Nucor
In January, 1999, in a boardroom coup, Ken Iverson, chairman of Nucor, was forced into retirement. In June 1999, his successor, John Correnti, was voted out of power. The board appointed 68-years-old David Aycock chairman, chief executive and president of Nucor. Aycock joined Nucor in 1954, became a director in 1971 and president in 1984. He retired in 1991. He stayed on Nucor’s board after 1991 as the second largest individual shareholder. The main bone of contention was the long-term strategic direction of the company. The board wanted a fundamental shift in Nucor’s strategy which Iverson and Correnti resisted. Several industry and other trends led the board to reconsider strategy. First, overall steel demand in the US was growing at less than 1.5% annually. Second, market share that Nucor could take away from integrated steel companies and other mini-mills was limited. Third, many companies had replicated the mini-mills idea. Finally, lowcost steel imports had made major inroads in the US by 1999. In this context, the board asked: how could Nucor sustain its historically high-growth rates? The board contemplated several strategic and organizational changes that would have been heresy under Iverson and Correnti: pursuing acquisitions, expanding into global markets, building blast furnaces, diversifying into non-steel areas, adding new organizational layers and changing the composition of the board. Aycock was convinced that Nucor had to break from the past to meet the company’s aggressive growth goals. “How can we step up to the next level?” he asked. “Foreign and domestic rivals have been turning up the heat. We have plucked all the ripe, low-hanging low- hanging grapes. Nucor needs new moves.” In a symbolic gesture, the framed New Steel magazine covers featuring Iverson and Correnti as Steelmakers of the Year were removed from the head office. Under Iverson, the company did not believe in acquisitions: he was committed to building new plants from scratch. Aycock, however, advocated advocated acquisitions. “Every company hits a plateau. You just can’t go out and build new plants to grow”, grow ”, he said. With steel prices down in 1999, he believed firms could be acquired at bargain prices and was looking at several companies, including Gallatin Steel in Kentucky. Iverson kept Nucor a domestic company, partly because he was concerned about exporting the company’s unique culture to foreign locations. In contrast, Aycock expressed the following perspective on global expansion: “Steel is not just a local market anymore and our product must be global.” According to Aycock, Nucor’s future growth hinged on its ability to enter South America and Asia using local partners. Iverson pioneered the mini-mill concept. Aycock wanted to build blast furnaces, the hallmark of integrated steel producers, noting: “Blast furnaces can deal with a weakness that could become critical as the firm grows. Unlike integrated firms which use pig iron produced by blast furnaces, mini-mills rely on scrap metal. A blast furnace can ca n diminish the firm’s reliance on the notoriously fickle scrap market. It is a terrible misconception that integrated firms have to stay ‘integrated’ and mini-mills mini -mills must stay ‘mini’”.
Iverson’s policy was to be a single industry player, concentrating on st eel and steel-related products. Aycock insisted that Nucor consider diversifying beyond steel. “It’s ridiculous to think we can keep growing this company just in steel and steel products”, he said. “The firm’s base can be expanded beyond steel to other manufacturing areas where the Nucor model will work.” John Tumazos, a longtime steel analyst with Stanford C. Bernstein remarked: “Nucor would likely look at manufacturing setups similar to Nucor’s joist business – nonunion shops with a team production concept or a product adaptable to Nucor’s team system. I expect they will be in manufactured products that are philosophically like a joist line where you are paying a bunch of guys based on the unit output of the team and they are pulling together like a crew.” Iverson took pride in overseeing the operations of about 25 plants with lean corporate staff. Aycock emphasized the need to add more management layers. As he explained: “When Nucor was a niche player, Iverson’s intuitive style served it well. But with revenues now exceeding 4 billion and the company on track to become the largest steelmaker in output, it was time for more long-term planning. Our size means the boss simply can’t know everything that goes on. Each top executive must have no more than seven plant managers reporting to him. This will mean better oversight and monitoring of costs. It may also provide a broader base of talent to succeed me.” In November 1999, the company added two executive vice presidents betwee n Aycock and the plant managers. The composition of the board also changed. Iverson’s board consisted of current and former Nucor employees. Aycock recruited outside the company: by November 1999, outside directors made up twothirds of Nucor’s board. Questions
1. What frame/frames are we dealing with? 2. Was Nucor’s change of strategy a “ must”? 3. Both Iverson and Aycock were extraordinary leaders. Can you name some factors that contributed to their success? 4. Did the local/global divide exert some pressure on both leaders’ strategies? 5. Can Nucor preserve its unique c ulture and control systems under its new strategic direction?
