Trends in the steel industry and its impact on Nucor’s strategy
The current trends in the steel industry involve mergers and acquisitions. This is happening in the United States and other parts of the world. The rationale for the mergers can be attributed to the need for strong companies to acquire struggling companies or high-cost companies with a bargained price for them to initiate cost-effective strategies which will increase their competitive strength. Other acquisition/mergers were as a result of the need for expansion in terms of geographical presence and production.
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As evident in the year 2006 Mittal Steel and Arcelor merged to create a behemoth company with unimaginable production of about 116 million tons which is about 10% share of the market in the world. There are other acquisitions before the main major merger when the International Steel Group was acquired by Arcelor. In the same year, Tata Steel India acquired Corus Steel of Britain.
Nucor’s strategic plan included new acquisition and even new joint ventures that had been successfully implemented since the start of the new millennium. Because of the current trend of acquisitions and mergers in the steel industry to create one behemoth company, Nucor’s strategic plan may be affected in several ways. The first one is that the company will need a more distinct strategic implementation to increase the sales turnover of its diverse products because the current mergers increase competitor’s cost of production as a result of economies of scale. The second issue is the need for Nucor’s strategy to focus more on the construction of new plants that ensure quality and cost effective products to successfully implement a disruptive strategy (Thompson, 2010).
Organizational structure management philosophy of Nucor
Nucor’s organizational structure is streamlined to allow employees to be innovative. The company is decentralized with the daily activities managed by plant-level general managers and staff. The group manager heads the three building systems and cold-rolled product plants. The plant general manager controls daily decision making that affects the plant’s profitability. The managerial levels of the company therefore consist of the general manager, the department manager, and the supervisor who manages the employees who operative at an hourly rate.
The plant managers and Group managers report to the executive vice president based in the corporate headquarters. With a small corporate staff of about 66 people, the rationale behind this philosophy was for the executives to monitor the decentralized operations. The managers in the field were then delegated to the liberal authority, each plant also had a single sales manager responsible for the sales of the products in that particular plant. Other functions such as personnel management, engineering, and accounting were executed at a plant/Group level. This narrowed organizational structure mitigates paperwork and bureaucratic systems (Ellet, 2007).
Three HRM issues related to strategy implementation and recommended actions
The three HRM issues that will arise as a result of the strategy implementation are; dealing with workers’ unions, handling the recruitment processes, and appraisal of employees. Because the new strategy demands that new employees be recruited, workers’ issues through unions are also expected to increase. The employment laws and legal requirements will increase and may thus result in increased cost of the production process through legal claims arising from workers. Because of the paramount importance of human resources in the achievement of the organizational goals, the recruitment process will be a major challenge to the company (Ellet, 2007). Lastly, the need to undertake an appraisal process will require competent HRM professionals for the process to be successful.
For the company to be in a position to handle workers union issues, a competent HR manager should be mandated the task of handling any arising issues. A competent HR manager will thus help in anticipating cases related to workers and be in a position to solve such cases before they escalate.
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The recruitment process should also be handled by a professional HR manager who will assess and determine if the employees to be recruited have the necessary competence that meets the company’s demands and also establish the core values of the candidate to establish if they match with the company’s values. This will help in ensuring commitment to the company’s functions and thus low employee turnover. The appraisal process ought to be carried out by the HR department to ensure free and fair employee treatment.
Diversification option for the company
Based on the situation analysis and consideration of the current industry trends, related diversification will be a better option for Nucor to take. The rationale for this assertion is because of several factors that favor the implementation of a more focused and related approach. Considering the increased number of acquisition/merges of steel companies which are similar, economies of scale have been achieved by these companies and thus reducing their prices in the market a factor that has a direct impact on Nucor’s products (Hughes, 2005).
Unrelated diversification will worsen this situation as it will increase the cost of production. Using related diversification will enable the company to ensure a harmonized and focused market strategy which will seek to increase the product sales turnover in the market. Unrelated diversification will require; employee training, new employees, new market venture, new market risks/uncertainties, and even limited innovative strategies.
Venturing into a distinct market segment will result in more cost to the company, more employees and training means an increase of cost while the market performance of the product is still uncertain (Hughes, 2005). Because of these concrete evidence coupled with increasing competition both locally from companies like Mittal Steel industry, U.S. Steel and AK Steel industry and internationally from companies like Tata Steel India and Corus Steel Britain is a strong foundation for venturing into related diversification to increase innovation, economies of scale and specialization which are the basic but the key strategies of overcoming the ever-increasing steel industry competition from Colossus companies like Mittal Steel and Arcelor.
Organizational structure to be addressed to implement diversification
Because of the need to implement the related diversification process, the company will need to ensure that the organizational structure is increased; the rationale for this is to cater to the diversification process. With an increase in the number of output units of similar products, there is a need for increased employee level.
Since streamlining the structure of the organization has been successful and a contributing factor to the innovative levels of the company’s employees, ensuring a sustained and streamlined organization despite the increased size will be a critical factor to the success of the diversification process (Hughes, 2005). Perhaps the company will benefit more by increasing supervision levels as opposed to the Group/Plant level approach will ensure that there is not a monitoring gap that may be of cumulative negative implication to the company.
More so, because of the need to initiate innovative strategies to enhance the competitive position of Nucor, more motivational and training facilities should be incorporated into the company’s core organizational structure functions. This will thus be critical for the specialization aspect of the related diversification plan which will be a positive milestone in the increasingly competitive Steel industry (Hughes, 2005). Lastly, the upper level of management will also require a rearrangement to cope with the new diversification challenges. Grouping the executives to focus on different aspects of the business may be critical in ensuring a successful related diversification plan.
Ellet, W. (2007). The case study book: How to read, discuss, and write persuasively about cases. Boston: Harvard Business School Publishing.
Hughes, R., & Beatty, K. (2005). Becoming a strategic leader: Your role in your organization’s enduring success. San Francisco: John Wiley & Sons.
Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting and executing strategy. New York, NY: McGraw-Hill-Irwin.