The Art of Motivation

Human Resource Management Case Study

Based on a Study of the steel company - NUCOR

CONTENTS:

1. Introduction

2. NUCOR Information

3. NUCOR History

4. Current CEO Daniel R DiMicco (CEO)

5. NUCOR Culture

6. The Recipe @ NUCOR

7. Recent NUCOR Acquisitions

8. Our Findings about Nucor

9. The Theory Behind the Art

10. Conclusion

11. What can be borrowed?

THE ART OF MOTIVATION

1. INTRODUCTION

When a group of friends decide to have a party, the desire to have fun is communicated to all who will be attending. If it is such that every one of the participants then decides that, “okay, this looks like fun and I will do whatever it takes to have fun”, they will definitely have fun.

The invitation to have a fun filled party was external motivation and the participant’s decision to go ahead and have fun, was internal motivation. It looks like it is the second type of motivation that is going to make the participant more likely to enjoy himself/herself at the party – leading to one great party. If fifty friends are at the party, all enjoying themselves, an additional two guests will very likely be motivated to also enjoy themselves at this party.

Let us move over to the business world. If the CEO of a company is such a motivating factor on his workers, he may be able to logically convince his workers to adopt a culture of work attitude that may lead their company to financial success, with benefits being channeled back to them. If a few more workers join this company or if this company buys off another smaller company, the CEO may be able to convince these new workers, with ‘living’ examples on how they may benefit from his prescribed work culture. This in a gist is the success story of a once little company called “Nucor”, the case selected for this discussion.

This is the story of the Little Steel Company THAT COULD… …that could take a simple, standard technology and use it to become the nation’s largest steel

producer; …that could redefine the rules on how steel is made and from what; and …that could change the way the world looks at discarded scrap.

And this same little company THAT COULD… …change the way it managed; …change the way its employees viewed their jobs and their company; and …change the way it prioritized safety above all else… AND ROCKED THE INDUSTRY

2. COMPANY INFORMATION

Nucor is a USA steelmaker, which started as a mini-mill and grew into the largest steel company in the USA. It has now more than 18,000 non-union employees forming a most dynamic and engaged workforce.

Nucor Corporation is one of the largest steel producers in the United States, and the largest of the "mini-mill" operators (those using electric arc furnaces to melt scrap steel, as opposed to companies operating integrated steel works with blast furnaces). Nucor claims to be North America's largest recycler of any material, recycling one ton of steel every two seconds.

Nucor Corporation (Nucor) and its affiliates are manufacturers of steel and steel products, with operating facilities and customers primarily located in North America. The Company operates in three business segments: steel mills, steel products and raw materials. In 2008, the Company recycled approximately 20 million tons of scrap steel. In February 2008, the Company completed the acquisition of SHV North America Corporation, which owns 100% of The David J. Joseph Company (DJJ) and certain affiliates. In July 2008, the Company completed the acquisition of a 50% interest in Duferdofin.

Source: http://topics.nytimes.com/topics/news/business/companies/nucor_corporation/index.html

3. THE HISTORY OF NUCOR

Nucor today is America’s largest recycler of steel. However, it first originated as an auto manufacturing plant, Oldsmobile, which later became Reo Motor Cars under the ownership Ransom E. Olds, thus the original name. Following a series of subsequent transactions, the company eventually became the Nuclear Corporation of America, which was involved in the production of nuclear and electronic in the 1950's and early 1960's.

The company went through some financial difficulty, even facing bankruptcy in 1964, and this led to a change in management with Kenneth Iverson as President and Samuel Siegel as Vice President of Finance. This refurbished company decided to be involved in the more profitable steel joist business in Florence, South Carolina and Norfolk, Nebraska, and the company was renamed “Vulcraft”.

The company moved its headquarters from Phoenix, Arizona to Charlotte, North Carolina in 1966, and expanded the joist business with new operations in Texas and Alabama. They then decided to integrate backwards into steel making by building its first steel bar mill in Darlington, South Carolina in 1968.

