CASE 3: FROM REO TO NUCLEAR TO NUCOR (KEY POINTS)

By Steven L. McShane, Curtin University (Australia) and University of Victoria (Canada)

REO MOTOR CAR COMPANY

 In 1904, Ransom E. Olds founded REO Motor Car Company in Lansing, Michigan. He
also launched several subsidiaries—Atlas Drop Forge Company, National Coil
Company, and Michigan Screw Company, among others—to ensure a reliable supply of
parts for REO’s main business.
 With soaring sales during the first few years, REO became the third-ranked automobile
manufacturer by sales in the United States by 1907.
 REO Motors boasted efficient production methods.
 Olds was also recognized as a leader in quality control practices. However, even with
ongoing innovations to its cars, REO quickly lost market share to Ford Motor Company
and others.
 By the 1920s, REO was a small, yet profitable, player in the automobile industry.
 During its peak in the late 1920s, REO employed about 5,500 workers who annually
produced almost 50,000 trucks and cars. (By comparison, in 1920 Ford Motor Company
produced one million Model-T cars alone.)

REO’S CULTURE AND WORK PRACTICES

 REO had a distinctive “family feel” culture and was an early practitioner of welfare
capitalism. Welfare capitalism involved building employee loyalty (and staving off
unionization) through the development of human relations and personnel practices.
 REO tried to provide (and at times promised) job security, respect for seniority, and
opportunities for career development.
 REO built an employee clubhouse (known as the “Temple of Leisure”)
 From its founding to the 1930s, REO emphasized values and expectations regarding
how employees should be treated by management, and how employees should behave
at work and as community citizens.
 REO didn’t pay the highest wages, but its welfare capitalism had the desired effect. The
company enjoyed one of the lowest rates of employee turnover in the industry.
BAD INVESTMENTS

 REO was a profitable company throughout the 1920s. Unfortunately, REO’s

management invested these profits in an expanded line of cars, particularly in the higher
price range. These investments were made just prior to the Great Depression, when car
sales in general—and luxury vehicles in particular—plummeted.
 Olds stepped down as general manager in 1915 and retired from the company in 1923
to pursue an ill-fated real estate project in Florida.
 In 1933, REO’s president was removed and Ransom Olds was brought back as
company chairman for one year. He launched several projects, including a light version
of the Mack truck, a concept delivery van, and a new line of buses. None of these
initiatives were profitable.
 In 1936, REO suspended car production and, in 1938, filed for bankruptcy protection.
The company reorganized as a truck and bus manufacturer.
 REO survived over the next 15 years mainly through military contracts for its trucks and
buses. It also expanded into the manufacture of lawn mowers and children’s swing sets.

NUCLEAR CORPORATION OF AMERICA INC.,

 When the Korean War ended in 1953, REO’s military contracts diminished, leaving the
company in a difficult financial situation.
 The shareholder group forced REO’s board to acquire Nuclear Consultants, Inc., a tiny
nuclear services company.
 In 1955, REO Motor Company changed its name to Nuclear Corporation of America Inc.,
becoming the first publicly traded nuclear company.
 Nuclear’s stock soared based on the popularity of the word nuclear as well as various
“publicity stunts” to leverage the company’s name.
 Able to sell stock relatively easily, Nuclear went on a buying spree to become a
conglomerate of several independent businesses.
 By the early 1960s, Nuclear was involved in nuclear services, prefabricated housing,
graphic arts, leasing, contracting, and steel joist businesses. Unfortunately, most of
these ventures were unprofitable.

