HR Strategy Evaluation: Case Study of Nucor Corporation

Executive Summary:

Human resource management in the alignment of business strategy is essential to achieve firm’s goals and objectives. Nucor is a US based steel manufacturer and known to its innovation with low cost and high productivity. Nucor’s success is explained through its effective HR strategies of lean management structure, teamwork, less formalization, recruiting and reward. All sixteen operating facilities of Nucor work independently with only four management levels that help to achieve its business strategy of low cost and innovation. Rewards are paid based on employee productivity. However, at Nucor productivity targets are achievable and less than industry averages. Moreover, rewards are also awarded onto team performances that ranges from 8 members to 20 members. This stimulate team member to assist each other to achieve such goals. There is no job description and no performance appraisal as Coblin HR manager thinks that it is wastage of time. He also attributed absence of job description to the changing nature of work at Nucor. At Nucor employees are selected primarily on the basis of ability to work with coworkers with less supervision. In short Nucor HR strategies of lean management, decentralization, rewards and less formalization assist to achieve its business strategies of low cost, innovation, productivity and high performances. However, criticisms are also made to some of Coblin’s strategies. It is suggested that job description is important during selection process and can be used as evidence. High empowerment can lead to some illegal action from plant manager and Nucor just could take further steps. At last no performance appraisal strategy is also criticized as it identifies the capabilities needed for greater responsibilities. In short current study provides the opportunity to evaluate HR strategies especially in term of reward, recruiting, retention and development with respect to firm’s business strategies. 

1. Introduction:

In current competitive and dynamic environment effective human resource management is viewed as an integral part of a successful business strategy (Torrington and Taylor 2007). Today employees are seen as a critical resource that can lead to competitive advantages (Barney and Wright, 1997). The role of HR department has become bigger that is not confined to recruiting or selecting appropriate workforce but also include to the management of people resources to achieve firms’ objectives (Caldwell, 2003). It is suggested that effective and efficient strategic management is contingent to the effective human resource management as these are employees who execute firm’s strategic decisions (Becker and Gerhart, 1996). The purpose of current study is to evaluate the HRM practices at Nucor Corporation with respect to their business strategies. Moreover, their strategies for the reward, recruitment, retention and development are also evaluated in this respect.

2. Company Profile:

Nucor Corporation is a US based steel manufacturer having a production capacity more than 26 Million tons of steel (Nucor, 2012). The company is also known famously for recycling especially in steel. Nucor mission is to take care of their customers through ensuring safety, low cost, high productivity and high profitability in steel and related products in all over the world. With 90 different businesses that operate independently but compete collectively Nucor generated 371% returns for its shareholders for the last five years (Nucor, 2012). Nucor is also a pioneer in producing steel through electric furnaces and mini-mills as compared to other US steel manufacturers who use old blast furnace. However, Nucor’s workforce that consists of more than 20500 employees plays a vital role to its success (Nucor, 2012). Subsequent part will explore the HRM strategies at Nucor with respect to its business strategy.

3. HRM and Business Strategy:

Literature has documented three perspective of strategic human resource management i.e. universal, contingency and configurational (Ferris et al., 1999). Universality perspective of HRM believes that there are best HR practices that can affect firms’ performances (Alcázar et al., 2005; Boxall & Purcell, 2000). The theory suggests that such best practices are applicable universally. However, this perspective does not require integrations with business strategies and simply assume that best HR practices augment to firms’ performances (Katou and Budhwar, 2007). For instance Guest (1990) suggest six best practices of HRM in this respect i.e. selecting, training, job design, responsibility and autonomy, two ways communication and employee ownership programs. On the other hand contingency approach emphasis that firms’ strategy is more important and should be linked to HR practices (Danny et al., 2008). In other word the effectiveness of best HR practices are contingent to firms’ overall strategy. However, configurationally perspective thinks beyond contingency perspective and argued that there should be strategic fit between business strategy and HRM (Vertical integration) and also within HR strategies (horizontal integration). More precisely managers should select a bundle of HR practices that integrate to each other and also contribute to business strategy collectively. This implies that HRM is an integral part of business strategies and vary to organizations. For instance HRM plays a critical role while developing three generic competitive strategies proposed by Porter (1985) i.e. cost leadership, differentiation and focus (Timperley and Sisson, 1994). The given statement is true because employees’ capabilities are essential for innovation or high productivity to gain economy of scale. Schuler and Jackson (1987) also argued that for effective implementation of business strategies different requirements are required from employees. In short, HRM capabilities aid to the development of business strategies.

3.1 Why Aligning HRM and Business Strategy:

Researchers are agreed to the view that HRM strategies in the alignment of business strategy lead to achieve firm’s objectives effectively (Ulrich and Brockbank, 2005). Such alignment increases firms’ financial and market performances and productivity (Huselid, 1995; MacDuffie, 1995). Similarly, Dyer and Reeves (1995) also argued that HRM not only produce HR outcomes but also increase organization efficiencies and financial and market performances. Guest et al (2000) have proposed model to explain that how HR strategies in the alignment of business strategy leads to high performances as demonstrated in figure 1.

