Unlike companies that define their business strategy primarily through product differentiation, per the prior blog, Nucor focuses intently on cost leadership.
Nucor's product include the following - steel bars, flat-rolled steel sheets, steel beams and pilings, steel plates, rebar, steel mesh, grates and fasteners, steel joists, girders, steel deck and custom-ordered steel buildings (metal sided sheds, warehouses, etc.). This industry is not particularly focused on product differentiation, as steel is steel, with a variable being size, shape, weight and finish, all of which are fairly standardized for building purposes.
Nucor does invest and innovate in ways to more cost effectively produce these products, but the products themselves are not differentiated from competitors products by product customization unique to each customer or technological advances within the product. The main differentiator for potential buyers is first and foremost, price. After that, assumptions can be made that selection by customers is based on name brand/reputation and likely, availability of the product.
The idea that a company can be both a cost leader and product differentiator may be true, though it seems that the product differentiation must occur before the cost leadership aspect can be added. For Nucor, cost leadership is the key, and the company is organized to that end.
Friday, February 28, 2014
Saturday, February 22, 2014
Chapter 6 - Cost Leadership
Nucor has generated a position for itself within the steel industry as a cost leader. Nucor has created this position by focusing on a "mini-mill" strategy, which has given it a cost advantage over the older, larger, integrated steel firms such as USS and Bethlehem Steel. By being a mini-mill, Nucor has used diseconomies of scale imbedded in the integrated steel structure to be competitive on a price basis.
Beyond the diseconomies of scale, some of Nucor's pricing prowess is also based on a learning-curve economies specific to mini-mill processes and also technological processes developed by the mini-mill industry.
Nucor organizes its management structure to focus on its cost leadership position, which means it has a very flat reporting structure, focuses on cost-cutting initiatives and strongly encourages managers and employees to contribute to the companies low-cost processes.
Beyond the diseconomies of scale, some of Nucor's pricing prowess is also based on a learning-curve economies specific to mini-mill processes and also technological processes developed by the mini-mill industry.
Nucor organizes its management structure to focus on its cost leadership position, which means it has a very flat reporting structure, focuses on cost-cutting initiatives and strongly encourages managers and employees to contribute to the companies low-cost processes.
Wednesday, February 12, 2014
Chapter 5 - Eval Firm Strengths & Weaknesses
According to the 2012 Annual Report, CEO Daniel DiMicco did a nice job of summarizing his view of NUE's strengths:
When analyzing specific strengths and weaknesses of firm using the resource-based view and not the SCP industry view, resource categories fall under four areas. Here are my interpretations of NUE's resources within the four areas.
Financial Capital
NUE has a excellent financial capital. According to its financial ratios, it is within the top two quartiles in comparison to other firms in its industry for Current and Quick ratios, its debt is rated A-, and it has a market cap of $16B. At the end of 2013, NUE was sitting on $1.5B in cash and short term investments.
Physical Capital
NUE has more than $10.5 B in Property/Plant/Equipment on its books. It has 23 scrap-based mills and is the largest recycler in North America.
Human Capital
This is where NUE believes it holds a significant advantage over its peers. NUE is an employee friendly company and is deeply concerned with employee enrichment, opportunity and safety. As an example of its focus on employees, the entire front and back cover of its annual report is covered by the names of all 22,000+ employees of the firm. NUE produces a Sustainability report every two years, and in it they promote "The Nucor Way," which is a list of 10 attributes by which they work and live. Some of those attributes include integrity, team work, innovation and risk taking.
Organizational Capital
The organizational capital of NUE seems to be strong. They appear to have a can-do attitude and view themselves as an underdog in a competitive industry where hard work and team work make a real difference. The executive managers all have significant experience within the industry, and the ROE, ROA and ROI illustrate they manage the firm well.
When analyzing specific strengths and weaknesses of firm using the resource-based view and not the SCP industry view, resource categories fall under four areas. Here are my interpretations of NUE's resources within the four areas.
Financial Capital
NUE has a excellent financial capital. According to its financial ratios, it is within the top two quartiles in comparison to other firms in its industry for Current and Quick ratios, its debt is rated A-, and it has a market cap of $16B. At the end of 2013, NUE was sitting on $1.5B in cash and short term investments.
Physical Capital
NUE has more than $10.5 B in Property/Plant/Equipment on its books. It has 23 scrap-based mills and is the largest recycler in North America.
Human Capital
This is where NUE believes it holds a significant advantage over its peers. NUE is an employee friendly company and is deeply concerned with employee enrichment, opportunity and safety. As an example of its focus on employees, the entire front and back cover of its annual report is covered by the names of all 22,000+ employees of the firm. NUE produces a Sustainability report every two years, and in it they promote "The Nucor Way," which is a list of 10 attributes by which they work and live. Some of those attributes include integrity, team work, innovation and risk taking.
Organizational Capital
The organizational capital of NUE seems to be strong. They appear to have a can-do attitude and view themselves as an underdog in a competitive industry where hard work and team work make a real difference. The executive managers all have significant experience within the industry, and the ROE, ROA and ROI illustrate they manage the firm well.
Tuesday, February 4, 2014
Chapter 4 - Environmental Opportunties
Nucor conducts business within the Basic Materials category, specifically the Iron & Steel Industry. As described in the post from the earlier chapter, NUE is in a Oligolopistic industry structure. Based on Chapter 4 definitions, the Iron & Steel industry can be categorized as mixture of Fragmented, Emerging and Mature industry attributes.
The Iron & Steel industry has consolidated within the US over the last ten years, due mainly to mergers and bankruptcies wrought from a period of cutthroat competition ushered in by overcapacity of steel products. The same is not true globally, however, as the largest 10 steelmakers in the world supply roughly 27% of global output. Therefore, the opportunity that fragmentation presents is available on a global scale if NUE wants to adopt a consolidation strategy.
Though one of the earliest of all industries, the steel industry - specifically the mini-mill industry - is still an emerging industry due to new technologies and advances in metal metallurgy. NUE needs to continue its technological leadership strategy in order to maintain its role as a first-mover within the mini-mill sector.
Finally, steel is steel after all, so there is a level of maturity within the industry - how steel is used, what shapes are common, what strength is expected, etc. NUE has seized on this fact through product refinement and a great swath of product line diversity that creates revenue opportunities which other firms within the industry do not have.
The Iron & Steel industry has consolidated within the US over the last ten years, due mainly to mergers and bankruptcies wrought from a period of cutthroat competition ushered in by overcapacity of steel products. The same is not true globally, however, as the largest 10 steelmakers in the world supply roughly 27% of global output. Therefore, the opportunity that fragmentation presents is available on a global scale if NUE wants to adopt a consolidation strategy.
Though one of the earliest of all industries, the steel industry - specifically the mini-mill industry - is still an emerging industry due to new technologies and advances in metal metallurgy. NUE needs to continue its technological leadership strategy in order to maintain its role as a first-mover within the mini-mill sector.
Finally, steel is steel after all, so there is a level of maturity within the industry - how steel is used, what shapes are common, what strength is expected, etc. NUE has seized on this fact through product refinement and a great swath of product line diversity that creates revenue opportunities which other firms within the industry do not have.
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