.

As part of its commitment to fairness, Nucor had a grievance procedure that allowed any ofa grievance ifhe or she felt the supervisor had not provided a fair hearing. The grievance could move up to the general manager level and, if the employee ras still not satisfied, could be submitted to headquarters management fbr final appeal. General managers were required to hold annual dinners with every employee, mleting with iroups of 25 to 100 at a time. These meetings gave employees a chance to discuss problems re:irtingto scheduling, equipment, otganization, and production. The ground rules were simple:All :omments were to be business related and not involve personalities, and all criticism was to be -aken under advisement by management for decisive action. Like traditional New England town reetings, the format was free and open. Topics varied widely from year to year, and sometimes :he sessions lasted well beyond midnight. Another key aspect of Nucor's relationship with its workers was its commitment not to lay rff or furlough employees in periods when business was down. Instead of reducing the work -irce during recessionary periods (as was the usual industry practice), Nucor would reduce the rork week. A former employee of an integrated steel said, 'At Nucor, the cold-mill 32nager says that almost all of the improvements have "o-pr.y come from operators and operating su-n'isors' At my former plant, operators are reluctant to suggest improvements for fear of rer:cing or eliminating another worker's job.,'S employee to ask for a review

-'-'reArtof KeepingManagementSimple,"interviewwithKenlverson, t'o., p.42.

HorvordManagementlJpdote,Maylggg,p.

r{-'Jrony Edwards, "How Efficient Are our work practices?" New steer, luly 1996,

p.3r.

l.

24

Chapter

One The Nature of Managernent

Control Systems

Nucor,slaborforcewasnotunionized'Anemp]oyeeatNucorSteelinHickman,Arkansas, I see two main reasons' First' it's just torronio"? Nucor is "Why ;;;, presented the majoriy pay and benefits package is topgood care 'L rev v^L-E--rIts not needed. Nucor takes very "ri. "*nr"yees. t. Nn.or listens to its employees notch. No crne has been caprici ee surveys' We just d'on't need' meeting crew monthly through

I --*:.:1r

unionmediators' ' ' 'The second We We don't need adversaries' of this approach: "People like Iverson noted ttt" "ff"tlit'eness had to s anizer in Darltngton' we iast time we had t;;;;; pamphlets'"1o the union guy putti"g out tie

t. I

Compensqltort

D-(

speNucorprovidedemployeeswithaPerformance-relatedcompensationsystem.Allemployees featuring incentives for meeting nft* four of onl under ""ch covered were "o-p""tuti"" cific goals and targets'

1. Production Incentive Plan

assigned' to each

shift' and theY

on that shift; no bonus with the otn", ,.,"-u"rs operating were also a part ofthe bonu ating. Produ"tio" trrp"'uisors The weekly output by' as the employees tf'5v tt'p"t*sed'

r:

ere are nine bonus and shiPPing' Take ets Per hour: Above

More at e Claude Riggin, "Freedom and a Hell of a Lot

r0 ,,Steel Man Ken ,u"rron," lnc, 11

tbid.,

pp.4445.

Nucor"' Newsfront column' New

April 986' pp' 4142'

Steel'

luly 1996'

-

Chapter

an. Arkansas,

First, it's just

ackage is toPits employees rst don't need

I divisiveness. a proolems. ra" ' example, the out to Protect

-{11 emploYees

r meeting

sPe-

m manufactur-

rroduction tonards and were

I25to 40 workas a significant an the workers

If

one worker's

Iet, every memugh," said Iverare thirtY min-

the week. Now, l or your wife is the bonus along ]t was not oPerthe same bonus ;ork group were .