Fig 1: Guest et al (2000)

So, it is important to align HR strategies to business strategies to gain such benefits that are not confined to financial or high productivity but also include high quality or even market based performances.

3.2 HRM in Nucor and its Strategy:

Nucor mission is to take of their customers. However, the scope of all customers is broadened to their employees, shareholders and all the people who purchase and use their products. The company is successfully attaining its objectives through innovation high productivity and low cost strategy. However, Nucor’s HR strategy in the alignment of its business strategy is key to its success. James M. Coblin HR manager has implemented various HR strategies that are not consistent to traditional HR theories but are strategically fit to the business strategy and culture of Nucor as stated by Coblin (Overman, 2012). Coblin’s lean HR and employee empowerment strategy through decentralization contribute to Nucor’s low cost and high productivity strategy that ultimately increase performances.

3.2.1 Wider Span of Control:

The management structure of Nucor is more flattered with high span of control, decentralization and less formalization. Currently Nucor is operating 16 facilities in eight different states of US. However, each of these operating units works independently and contains only four levels of management i.e. Chairman, Vice Chairman and President; Vice President-General Manager; Department Managers; supervisor/Professional; and hourly employees. Moreover, these operating facilities also do not have marketing, purchasing or even to some cases engineering departments (ICMR, 2012). Even to Nucor’s headquarter in Charlotte only 22 employees, 8 managers and 14 administrative staff perform their duties. Such wider span of control strategy aids to its low cost strategy. It is consistent with Robins and Coulter (2009) who also suggests that wider span of control leads to cost efficiencies as fewer managers are there to pay. However, they also argued that it may also reduce efficiencies if managers do not found enough time to lead them effectively. While Nucor productivity does not reduce and demonstrate that wider span of control aids to their low cost strategy in this respect.

3.2.2 Decentralization:

On the other hand Coblin’s strategy of decentralization also increases employees’ empowerment that leads to high productivity and performances. Innovation has a close relation with decentralization. Today firms are facing dynamic and changing environment and it is suggested that the person who is facing the problem is more capable to handle it (Robins and Coulter 2009). They also argued that decentralization is more appropriate where firms are more responsive to external environment. Same argument is made by Coblin who allows general managers to solve their problems on their own. Such decentralization aids to the strategy of innovation and high productivity at Nucor.  

3.3.3 Less Formalization:

Coblin also does not believe on formal job description for Nucor due to flexible job requirements. He says that jobs do not remain same and change according to requirements that can lead to the defined job description out of date. He also argued that it is much better to have no defined job description than writing a wrong one (Overman, 2012). So, less formalization allows Nucor to handle with flexible job description as a result of innovation and creativity.

3.3.4 Reward System and Productivity:

Coblin has developed reward system purely based on productivity. Employees are paid hourly and awarded with bonuses if attain set targets that are less than industry averages. Moreover, rewards targets are also given to whole team rather than individuals that compel them to assist each other to build team culture at Nucor. In short Nucor’s reward stimulates their employees for high productivity that is one of its strategies to accomplish its mission.

Krishnan and Rishikiesha (2005) also gave the example of Nucor and argued that its integrated human resource management with their business strategies and objectives create imitable capabilities that lead to competitive advantages. In conclusion Nucor’s HR strategies are in the alignment of its business strategies and contribute to the achievement of their goals and objectives.  

4. Recruitment, Retention, Reward and Development of Employees at Nucor:

4.1 Recruitment:

Successful HR planning is fabricated to recognize anticipated human resources needed in coming time. While the further step is recruit and select appropriate employees in this respect. Recruiting and selecting appropriate employees are critical for effective implementation of HR strategies developed in the alignment of business strategy to achieve firms’ objectives effectively (Marchington & Wilkinson, 2005). However, recruiting and selecting appropriate employees is a difficult task to do (Reif and William, 1999). Method of selection should base on to the job requirements as describe in job description. For instance Toyota selects employees for their factory on the basis of technical skills.

Appropriate selection of required workforce is viewed as one of the key factors in success of Nucor Corporation and their recruitment policy allow them to maintain the lean management structure with minimal supervision. However, in case of Nucor employees are not purely selected onto their technical skills but the ability to work and communicate with team fellows with low supervision is given priority (ICMR, 2012). This requirement of team work and self reliance is essential as it is consistent with organization culture of Nucor. So, the importance is given to mindset even in case of low technicalities. Coblin argued that "We can teach to make steel” (ICMR, 2012). Heskett, (2002) and Hoque, (2000) also provide the same argument and found that many of high performance service providers tried to recruit for attitude and train them subsequently for required skills. On the other hand Nucor recruitment and selection process is quite flexible as no job description is there that should follow while selecting required workforce.

