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500 Part Five Organizational Design, Change, and Innovation Case Case 17.1: Nucor Corporation: Innovation, Change, and Motivation It was about 2 p.m. when three Nucor Corp. electri- major, dramatic change in pay systems at the time. An cians got the call from their colleagues at the Hickman, upstart nipping at the heels of the integrated steel Arkansas, plant. It was bad news: Hickman's electrical giants, Nucor had a close-knit culture that was the nat- grid had failed. For a minimill steelmaker like Nucor, ural outgrowth of its underdog identity. Legendary which melts scrap steel from autos, dishwashers, leader F. Kenneth Iverson's radical insight was: mobile homes, and the like in an electric arc furnace to Employees, even hourly clock-punchers, will make an make new steel, there's little that could be worse. The extraordinary effort if you reward them richly, treat trio immediately dropped what they were doing and them with respect, and give them real power. x headed to the plant. Malcolm Mcdonald, an electrician Nucor is an upstart no more, and the untold story of from the Decatur, Alabama, mill, was in Indiana visit- how it has clung to that core philosophy even as it has ing another facility. He drove down, arriving at grown into the largest steel company in the United 9 o'clock that night. Les Hart and Bryson Trumble, from States is in many ways as compelling as the celebrated Nucor's facility in Hertford County, North Carolina, tale of its brash youth. Iverson retired in 1999. Under boarded a plane that landed in Memphis at 1 1 p.m. Then chairman and CEO Daniel R. DiMicco, a 23-year they drove two hours to the troubled plant. Nucor veteran who retired in 2012, the company No supervisor had asked them to make the trip, and expanded to 23 plants while still managing to instill its no one had to. They went on their own. Camping out in unique culture in all of the facilities it bought, an achieve the electrical substation with the Hickman staff, the ment that made him a worth successor to Iverson. team worked 20-hour shifts to get the plant up and run- Current CEO John J. Ferriola has worked for Nucor for ning again in three days instead of the anticipated full more than 25 years in various positions-from manager week. There wasn't any direct financial incentive for of maintenance at a Texas mill to the company's chief them to blow their weekends, no extra money in their operating officer. next paycheck, but for the company their contribution Nucor's performance, even in a weak market envi- was huge. Hickman went on to post a first-quarter ronment, has been exceptional. It has grown into a record for tons of steel shipped. company with 2015 net sales of $16.4 billion, up from What's most amazing about this story is that at $4.6 billion in 2000. "In terms of a business model,' Nucor it's not considered particularly remarkable. "It says Louis L. Schorsch, president and CEO of Nucor could have easily been a Hickman operator going to rival Mittal Steel USA, "They've won in this part of the help the Crawfordsville [Ind. ] mill," says Executive Vice world." President John J. Ferriola, who oversees the Hickman At Nucor, managing and leading is about an un- plant and seven others. "It happens daily." blinking focus on the people on the front line of the In an industry as Rust Belt as they come, Nucor has . business. It's about talking to them, listening to them, nurtured one of the most dynamic and engaged work- 3 . .taking a risk on their ideas, and accepting the occa- 1. forces around. The 23,700 nonunion employees at the sional failure. It's a culture built in part with symbolic company, based in Charlotte, North Carolina, don't see gestures. Every year, for example, every employee's themselves as worker bees waiting for instructions name goes on the cover of the annual report. from above. Nucor's flattened hierarchy and emphasis At times, workers and managers exhibit a level of on pushing power to the front line lead its employees to passion for the company that can border on the bizarre. adopt the mindset of owner-operators. It's a profitable Executive Vice President Joseph A. Rutkowski, an formula: Despite weak global market conditions in engineer who came up through the mills, speaks of 2015, Nucor paid out a quarterly cash dividend to Nucor as a "magic" place, representing the best of shareholders for the 43rd consecutive year. American rebelliousness. He says, "We epitomize how Nucor gained renown in the late 1980s for its radical people should think, should be." pay practices, which base the vast majority of most Compared with other U.S. companies, pay dispari- workers' income on their performance. This was a ties are modest at Nucor. Today, the typical CEO 2.makes more than 400 times what a factory worker Makes home. Last year, Nucor's chief executive col- jected a salary and bonus less than half that average . Chapter 17 Managing Organizational Change 501 paul Hodgson, senior research associate at the Corpo- rate Library, an organization that researches corporate " us guys.' It's all of us guys. Wherever the bottleneck governance issues , and an expert in the field who rarely is , we go there , and everyone works on it . " has anything good to say about CEO compensation , As Nucor grows, existing facilities making products calls Nucor's system a "best practice." Adds Hodgson : that overlap with those of acquired plants may need to " Not too many companies get my vote of approval." find new businesses to branch into. So Nucor employ- ees have to innovate themselves out of tough spots and Executive pay is geared toward team building . The into more profitable ones. Changes have to be made bonus of a plant manager, a department manager's often to adapt to the environment. The Crawfordsville boss, depends on the entire corporation's return on plant is among those that have felt some squeeze. It's equity. So there's no glory in winning at your own famous as the place that pioneered the commercializa- plant if the others are failing . When Ferriola became tion of the thin-strip casting of steel that made it pos- sible for minimills such as Nucor to compete with the general manager of Nucor's Vulcraft plant in Grapeland, industry's old guard. But Crawfordsville is not on a Texas, in 1995, he remembers he wasn't in the job two large waterway, a disadvantage at a time of high fuel days before he received calls from every other general costs. As Nucor's oldest sheet mill, it can't make sheets manager in the Vulcraft divisic as wide as many of Nucor's other mills, including a division offering to help how- ever they could. (Vulcraft manufactures the steel giant plant in Decatur acquired in 2002. joists and decks that hold up the ceilings of shopping Questions centers and other buildings.) "It wasn't idle polite- ness . I took them up on it," sa 1. How would you describe the culture of Nucor ? It, says Ferriola. And they 2. Why is the type of executive pay practice at Nucor wanted him to , he notes . "My performance impacted their paycheck." not found in many other companies? 3. If innovative solutions to problems are needed at This high-stakes teamwork can be the hardest thing Nucor, how do you think they will emerge? That is, for a newly acquired plant to get used to. David will internal or external forces bring about the Hutchins , a frontline supervisor or "lead man" in the needed innovations? Explain. rolling mill at Nucor's first big acquisition, its Auburn, Sources: Company website, "Nucor 2015 Annual Report," http:/www. New York, plant, describes the old way of thinking. nucor.com, accessed June 13, 2016; Kathryn Dill, "America's Best Employ- The job of a rolling mill is to thin out the steel made in ers 2016: #26 Nucor," Forbes, http:/www.forbes.com, accessed June 13, 2016; organization website, "John Ferriola: Profile," Steelworks, http:/ the hot mill furnace, preparing it to be cut into sheets. www.steel.org, accessed June 13, 2016; "Ferriola Named Steelmaker of In the days before the Nucor acquisition, if the cutting the Year by the Association for Iron & Steel Technology," PR Newswire, backed up, Hutchins would just take a break. "We'd sit May 17, 2016, http:/www.prnewswire.com; "Daniel DiMicco," Industry Week 260, no. 12 (December 2011), p. 19; Nanette Byrnes and Michael back, have a cup of coffee, and complain: "Those guys Arndt, "The Art of Motivation," BusinessWeek, May 1, 2006, pp. 56-58. stink," he says. "At Nucor, we're not 'you guys' and