In 1972 the company adopted the name Nucor Corporation. Since that time, Nucor has built two more Vulcraft facilities, seven steel mills, and expanded into other steel products. Today, Nucor manufactures carbon and alloy steel in bar, sheet, and structural forms, steel joist and joist girders, steel deck, cold finished steel, steel grinding balls, steel fasteners, metal building systems, and steel bearing products.

Nucor specializes in on-time delivery of steel products which assists customers in maintaining the lowest possible inventory levels without sacrificing customer service.

4. THE CURRENT CEO: DANIEL R. DIMICCO

Daniel R. DiMicco, Dan has been the President and CEO of Nucor Corporation of Nucor Building Systems since September 2000. DiMicco serves as General Manager of Nucor-Yamato Steel Company. DiMicco served as an Executive Vice President of Nucor Corporation, from 1999 to 2000 and it’s Vice President from 1992 to 1999. He serves as Vice Chairman of Nucor Corporation of Nucor Building Systems. DiMicco served as Chairman of Nucor Corporation of Nucor Building Systems since May 2006. DiMicco served as Chairman of the American Iron and Steel Institute. DiMicco served as Vice Chairman of Nucor Corp. of Nucor Building Systems, from June 2001 to May 2006. DiMicco has been a Director of Nucor Corporation since 2000 and Duke Energy Corp. since October 2007.

2007-Present: Director, Member of Audit Committee, Member of Compensation Committee and Member of Corporate Governance Committee Duke Energy Corporation

2006-2006: Chairman, Chief Executive Officer and President Nucor Corporation

Vice Chairman of Nucor Corporation, Chief executive Officer of Nucor Corporation and President of Nucor Corporation Nucor Building Systems

5. NUCOR’S CULTURE

What makes Nucor a success? What is its secret recipe? Is there a ‘culture’ here?

The focus is on the people in the frontline of the business, with the Management talking to them, listening to them, taking a risk on their ideas, and accepting the occasional failures. DiMicco in person had a plain-talking style, led by example and flies commercial. He has no designated parking bay and even makes his own coffee.

The Nucor Culture involves five main features:

1. decentralized management philosophy2. performance based compensation3. egalitarian benefits4. customer service 5. quality and technological leadership

In Addition, none of Nucor's plants are unionized, with the management believing them to be a destructive force against the organization; and the company has never lain off an employee due to a work shortage, a gem in these times of recession.

And, why is NUCOR different from others? They treat workers like owners. Their working culture is based on performance culture. The whole company has a flattened hierarchy with emphasis on pushing power to the front line, adopting the mindset of owner-operators. There is no direct financial incentive for workers working the extra mile.

Nucor's senior officers are not provided traditional "perks" such as company cars, executive parking spaces, or executive dining rooms. As a symbol of Nucor's egalitarian culture, each annual report since 1975 has listed the names of every employee. In 1975, there were 2,300 workers on the back cover. In 2007, it took 12 pages to list 18,000 employees. In August 2006, the company did purchase a corporate jet for use by senior management, but the reason was made clear to all employees, by the CEO himself. (The reason was that it actually cut down the cost and time involved in travelling for management staff.)

6. THE RECIPE @ NUCORIn forging a WINNING WORKFORCE

a) pay for performanceb) listen to the front linec) push-down authorityd) protect your culturee) try unproven technologies

a) Performance Based CompensationAll Nucor employees, from senior officers to hourly employees, are covered under one of four basic compensation plans (in addition to base pay) which reward employees for meeting certain incentive specific goals and targets:

• Production Incentive Plan: Operating and maintenance employees and supervisors at the facilities are paid weekly bonuses based on the productivity of their work group.

• Department Manager Incentive Plan: Department Managers earn annual incentive bonuses based primarily on the percentage of net income to dollars of assets employed for their division.

• Professional and Clerical Bonus Plan: This bonus is paid to employees that are not on the production or department manager plan and is based on the division's net income return on assets.