4.2 Retention:

(Larid and Clampitt, 2004) argued that job of HR department does not end after recruiting and selecting employees best fitted to that job. After selecting appropriate workforce it is critical to retain them that can result to reduced employee turnover and less recruiting and selecting needs. Previously a number of strategies have been developed to retain employees. Compensation is one of those strategies and practiced worldwide. Moreover, career opportunities, recognition, training and benefits are also viewed as significant strategies to retain employees in this respect. 

Strong reward system based on bonuses on the basis of achievable targets is strength of Nucor that maintain a tight bong between employees and Nucor. The phenomena can be explained in term of Victor Vroom’s theory of expectation that argued that employee are motivated when they got know that their performance will contribute to firm’s performances and in response they will get reward that will fulfill their needs (Vroom, 1964). While at Nucor employees are awarded with bonuses against easily achievable targets that are less than industry averages. This creates a positive feeling in the mind of their employees that they will get those targets to get bonuses that ultimately will increase firm’s productivity. However, if any employee does not perform his duties accordingly, then he is given an oral intimation proceeding to fire him out. In other words if an employee do his job today, he could continue for tomorrow. Nonetheless, Nucor have not laid off their employees even in the period of downsizing.

4.3 Rewards:

It is suggested that appropriate reward strategy is important to retain and motivate employees for high productivity and performances (Pfeffer, 1998). He argued that such remuneration should be consistent to employee’s performances. The purpose of such reward strategy is to signal employees that their efforts for organization are seen valuable. At Nucor the reward system is based on productivity. Employees are awarded with low pays but high bonuses if meet their targets. Managers can earn up to 75% of their salaries as bonuses. Hourly employees got their bonuses on the basis of their week performances. For instance generally an employee at bar mills earn about $9 an hour as their base pay that is about half than a union worker who is employed at big mill. While it is possible that employee a bar mill earn a bonus of about $13 that augment its pay to $22 in this respect. In this way bonuses are more than their base pay. The concept is used to stimulate employees for high productivity. Schneider & Bowen, (1995) also argued that contingencies such as productivity have a close relation with quality of products and employee morale. However, this reward is given on meeting targeted productivity for their work group that ranges from eight to twenty members. Such productivity based rewards for whole group stimulate employees to work more productively as team. Moreover, Coblin has also set base targets of 8 ton per hour low than the industry averages of 10 tons per hour that ensure that employee will receive some bonuses against their efforts. Coblin argued that one should not set high targets as it expected that employee may think that against my efforts and work he is getting nothing. Another benefit of such attractive reward strategy is that it helps to attract skillful workers to join that Nucor. It is also consistent with Pfeffer, (1998) that firm’s reward strategy also attracts appropriate candidates during the process of recruitment and selection.

However, Coblin does not believe on appraisal and argued that it is a kind of wastage. He argued that it is understandable to demonstrate bad performances but it worth nothing to document a good job with 98% of accuracy. He also suggests that companies "when a big job comes open, sometimes the people rated the highest don't get the jobs. And when layoffs happen, sometimes people who are rated the highest get laid off”. So, he opposes the appraisal and attributed it as wastage of time.  

4.4 Employee Development:

Training and development of selected workforce is critical as it ensures that the selected employees are utilized to the best of his ability. Such HR developments not only augment employee’s proficiency to perform his work but also allow preparing to face anticipated changes in future (Browning & Edgar, 2004). It is suggested that such employee development initiatives contributes to employee engagement and commitment towards their organization (Browning & Edgar, 2004; Marchington & Wilkinson, 2005).

However, at Nucor the concept of training is not that much established. Coblin believes that the best option is coworkers who can train and develop skills into newcomers and they do so because their reward is also contingent to the performance of that new employee as productivity targets are given to whole team. However, Coblin also believes that training is one of those areas that are needed to improve. While due to strong decentralization structure he gave this responsibility to his plant managers who can initiate such programs if needed. Moreover, Coblin also arranges seminars according to requirement when plan manager is looking for expansion.

5. Alternative Approaches of HR:

At Nucor HR practices of no job description, absence of performance appraisal, high employee empowerment and high productivity based extrinsic rewards. However, it is suggested that defined job description is useful while selecting appropriate workforce. Moreover, such job description also guide newly selected employee that what he is suppose to do for this job. Job description can also be used as an evidenced in case where employee is fired and he challenge this decision. So, job description is still used worldwide due to its effectiveness.

Coblin’s strategy to empower plan managers completely is also criticized. Bresler, chairman of the Society for Human Resource Management's Workplace Diversity Committee argued that in case where plant manager do something illegal company can just took further actions. He says it is important to take measures to guard such illegal actions before their occurrence. So, high empowerment is also harmful.

Bresler also criticized to the no appraisal approach of Coblin and argued that performance appraisal is critical for employee performances as it assist employees to identify the capabilities require to take on greater responsibilities. It also becomes easier to decide about the competent person at his right place. So, performance appraisal is also important and leads to high motivation.

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