2. Nucor’s history tells us that its growth was a company tradition and was directly proportional with the US steel market growth. The only problem was that these growth slowed down to a mere 1.5 % yearly. Considering their competition it was impossible to overtake this newly created market space and even so the margin was too small. The only way Nucor could increase its own market share was to create a new market demand or branch out into other steel related industries. To people with vision that were not stuck in the past and still living of o ff passed laurels, changing the strategy was a “must”.
3. Iverson and Aycock were incredible leaders in their own way and their set time periods. Iverson was the one who actually built the company and its strategy while Aycock was the one who steered it to new horizons. Their own works must not be underestimated. They both led in different ways and we’ll try doing a side by side comparison and the way the companies was led during these two CEOs. Iverson’s way of expanding the company was to build new steel plants from scratch while Aycock felt that purchasing cheap companies was a far better way of expanding. If even Nucor, a giant player in the market was feeling the pressure from competitors, smaller companies must have been desperate, these could have been bought off at bargain prices. Iverson was afraid of expanding the company in other countries. He considered that it had a specific culture built around its workers and unions that would not transfer well in other foreign countries. Aycock’s vision demanded that the company should expand due to the fact that foreign companies are moving already into the US and that steel was a global business. By pioneering mini-mills Iverson realized quick market share growth but Aycock felt that blast furnaces were better off in the long run. Mini-mills had a dependency on the way they operated in creating steel, they worked with scrap metal which had a fluctuating price. Blast furnaces on the other hand operated with raw pig iron. Iverson would have never wanted Nucor to expand into new business lines but Aycock felt that this was ridiculous and believed that it could venture Nucor into new business while still keeping the Nucor tradition. Iverson was a very capable leader and took pride into personally overseeing the production processes on over than 25 plants. Right after being elected, Aycock implemented a lean management system with the simple rule of delegating the management work of the plants to 2 vice presidents. A manager would monitor not more than 7 plants on his own. 4. This local/global divide had a lot of pressure on both leaders but to understand it we must look at it from the market perspective. During Iverson’s time, the “global divide” was the one putting pressure on his tightly locked down local company. Cheap steel was imported from other countries and was chipping away from his own business. This could actually be fatal in the long run due to the fact that producing steel in the US could be more expensive than producing it somewhere else plus the import logistic costs. A form of pressure on Aycock’s leadership came from the fear that he could destroy Nucor’s culture as a local company. We must not forget the Aycock joined Nucor in the early 50’s when America was increasingly national oriented and their economic boom was not directed by consumerism. At that time there was a closer relationship between workers, their unions and the companies. Aycock wanted to expand the company, note, not outsource it. He wanted US steel mills to export and also have foreign mills purchased. 5. Even though the case study repeatedly presents a culture it’s hard to imagine what this actu ally meant for a normal factory worker. The company’s culture will surely be maintained in the US, do to its
national roots. As for the expanded plants in other countries we must look at the way they are run. Aycock would probably use his “new found talent” which surely were American as managers in these new plants. Thinking about multinational companies in Romania that have CEOs with nationalities as the mother company we must admit that they are run in a way more similar to the company’s home country. Circling back the Nucor we could presume that Aycock would care a great deal about Nucor’s culture, being the second largest single stock owner, plus a member of the company for almost 50 years. He wouldn’t want to tarnish Iverson’s work and Nucor’s culture.
