1
– 1 –
TEACHING NOTE
CASE 27
Nucor Corporation in 2016
Overview
In 2016, Nucor Corp., with a production capacity of 29 million tons, was the largest manufacturer of steel
and steel products in North America and ranked as the 13th largest steel company in the world based on tons
shipped in 2014. It was regarded as a low-cost producer, and it had a sterling reputation for being a global first-
mover in implementing cost-effective steel-making production methods and practices throughout its operations.
Heading into 2016, Nucor had 24 steel mills with the capability to produce a diverse assortment of steel shapes
(steel bars, sheet steel, steel plate, and structural steel) and additional finished steel manufacturing facilities that
made steel joists, steel decking, cold finish bars, steel buildings, steel mesh, steel grating, steel fasteners, and
fabricated steel reinforcing products. The company’s lineup of product offerings was the broadest of any steel
producer serving steel users in North America. Nucor had 2015 revenues of $16.4 billion and net profits of
$357.7 million, far below its 2008 pre-recession peak of $23.7 billion in revenues and $1.8 billion in net profits
and also substantially worse than its 2014 revenues of $21.1 billion and net profits of $714 million. Nucor’s
sharp declines in sales and net profits in 2015 resulted from eroding market prices for many steel products and
a sharp falloff in customer orders in several major product categories, both largely due to a surge in ultra-cheap
imported steel products coming from a variety of foreign sources (but mainly China). The outlook for 2016 was
not encouraging.
Suggestions for Using the Case
This case is quite versatile—it works quite well as a follow-on to the material in Chapters 3-7, as a follow-on to
your coverage of Chapters 10-12, as an oral team presentation, and as a comprehensive written case assignment or
final exam case. You’ll be hard-pressed to find a better case for illustrating how to craft, implement, and execute
a low-cost leadership strategy successfully and why such a strategy can be very powerful from a competitive
standpoint.
We have positioned the case in the section of cases relating to strategy implementation and execution for several
reasons:
nThe Nucor case contains considerable detail on how Nucor has gone about implementing and executing
its low-cost provider strategy. Nucor is very much a company that is aggressive, opportunistic, and
skilled in employing some very shrewd operating practices to achieve and sustain low-cost leadership.
nNucor has an exceptionally lean organizational structure, and it is an adept practitioner of decentralized
decision-making.
Contending with the Challenges of Low-Cost Foreign
Imports and Weak Demand for Steel Products
:
Case 27 Teaching Note Nucor Corporation in 2016
2
nIt has been quite successful in designing and using incentive compensation systems for both workers
and managers. Nucor’s incentive compensation program for production workers has been a big factor in
enabling the company to achieve and low labor costs per ton produced.
nTop management has shaped the company’s corporate culture to tightly fit its implementation and
execution of a low-cost provider strategy, and its corporate culture is very deeply embedded.
nNucor management pushes its steel mill units to achieve operating excellence.
However, the case is an excellent fit with the material covered in Chapters 3-7. Nucor is a fascinating success
story and one of the world’s most adept manufacturers in crafting and executing a low-cost leadership strategy.
The case details how Nucor has been a first-mover in capitalizing on cutting edge technological innovation in
steelmaking to drive down costs and sustain its position as a low-cost provider for well over three decades.
Furthermore, Nucor’s growth forcefully makes the point that a company can grow and prosper despite highly
adverse industry conditions—if the company has a well-conceived and competitively astute strategy. Even though
Nucor is a Fortune 500 company, it behaves like a small entrepreneurial enterprise that is trying to carve out a
stronger competitive position for itself against formidable and often larger competitors. Because of the global
nature of the steel industry and Nucor’s battle against the dumping practices of certain foreign steelmakers, it is
important for students to have been exposed to the material in Chapter 7 (Competing in Foreign Markets) prior to
being assigned the case. The world steel industry is fiercely competitive. Virtually all of the world’s steelmakers
are struggling to cope with weak worldwide demand for steel and a big overall of excess steel-making capacity.