UNDER IVERSON’S LEADERSHIP

 In 1965, Nuclear’s board filed for bankruptcy protection, ousted its president, and
promoted Ken Iverson as the new president and CEO.
 Iverson had been hired in 1962 as general manager of Vulcraft Corporation, a joist
manufacturer in South Carolina that Nuclear had acquired at that time.
 Vulcraft was Nuclear’s only profitable division, and Iverson had been promoted to group
vice president prior to taking the top job.
 Iverson quickly sold off or closed four of Nuclear’s eight divisions, slashed the number of
management positions from 12 to just 2 people, and decided to focus the company’s
growth through Vulcraft.
  Vulcraft enjoyed 20 percent market share of the joist business, but it was entirely
dependent on the price of steel, which was considered too expensive and sourced from
unreliable sources (80 percent came from foreign steel plants).
 So Iverson, who was trained as a metallurgical engineer, made the historic and risky
decision in 1968 to produce bar steel for Nuclear’s joist business.
 Nuclear’s mini-mill experienced delays and “catastrophes” during its first couple of years,
but eventually produced steel bars far below prevailing costs of traditional coke-and-iron
steel mills.

NUCOR CORPORATION

 With no nuclear business activity, the company changed its name for a third time in 1972
from Nuclear Corporation of America to Nucor Corporation.
 In 1977, Nucor expanded its business to steel decking. It also built more mini-mills,
becoming the 20th largest steel producer by 1980.
 Other companies also built electric arc steel mini-mills, which threatened Bethlehem,
Republic, and other traditional steel mills. Many of these traditional plants went bankrupt
by the 1990s.
 In 1986, Nucor took its biggest gamble by building the first thin slab sheet steel mini-mill
at a cost of one-third the company’s total annual revenues.
 Nucor’s expansion in steelmaking continued unabated through acquisitions and
construction of new plants.
 Today, with $20 billion in sales and more than 200 operating facilities (most in North
America), Nucor is the largest steelmaker and the largest recycler of any material in the
United States.
 Except for 2009, it has been profitable every year since the late 1960s and, unusual for
the steel industry, has never laid off any employees.

NUCOR’S CULTURE AND WORK PRACTICES

 Nucor’s success under Iverson’s leadership was due in part to investment in risky
technological innovations, such as building one of America’s first electric arc steel mills
and developing the first flat-rolled sheet steel mini-mill.
 However, much credit also goes to Nucor’s productive and innovative culture and work
practices that Iverson nurtured and which remain to this day.
 Beginning with the 1965 reorganization, Nucor has maintained an extremely lean head
office, decentralizing most decisions to the local mills. Only 100 people out of a
workforce of 22,000 are employed at headquarters.
 Nucor also has an egalitarian culture with one of the flattest organizational hierarchies
for a company of its size. Iverson demanded that Nucor would have only five layers of
management: CEO, vice president/plant manager, department manager, supervisor, and
five executive vice presidents.
 A third feature of Nucor’s culture is its strong emphasis on performance-based rewards
around team and organizational performance. Nucor mill workers, all of whom are
 nonunion, earn only about $10 an hour in base pay, but their total compensation is the
highest in the industry (about $80,000 annually in good years). Employees also earn a
profit-sharing bonus, which is about $15,000 annually in recent years.
 The performance system not only encourages innovation and quality control in the mill
plants; it also encourages a strong team-orientation in the work process.
 Empowerment is a fourth cultural feature of Nucor. Employees have considerable
freedom and job flexibility to experiment with innovations and to adjust their work to fit
demands.
 Nucor Chairman Emeritus Daniel DiMicco summarizes the company’s empowerment
culture: “If you see something that needs to be fixed, you fix it. You don’t need to get
approval from three supervisors because your supervisors know you have integrity, and
they trust that you’ll do the right thing. That’s a huge competitive advantage for us.”

ENVIRONMENTAL PROBLEMS

 Although Nucor has excelled in its work practices, until a few years ago, it was far from a
role model in environmentalism.
 A dozen years ago, Nucor paid the largest environmental settlement by a steel company
in the United States for allegedly failing to control the emission of toxic chemicals in
several U.S. states.
 It was also identified as the 14th highest contributor to air pollution in the United States.
 Nucor responded to these concerns by hiring environmental staff and introducing new
technologies, with the result that its emissions and energy use have fallen dramatically.
 For example, the company’s new ultra-thin cast strip process consumes 85 percent less
energy than a conventional mill with a 75 percent reduction in greenhouse gas
emissions.
 At the present, Nucor proudly uses recycled scrap to make high-quality steel with low
emissions. Using one of the cleanest and most energy efficient steel-making processes
available.