the production

are nine bonus I shipping. Take per hour: Above

1

The

Nature of Management Control Systems 25

:rat. the people in the group get a 4 percent bonus for every ton per hour. So ifthey have a week r rr-hich they run, say,32 tons per hour-and that would be low-that's an 80 percent bonus. ^ake the regular pay, the overtime pay, everything, multiply it by an additional 80 percentrve give them that check along with their regular check the next week."12 =rd 2. Department Manager Incentive Plan ]-ucor's department managers oversaw the production supervisors and, in turn, reported di:'---ll1'to the general manager of their plant. They earned an annual incentive bonus based on -'e performance of the entire plant to which they belonged. The targeted performance criterion :=re rvas return on assets. Every plant operated as a stand-alone business unit. All the plants ---- f the same performance target: a return of 25 percent or better on the assets employed within --:-'r plant. In recent years. bonuses averaged 82 percent ofbase salary. 3. Non-Production and Non-Department Manager Incentive Plan -i- employees not on the Production Incentive Plan or the Department Manager Incentive J-'.-including accountants, engineers, secretaries, clerks, and receptionists-received a bonus : - -C primarily on each plant's return on assets. It could total over 25 percent of an employee's --.- - salary. Every month each plant received a chart showing its return on assets on a year-to":; basis. This chart was posted in the employee cafeteria or break area together with another :; =:t that showed the bonus payout; this kept employees appraised of their expected bonus lev: = :r,roughout the year.

4. Senior Officers lncentive Plan -:= iesignation "senior officers" included all corporate executives and plant general managers. -\.::--,r senior officers did not have employment contracts, nor did they participate in any profit - -.Jlg. pension, or retirement plans. Their base salaries were lower than those received by ex:-:-::\-es in comparable companies. Senior officers had only one incentive compensation system, :a--i on Nucor's return on stockholders' equity above certain minimum earnings. A portion of :--::;-\ earnings was placed into a pool that was divided among the officers. If Nucor did well, the i:=:-.' bonuses, in the form of stock (about 60 percent) and cash (about 40 percent), could :- -'::t to several times their base salaries. If Nucor did poorly, an officer's compensation was :Li- 3ase salary and, therefore, significantly below the average pay for this level of responsibility. l-::ing a slack period in the 1980s, Iverson was named the Fortune 500 CEO with the lowest -::=:tn-:ation. He saw this as an honor. "'When I walked through a plant during that period of --t= l.. hen we had to cut back to a four-day work week, or even three-and-a-half days, I never -.=: i an employee who complained," he said. "His pay may have been cut25 percent, but he knew --.=: ::s department head was cut even more and that the officers were cut, percentagewise, even =':- :han that. I call it our'share-the-pain' program. . . . I think in 1980 I earned $430,000. In i earned $108,000. Management should take the biggest drop in pay because they have the -

=- re,
=l:E:

26

Chapter

One

Control Svstetns The Nature of Management

Information Syelqqq Every week

ea-ch

prantsen! d'1"

T.,1"ji::::;;f nr#:t}L'L?;n:r,at::il:;::11'""iJ,1ii'

-. Ji':a L

figures for sales comparing actual to budgeted g-

-.--r::

_-*'_:= -- f-

--,.

-'.'.'t

ECt L:-E 4

--

F>h----

--: -1

'L -,"'::t :-...! t'_J:E'E:-

------rU

Benefits

as

Nucortookanegalitarianapproachtowardemployeebenefits.seniorexecutivesdidnotenjoy such traditional perquisites :::1;::1il:,-,'ry:ilLiliiilli-as erson. Certain benefi'ts, such

tion schedules, and insurance hats. (In a tYPical manufactu

lalverson, Ploin Talk, PP' 37-39 t5tbid., p. 59.

|

Chapter

li::._.-related variF-er. these numf, 25 plants were | = .econd weekly I li-,--ise for the prese for the correIr:._i \\-as compiled ti--er onto just five d =zures for sales

l :::brrnation

t ..k

sys-

them to subt- not paying atrs hard to get the

n-i

and ourselves

reen information r:ron is really obEa:ion-you don't h sta]'out ofyour -!