The “comprehensive” nature of the case and the rich data it contains on Nucor and competitive conditions in the
global steel industry make this case ideal for use as a “final exam” case or a comprehensive written case (or
oral team presentation) assigned near the end of the course.
Conducting the Class Discussion. If you elect to use the Nucor case as a follow-on to Chapters 10-12, we
suggest pressing the class to identify all the different ways the company has sought to implement and execute
its low-cost strategy successfully. Students should be pressed to identify and explain in some detail the principal
causes of Nucor’s long-term business success—has it been good strategy or good implementation and execution
or a combination of both. Indeed, we like to ask the class what Nucor does well that accounts for its success
and industry standing. After the drivers of its success have been thoroughly explored—which should definitely
include both good strategy-making and good strategy execution, then you can probe for where Nucor’s best
strategic opportunities lie and what the company should do next.
If you elect to use the case as a follow-on to Chapters 3-7, we suggest teaching the case in straightforward,
analytical fashion—using the tools of industry and competitive analysis to diagnose the industry situation,
identifying the key elements of Nucor’s low-cost provider strategy, doing a first-rate SWOT analysis, comparing
the value chains of integrated producers versus scrap recyclers, identifying the strategic issues that Nucor
management needs to address, and having students recommend what Nucor needs to do to remain competitively
and financially successful.
Videos for Use with the Nucor Case. There is a video we recommend for use with the Nucor case:
nA 4:16-minute 2016 Bloomberg video titled “What Steel Says About the American Economy” that
can be accessed at http://www.bloomberg.com/news/videos/2016-10-04/what-steel-says-about-the-u-s-
economy
This video is probably best shown at the beginning of your discussion concerning the impact of foreign imports
on the steel industry in the United States and on Nucor’s business performance. If time is too short to show the
video, then it can be viewed by students on their own—preferably before class. Just provide them with the link.
Case 27 Teaching Note Nucor Corporation in 2016
3
The Connect-based Exercise for the Nucor Case. We developed an exercise for Nucor for inclusion in
the publisher’s Connect™ Management web-based assignment and assessment platform because:
nThe content of the Nucor case ties tightly to many of the topics covered in Chapters 3 through 7 and
Chapter 10-12.
nOne of the purposes of the case exercises is to drill students in applying the concepts and analytical tools
discussed in the chapters to the circumstances posed in the cases.
This particular Connect-based exercise focuses on the following five questions:
1. Nucor is regarded as an accomplished low-cost provider, but what specific actions has Nucor taken to
drive costs out of its business and achieve low-costs vis-à-vis many other steel producers?
2. What does a SWOT analysis reveal about the attractiveness of Nucor’s situation and future prospects?
Which, if any, of Nucor’s resource strengths and capabilities qualify as a core competence?
3. What does an analysis of the data in case Exhibit 2 reveal about Nucor’s financial and operating
performance?
4. What factors are most responsible for Nucor’s weak financial performance in 2009-2015 in comparison
to its performance in 2004-2008 (shown in case Exhibit 1)?
5. What issues does Nucor management need to address?
It should take class members roughly 35-45 minutes to complete the exercise, assuming they have done a
conscientious job of reading the case and absorbing the information it contains. All five questions in the Nucor
case exercise on Connect are automatically graded and entered in your electronic grade book that is part of the
Connect platform, which makes it easy for you to evaluate each class member’s ability to utilize the associated
analytical methods.
What to Tell Students in Preparing the Nucor Case for Class. To give students guidance in what to do
and think about in preparing the Nucor case for class discussion, we strongly recommend two things:
1. Have class members complete the Connect-based exercise for the Nucor case in the event you
have adopted the Connect software for your course.
