Gee-whiz companies whose advantage lies in brilliant management are hard to find these days, when management seems to have gone out of fashion. But what about a red-hot rarity, a company with a reasonably long history, and which works in a heavy, dull industry - like steel?
That’s Nucor, which has been making steel since the 1980. It has been going so strong that shareholders earned 387% on their equity over the past five years, which is more than Amazon or Starbucks or eBay. Wow!
Nucor’s economics are fundamental. They rest on recycling scrap metal into new steel, using electric arc furnaces. But its not-so-secret weapon is the way it handles its workforce. This approach has enabled Nucor to retain its vitality through masses of acquisitions (13 in the past five years) and through a huge advance in size, with sales up from $4.6 billion to $12.7 billion since 2000. That makes it the biggest steel company in the States. So what’s the recipe for human beings, as opposed to ingots?
1. Decentralise to the plants. Only 65 people work at the head office in Charlotte (NC).
2. Pay is largely determined by performance at all levels. Two-thirds of a steel worker’s pay, which can go down as well as up, comes from a production bonus.
3. Use the factory floor denizens as your management consultants. At Nucor that is allegedly where all the best ideas come from.
4. Push authority down the line from the CEO through all stages down to the line workers (who, for example, now order parts themselves).
5. Watch that culture! Nucor is very self-aware and when making its acquisitions pays extremely close attention to cultural compatibility.
6. Innovate all the time. That means taking risks at Nucor and being prepared for some of the ventures to fail. Those that succeed have amply repaid the cost of failures elsewhere.
I strongly recommend an article by Nanette Byrnes in the May 1 issue of Business Week for anyone who wants to learn how this extraordinarily ordinary company operates. It sounds so simple. That’s because it is. For instance, here’s the recipe for motivating workers that Byrnes picked up from consultant Bob Nelson:
1. Don’t rely on money alone to motivate your people.
2. Don’t just ask for worker input - use it.
3. Tell your people you care about them.
4. Show them what they’re learning.
5. Support people when they make a mistake.
6. Set clear goals and celebrate accomplishments.
That will work in any industry with any group of people. Conversely, doing the opposite (like the vast majority of other companies) will produce results ranging from the mediocre to the bad. Look at it this way, if a steel company can out-perform Amazon and eBay, it’s not only doing something right; it’s doing everything right. And that’s called good management.