[3ent three times c and to plan for i piant were disnci machine oper-

1

The

Nature of Management Control System.s 2T

rith status or seniority, and the CEO's ofben was gold_plated!) Every Nucor annual report con:ar'ed the names of every employee l lhaueticatiy on the front cover. The company maintained a profit fo he officer level, con_ ax =ibuting a minimum of 10 percent o Of this aniount, aprroximately 7b to 20 percent was paid out to e ye llowing year as cash :rofit sharing' The remainder was placed in trust and allocated to employ"us b-"a.ud on their =aEungs as a percentage of the total earnings paid throughout Nucor. The employees them-lves made no contributions t<-r this plan. They became fully vested after seven full years of -nice and received payment when they retired or terminated employment with Nucor. In the -:80s, several employees had more than $800,000 in the trust. \ucor had a monthly stock purchase plan featuring a 10 percent Nucor matching contrib':':n' and a 40I( included u -tt.hi.rg contribution of 5 to 25 per:rnt of the emp ucor's return on shareholders' equity. Addition=:-r-' emploYees mmon stock for each five years of continuous as well as standard medical, dental, disability, and life insurance -nice coverage and stanj;rd vacation and holiday packages. \*ucor's benefit program also attested to the company's commitment to education. on-the.'-.i :raining was a matter of policy, with employees uemjtaught to perform multiple functions. l:e Nucor Scholarship Fund provided arvards c f up to $z,zod uyear for up to four years to em:':'-vss5' children who pursued higher education or vocational training past hig"h school. In -il]6 the plan covered more than 600 students attending some 200 different learning institu::--.. According cost Nucor a =:ed a s Nucor lT,X::Tr:il:,,ff; :a:
priceless

arou

lt. '" \ucor encouraged employees to recruit their friends and relatives to work for the company. -t al industry observer remarked, "fn fact, for existing employees, Nucor ofben means =+a-ru-re

-\1phews, l.Incles, Cousins, and Other fte]atives.,,17 II

r ecnnorogy ives did not enjoy r rooms, or execu:--

remarked Iver-

l

benefits, such as

r

plan, and its ser-

ne holidays,vaca-

,same green hard ats in accordance

\:.rrr did not have a formal rnnrora a-.. ::.o31-orncer. rnstead, it they developed-whether in steel or iron =i they adopted the techn - ='-ing, or in fabrication. Teams composed of managers, engineers, and machine operators de=::
rel

: :-ilt in Darlington,

;:Hffi:?f,"."::hil,::';';"H:1tri,

South Carolina, in 1969. Unlike integrated .t""1

"An Interview with lohn D. Correnti,,, p. ,l9. A. Maciariello, Lastingvorue (Newyork: john wirey & sons,2000),

---=-r r,

c---r

pp. 14041 .

Japan-in the plant

"o-iunies,

mini-mills

28

Chapter

One

The Nature of Management Control Systerns

steel into finished steel using smalldid not start with iron ore; instead, they converted scrap scale electric furnaces. Nucor purchased its sc open market prices. For the non-flat, commod for construction and rods for pipe, rail, and sc t glated steel producers' eventually driving the latter out ot the produce not could Until the mid-1980s, however, mini-mills market high-end s, and this by automoti by buil , Nucot made history tegrated ste entry into the premium seggaining Ie, Indiana)' thus could, make

ment of the steel industrY' casting technology developed At its crawfordsville facility, Nucor gambled on the thin-slab

Iri---li 1:a

l:-:

-_

--ri:

t-'

:

:ii

l

--

:aa=.

:-:. I iI 4 _ r:

r-J

g--=---='a-,,-:'-:

'1-- -:- =-

]

a

:'.2

-J:!1---: -

plant represented approximately fi've times the stockholders'total equity in the the company's 1982 net earnings and virtually eiualed company that Year! (in Hickman' Arkansas' and charleston' By 1997 Nucor had built two more mini-mills plocess to produce flat-rolled sheet steel' The south carolina), both using the thin-slab casting steel did not appear until 1995first competitive facility to make thin-slab-casi flat-rolled eight years after Nucor's pioneering effort' of Nucor-YamIn 1982 Nucor's fnr*lt of technlcal excellence had led to the establishment which operof Japan' and Yamato Kogyo ato steel company, a facility jointly owned by Nucor that used its own continuous-casting technolated a structural steel mill in the united states l1e

oOS"r,"ruI

by several other comyears later, Nucor became concerneC that mini-mill start-ups

I-----_

t-

)

sed the facilitY.