OR
2. Provide class members with assignment questions and insist that they prepare good notes/answers
to these questions before coming to class. Our recommended assignment questions for the Nucor
case are presented in the next section of this TN. Since there are 10 assignment questions, you may
want to have students focus on a subset of the questions (depending on the analytical methods and
topics you wish to emphasize during the course of the class period).
To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note in the instructor resources section of the Connect
Library. (You should be aware that there is a set of assignment questions posted in the Connect Library for
each of the cases included in the 21st edition.) In all instances, these assignment questions correspond to the
assignment questions in the teaching note for the case.
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned
case unless students have conscientiously have made use of pertinent core concepts and analytical tools in
preparing substantive answers to a set of well-conceived study questions before they come to class. In our
classes, we expect students to bring their notes to the study questions to use/refer to in responding to the
questions that we pose. Moreover, students often find that a set of study questions is useful in helping them
Case 27 Teaching Note Nucor Corporation in 2016
4
prepare oral team presentations and written case assignments—in addition to whatever directive question(s)
you supply for these assignments. Hence, we urge that you provide students with assignment questions—
either those we have provided or a set of your own questions—for all those aspects of a case that you
believe are worthy of student analysis or that you plan to cover during your class discussion of the case.
Utilizing the Guide to Case Analysis. Should this be your first assigned case, you may find it beneficial
to have class members read the Guide to Case Analysis that follows Case 31. The content of this Guide is
particularly helpful to students if your course is their first experience with cases and they are unsure about
the mechanics of how to prepare a case for class discussion, oral presentation, or written analysis.
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis.
The Nucor case merits very strong consideration for a written case assignment or oral team presentation. Our
suggested assignment questions, in the event you opt to use the case for a written assignment or an oral team
presentation, are as follows:
1. John Ferriola, aware of your emerging expertise in strategic analysis, has employed you as an intern to
assist him in evaluating Nucor’s situation and future prospects. Mr. Ferriola has asked you to provide
him with a 4-6 page report detailing (1) the strength of competitive forces in the steel industry as of
2015, (2) industry key success factors, (3) the pros and cons of Nucor’s competitive strategy, (4) a
SWOT analysis—preferably in the form of an accompanying exhibit, (5) how attractive Nucor’s value
chain is compared to the value chains of the integrated steel mills, (6) the strategic issues that Nucor
management needs to address, and (7) your recommendations as to what actions he should take to
enhance Nucor’s position and future performance particularly as concerns competing effectively against
low-cost foreign steel imports into the U.S.
2. John Ferriola, impressed with your knowledge of strategic analysis, has employed you to assist him
and Nucor’s senior executive team in evaluating the company’s growth prospects and determining the
wisdom of pursuing a rapid growth strategy via both additional acquisitions and new plant construction.
Prepare a 2-3 page executive summary to John Ferriola giving him your appraisal of the competitive
forces facing Nucor, the attractiveness of making further investments in steel-making capacity in the
U.S., and of the company’s ability to compete successfully against both domestic and foreign rivals.
He is particularly interested in your recommendations concerning what strategic course the company
should follow over the next five years and whether Nucor should continue expanding its steel-making
capacity.
Assignment Questions
1. What are the primary competitive forces impacting U.S. steel producers in general and the producers like
Nucor that make new steel products via recycling scrap steel in particular? Please do a five-forces analysis
to support your answer.
2. What driving forces do you see at work in this industry? Are they likely to impact the industry’s competitive
structure favorably or unfavorably?
3. How attractive are the prospects for future profitability of U.S. steelmakers? Should Nucor consider
expanding in this type of industry environment? Why or why not?
4. What type of strategy has Nucor followed? Which of the five generic strategies discussed in Chapter 5
is Nucor employing? Is there any reason to believe that Nucor has achieved a sustainable competitive
advantage over many of its steel industry rivals in North America? If so, what type of competitive advantage
does Nucor enjoy?
5. What are the specific policies and operating practices that Nucor has employed to implement and execute its
chosen strategy?
