As described in previous blogs, in the case of Morningstar it was the founder who, from the start, gave the impulse to organize work in a different way whereas at Semco, it was the later owner who started the transformation. Are these the only possible scenarios? Fortunately not, as Nucor’s case clearly demonstrates.
From near bankruptcy to industry reference
1965. Nuclear Corporation of America, a conglomerate with various nuclear activities also manufacturing steel joists and girders (for construction) in its Vulcraft division, borders on the brink of bankruptcy. The board appoints Ken Iverson, manager of Vulcraft, the conglomerate’s only healthy division, as president and CEO of the company asking him to turn the organization around. This drastic move will turn out to be the salvation of the company - that will change its name to Nucor in 1972 - and the starting point of a fundamental transformation leading to tremendous success.
Fast forward 53 years. Today, Nucor, a stock-quoted Fortune 500 company with 25,100 employees, is the largest steel products manufacturer in North America producing 26 million tons annually in approximately 200 facilities.
What made this spectacular transformation possible?
As soon as he is appointed, Iverson heads on a journey to restore profitability. He gets rid of all loss-making activities and drastically reduces overhead. Then he decides to focus exclusively on the healthy division that manufactures steel products.
Mini mills: turning a problem into an opportunity
1968. Although sales grow significantly, Iverson is fully aware of the company’s dependency on domestic and European steel suppliers leaving him no control over the price of raw material. He therefore decides to start producing low-cost bar steel for internal use. But instead of merely copying competitors who were working with large and hugely costly integrated steel mills, Iverson opts for the far more economical European mini mill technology that uses electric arc furnaces to melt scrap metal as raw material instead of iron ore. And as Iverson realizes that other companies are naturally and equally interested in low-cost steel, he seizes the opportunity to produce cheap steel also for other producers of steel products. This move turns out to be the start of an impressive growth track and several innovations in steel production.
1970’s. The company opens up mini mills in several locations at a speed its competitors cannot follow. It produces faster and at a much lower cost and gradually becomes the reference for the steel industry. Over the next ten years and building upon its success, the company introduces several innovations in steel making and continues to prosper despite the crisis in the market.
1980’s. Innovation continues under pressure of increased competition, including from Japan. After several work accidents in their facilities, safety becomes a priority concern for Nucor and from then on takes a prominent position in the company’s mission.
Delegating power to owner-operators
In his search for the right technology Iverson realizes that, in order to make the low-cost business model a success, efficiency, productivity and innovation need to be at a high level. So he looks at the factors that can actually make that happen and observes that most key innovations come from the shop floor. He then gets the radical insight that employees will make an extraordinary effort if you consider them with genuine respect, give them real power and reward them generously. So he drastically increases the autonomy and the decision power of the people on the front line, flattens hierarchy to just five layers from top to bottom (CEO, plant manager, department head, foreman, operator) and reduces corporate overhead to a minimum. Iverson also introduces an egalitarian culture based on mutual respect and does away with corporate perks for managers. Later, in the late ‘80s he introduces a pay-for-performance policy for everyone. As a result, 2/3 of the salary are performance-based and employees earn – sometimes substantially - more than their colleagues at the large steel producers.
All Nucor facilities have great autonomy and they work well together. In all respects (productivity, innovation, margins, growth, earnings, etc.) Nucor’s performance is highly impressive and the company has since many years become the reference for the steel industry.
By considering staff in this way, employees become owner-operators, all working towards the same goal in a closely-knit culture. And in the few years when the company faces hard economic times, everyone takes a pay cut so as to avoid lay-offs. Significantly, staff turnover is below 2%. Fact is: the new way of working gives a tremendous and sustained boost to the company’s performance, innovation, growth and results.
Nucor’s ambitious mission ‘to be the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world’ continues to guide them to this day. Every time they set up a new mill, they instill the same culture.
Can an innovative culture survive its builder?
Ken Iverson became an icon, not just for the steel industry: his approach is being taught at business schools today. He summarized his vision and experience in a fascinating book “Plain Talk: Lessons from a Business Maverick”.
Quite interestingly, the powerful culture Iverson built over the years seems to be well embedded in the organization. When John DiMicco, a 23 year Nucor-veteran at the time, took over as CEO in 2000, he continued in the same spirit and quintupled the revenues during his tenure. John Ferriola, the current CEO and also a Nucor veteran, considers himself ‘an apostle for the gospel of Ken Iverson’.
Some sceptics may counter that this approach was company-specific to Nucor and will not work elsewhere. Maybe that is not correct. Two former Nucor employees set up another company and applied the same principles with great success.
Question: could such a success be due simply to the application of organization-independent principles?
Next case: Haier Group: combining the best from East and West.