The Enlightened Capitalists by James O'Toole

Author:James O'Toole
Language: eng
Format: epub
Publisher: HarperCollins
Published: 2018-12-28T16:00:00+00:00

NUCOR

The company most responsible for the resuscitation of American steel production, Nucor, wasn’t a significant player in the industry until well into the 1970s. In 1965 Nuclear Corporation, as it was then called, was an irrationally diversified conglomerate losing $400,000 on sales of $20 million. The company was an offshoot of the Reo Motor Car Company, founded by Ransom Olds in 1906 (his previous venture, Oldsmobile, had been acquired by General Motors). The Reo automobile was a brief success, but after that promising start the company struggled for well over half a century as successive generations of managers tried their hands at a smorgasbord of relatively unprofitable ventures. In 1955 Reo merged with the Nuclear Corporation of America, makers of nuclear-related medical devices and Geiger counters; then, in 1962, Nuclear acquired Vulcraft, a manufacturer of steel joists and girders that soon became the only profitable business in the firm’s odd concatenation of companies.

The head of the Vulcraft division was Ken Iverson, a Cornell-educated engineer who stressed job safety and good working conditions in the plants he managed. Iverson’s division proved so profitable that the company began to concentrate on the production of steel, changing its name to Nucor Corporation in 1978. Between 1965, when Iverson become Nucor’s president, and 1995, when he retired, the company’s return on invested capital was three times greater than at General Electric during the era when GE was headed by the legendary Jack Welch.1 By 1998 Nucor had become America’s largest steel company, with seven thousand employees and sales of $3.6 billion, widely recognized as the industry leader thanks to its use of new technologies, farsighted management practices, and impressive (if occasionally mixed) safety and environmental records. A great part of Nucor’s success was attributable to the company’s innovative use of electric-arc “mini-mills” that offered it numerous competitive advantages over the traditional integrated steel mills that employed energy-intensive blast-furnace technology. Mini-mills are roughly a tenth the size of integrated mills, require less capital to construct, are more flexible in terms of introducing new technologies, use cheap scrap metal instead of iron ore, and can be located close to their markets. In toto, mini-mills were far more efficient than Big Steel’s giant traditional mills. Nonetheless, the person responsible for Nucor’s adoption of mini-mills, Ken Iverson, contended that the company’s comparative competitive advantage resulted more from its unusual corporate culture than from its technological edge: “It is 70% culture and 30% technology.”2

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