Case 27 Teaching Note Nucor Corporation in 2016
5
6. What specific factors account for why Nucor has been so successful over the past several decades? Do these
factors have more to do with great strategy, great strategy execution, or great leadership?
7. What does a SWOT analysis reveal about Nucor’s situation? Does Nucor have any core or distinctive
competencies?
8. What is your assessment of Nucor’s financial performance during the 2011-2015 period shown in case
Exhibit 3? How strong is the company’s financial condition?
9. What issues does Nucor management need to address?
10. What recommendations would you make to John Ferriola?
Teaching Outline and Analysis
1. What are the primary competitive forces impacting U.S. steel producers in general and the
producers like Nucor that make new steel products via recycling scrap steel in particular?
What does a five-forces analysis reveal about competition in the U.S. steel industry?
It is worth spending 5-10 minutes of class time establishing just why competitive conditions in the steel
industry are currently very tough. A five forces model for the steel industry is depicted below.
Rivalry
Among
Competing
Producers of
Competitive pressures
of rival sellers for
better market position
and competitive
advantage
Competitive pressures coming from the
market attempts of outsiders to win
buyers over to their products
Competitive pressures coming
from the threat of entry of new rivals
Substitutes for
Steel
Potential New
Entrants into the
Steel Industry
Steel
Competitive
from
Competitive
from
to the
Case 27 Teaching Note Nucor Corporation in 2016
6
nRivalry among Steel Producers—a fierce competitive force
Rivalry revolves heavily around price competition because most steel products are commodities.
Producing steel of satisfactory quality is something most producers have mastered. In a commodity
market like steel where it is hard to tell the steel products of one steel-maker from those of another,
buyers shop for the lowest/best price. However, meeting customers’ delivery schedule requirements
can also be a competitively relevant consideration for buyers when it comes to selecting whose steel to
Students should conclude that rivalry among steelmakers across the world is fierce, even cutthroat.
heightens competition as the acquirers try to turn the operations of the newly-acquired companies into
strong contenders in the marketplace.
A number of Nucor’s recent acquisitions, for example, represent entry of a potent and competitively
successful steel company into either new product categories or new geographic areas where its
presence heretofore may have been fairly minimal.
nBargaining Power of Suppliers—a moderate competitive force in the case of scrap steel suppliers and
union labor (in the case of unionized steel companies) but a weak competitive force otherwise
There’s little in the case to indicate that suppliers (other than the suppliers of scrap steel) are a major
competitive factor. However, the price of scrap steel is a key input for mini-mills and rising scrap prices
Case 27 Teaching Note Nucor Corporation in 2016
7
The power of unions could be a factor in affecting labor costs for steel producers having unionized labor
forces, putting such producers at a cost disadvantage vis-à-vis firms with nonunion labor.
Conclusions: Students should have little difficulty concluding that (1) competitive conditions can be
like nature of steel products.
2. What driving forces do you see at work in this industry? Are they likely to impact the
industry’s competitive intensity and profitability favorably or unfavorably?
Class members should be expected to identify the following as being driving forces:
nThe oldest driving force whose influence is now waning is technological innovation in steel-making
via electric arc furnace technology, thin-slab casting, and direct casting of carbon steel (Nucor’s Castrip
technology) that has allowed companies (like Nucor) to enter product segments formerly dominated
by the integrated mills of producers using older, more traditional steel-making technology at capital-
are shipping some of their output to the U.S. which puts them in head-to-head competition with domestic
steel suppliers. High-cost domestic steel suppliers are the hard hit by imported foreign steel. Moreover,
excess steel-making capacity seems likely to plague the industry for a number of years to come.
Case 27 Teaching Note Nucor Corporation in 2016
8
3. How attractive are the prospects for the future profitability of U.S. steelmakers? Should
Nucor consider expanding in this type of industry environment? Why or why not?