to continuously modernizing its In addition to developing new plants, Nucor was committed existing ones. Its philosophy was to build or just "put case rebuilding entirely rather than ing new plants or rebuilding existing plants' but instead handed the responsibility for d group of engineers selected from existing Nucor t'acrlrl Arkansas, it assigned the meltshop sua second rolling mill at Nucor-Yamato it Bly'theville, construction of the meltshop in the secpervisor in the first miII to coordinate the design and observed, "They put it all on my shoulond mill. As Greg Mathis, this meltshop ..,o"i.i.or,

bc :: : .-7 k:c:1 r- -- :r.-

Chapter

(reinforcing bar lr-antage over intethe steel industry. products required ropolized by the infirst mini-mill that the premium segr.r-

-.. and Charleston, led sheet steel. The ppear until 1995nent of Nucor-YamJapan, which operrus-casting technol-

-several other com:e scrap to become

trrst lrne. '" F'arther, the actual construction of the plant was done by workers from the local area, who r=:e aware that they would subsequently be recruited to operate the mills as well. I-;erson explained the rationale behind this approach to technology management: "We accept -:.:: roughly half of our investments in new ideas and new technologies will yield no usable reF,--. . . . Every Nucor plant has its little storehouse of equipment that was bought, tried, and ararded. The knowledge we gather from our so-called'failures' may lead us to spectacular -4\'€ss. . . . We let employees invest in technology. People in the mills identify and select most r -ie technolory. Technology is advancing too quickly on too many fronts. No small group of can possibly keep fully informed."le =rrrives -- 1991 President Bush awarded Iverson the National Medal of Technology, America's high=rsard for technolosical achievement and innovation.

i I

=:

Future i:r

I-.-erson,

the national medal was not a culmination but a signpost along the way. "Our

r==st

e'i

5:6

challenge (in the future) is to continue to grow the company at 15-20 percent per year, :,, keep earnings parallel with this growth," he said. "Business is like a flower: You either ,:rr die."2o

Questions - ;ial- has Nucor performed

L-:1]'modernizing its

in the latter In buildmill." e old ]- l'ear,

rsement to a small en it decided to add rd the meltshop suneltshop in the secit all on my shoul-

s1a

=:

rblished a plant in ally unproven techrd to the flat-rolled rarbide supplied by

outside contractors,

Nature of Managernent Control Systems 29

engineering, the contracting, the budgets. . . . I mean, we are talking an investment of millions of dollars and I was accountable for all of it. It worked out fine -.lut -ce cause my team and I knew what not to do from our experience running the meltshop on

nd-party agents at

f.rst, obtaining the chnology flow-back rimately five times total equity in the

The

i=:s-the planning, the

steel using small-

:hnology developed om more than 100 demonstrated in a

1

I

so well? Is Nucor's industry the answer? Is it the "mini-mill" effect? Is it market power (scale economies)? Is it a distribution channel advantage? Is it a raw material advantage? Is it a technology advantage? Is it a location advantage? Is it the result of an entrenched brand name? Is it Nucor's choice of a unique strategy? Is . it Nucor's ability to execute its strategy? T-:ar are the most important aspects of Nucor's overall approach to organization and conHow well do Nucor's organization =:- that help explain why this company is so successful? requirements? mechanisms fit the company's strategic f control '-

bc- :c 89-90. bc :c. 5,96, 150. >t \: of Keeping Management Simple," Interview with Ken lverson.

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Chapter

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The Nature of Manngemcnt Control Systems

3. A crucial element of Nucofs success is its ability to mobilize two tSpes of knowledge: plant construction and start-up know-how; and manufacturing process know-how. What mechanisins does Nucor employ to manage knowledge effectively? o. What mechanisms help the company accumulate these two types of knowledge in individual plants? b. What mechanisms exist within the company to facilitate sharing this knowledge among its 25 plants? c. How does Nucor transfer knowledge to a greenfield, start-up operation? 4. Nucor repeatedly has demonstrated the ability to be a successful first mover in the adoption of new technolory. How does the company's approach to organization and control contribute to this first-mover advantage? 5. Would you like to work for Nucor? 6. Why have competitors not been able to imitate Nucor's performance so far?