The point of this line of questioning is to get students to recognize that all U.S. steelmakers are not necessarily
in the same boat, despite the tough market environment and the grim profit outlook industrywide. A low-cost
steel producer that is also financially strong (like Nucor) may well be able to strengthen its overall long-term
competitive position at the expense of higher-cost and financially weak rivals. Even so, relatively strong
competitors like Nucor will find themselves in periodic and fierce battles with low-cost foreign suppliers
looking to win customers in the U.S. market with low-ball pricing, and they will not escape unscathed when
the market demand for the steel products they produce is weak relative to the available supplies.
John Ferriola is following the same strategic course as his predecessor; During 2013-2015, Nucor continued
to search for ways to grow the company and be successful despite the lackluster economy by (1) continually
looking for ways to improve performance and lower costs, (2) investing in projects that would move Nucor
into higher value steel products with better profit margins, and (3) striving to provide superior customer
service.
4. What type of strategy has Nucor followed? Which of the five generic strategies discussed
in Chapter 5 is Nucor employing? Is there any reason to believe that Nucor has achieved a
sustainable competitive advantage over many of its steel industry rivals? If so, what type of
competitive advantage does Nucor enjoy?
Very clearly, Nucor is pursuing a low-cost provider strategy. Such a competitive approach often is the best
strategy in a commodity product industry, and it is a strategy that has served Nucor exceptionally well over
the past 40+ years.
The information in the case clearly indicates that Nucor is widely regarded as one of the low-cost producers
5. What are the specific policies and operating practices that Nucor has employed to implement
and execute its low-cost provider strategy?
The class will undoubtedly have no trouble identifying Nucor’s low-cost provider strategy, but they may
not have as strong a grip on all the things that Nucor has done to achieve its low-cost status. It is one thing
Case 27 Teaching Note Nucor Corporation in 2016
9
Some of the key operating practices, policies, and approaches that Nucor has employed in pursuit of its low-
cost leadership status include:
nThe aggressive pursuit and implementation of cost-saving technological improvements at its plants.
Using electric arc furnace technology to melt scrap steel and cast molten metal into various shapes—
nBeing a first-mover or an early-mover in employing revolutionary and highly-automated steel-making
processes and techniques that substantially reduced the capital investment and operating costs to produce
nEmploying incentive compensation practices that generously rewarded workers, greatly boosted labor
productivity, and lowered labor costs per ton of steel produced. In several instances, implementing
improvements in operating efficiency at these plants.
nDeveloping and utilizing a value chain (anchored in using electric arc furnace technology to recycle
scrap steel) that involved far fewer production steps, far less capital investment, and considerably less
labor than the value chains of companies with integrated steel mills that made crude steel from iron ore.
nThe company’s pursuit of actions to promote greater environmental sustainability. Measurable objectives
and targets relating to such outcomes as reduced use of oil and grease, more efficient use of electricity,
and site-wide recycling were in place at each plant. Computerized controls on large electric motors and
Case 27 Teaching Note Nucor Corporation in 2016
10
company was highly decentralized, with most day-to-day operating decisions made by group, division,
or plant-level general managers and their staffs. The organizational structure at a typical Nucor steel mill
had four layers:
headquarters.
nEmployees were kept informed about company and division performance. Charts showing the division’s
results in return-on-assets and bonus payoff were posted in prominent places in the plant. Most all
employees were quite aware of the level of profits in their plant or division.
6. What specific factors account for why Nucor has been so successful over the past several
decades? Do these factors have more to do with great strategy, great strategy execution, or
great leadership?
Students ought to single out several factors that account for Nucor’s growth and market success over the
years:
1. The company’s aggressive pursuit of cost-saving efficiencies and the achievement of low costs per ton
produced in comparison with the costs of many rival steel-makers.
2. Nucor’s series of acquisitions (largely at bargain-basement prices) have led to its being able to supply
steel-users with an ever broader and more diverse lineup of steel products.