• Senior Officers Incentive Plan: Their compensation is based on Nucor's annual overall percentage of net income to stockholder's equity and is paid out in cash and stock.

In addition to these established bonus plans, Nucor has periodically issued an extraordinary bonus to all employees.

b) Listening to the Frontline

• Employees will make an extraordinary effort if you reward them richly, treat them with respect, and give them real power.

• The art of motivation is about an unblinking focus on the people on the front line of the business.

• Nucor does not just create steel, they create knowledge.

“Our culture is a living thing. It will never die because we will never let it die, ever.”

c) Push-down Authority

There is a Decentralized Management Philosophy. There are only five managerial levels at Nucor (supervisor/professional, department manager, division general manager, executive vice president, and President/CEO). Most operating decisions are made at the division level or lower. Nucor claims that its corporate office staff numbers around 75 employees, a relatively small number.

d) Protect your cultureRef. ‘OUR FINDINGS ON NUCOR’ below.

e) Try unproven technologies

Nucor Corp., recycler and manufacturer of steel products, is using new technology, such as the HIsmelt® process and the micromill, both of which are allowing them to start out with thinner steel strip to more efficiently process steel for its customers.

7. RECENT NUCOR ACQUISTIONS

Since 2007, Nucor has made the two biggest acquisitions in its history, one to help control its raw material supply and the other to expand its product line. In January 2007, Nucor agreed to pay $1.07 billion dollars for Canada’s Harris Steel Co. In February 2008, Nucor agreed to pay $1.4 billion for DJJ, one of the largest scrap brokerages. In August 2007, Nucor acquired the four brands of Magnatrax (American Buildings Company, Gulf States Manufacturers, Kirby Building Systems and CBC Steel Buildings) for $280 million to bolster it share in the pre-engineered metal building systems market. As a result Nucor Buildings Group was created. In May 2008, Nucor also announced two joint ventures overseas to capitalize on thriving construction markets outside the U.S

8. OUR FINDINGS ON NUCOR

a) Creating an Emotional Strategy - Prof Vijay said Nucor not only produces steel but also creates knowledge (fostering a knowledge based culture).

b) Creating a Win-Win Situation - payment based on productivityc) Creating Teamwork culture – and Unity

“At Nucor, we’re not ‘you guys’ and ‘us guys’ but it’s all of us.”d) Giving appropriate time to change culture – it took 6 months to convince Auburn workers

for the new system. Explaining the system in an Eye to Eye concept. e) Encouraging staff to be innovative - Rick Ryan, from shipping dept given a chance to study

the plant, produced the excellent idea that saved $ 150,000 a year.f) Developing entrepreneurial Skill: Nucor employees have to be innovating themselves out of

tough spot and into more profitable ones.g) Diverse business opportunity - GM Ron, has focused more of the output on types of steel

that are harder to make, which are also more profitable and less threaten by imports.h) Creating relationship with employees - GM, Hall, always walk through the plant to chat with

workers before having breakfast with his family.

9. THE THEORY BEHIND THE ART @ NUCOR

“…Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business, teachesNucor as an example of outstanding strategic execution, placing it alongside highfliers such as JetBlue Airways and eBay. "My students say: 'I thought Nucor created steel.' And I say: 'No. Nucor creates knowledge."'

What could it be that Vijay was actually trying to say? Perhaps he was saying it just to dramatize the issue at hand for teaching purposes? Could the Motivation-Gurus have missed something in their theories that Nucor might now have developed? In fact Nucor seems to be following the book. What they are doing over and above other great companies is that they are practicing the theory to the word.

Let us take a look at the theory and see how Nucor may have DONE IT.

i. DICTIONARY DEFINITION OF MOTIVATION:

Noun

motivation (plural motivations)

1. Willingness of action esp. in behavior – from the behavior of the employees this very much seems to be the case.

2. The action of motivating – is what the management, led by Nucor’s CEOs, has been doing.

3. Something which motivates –Yes. The culture, the pay incentives, the egalitarian benefits etc.

4. An incentive or reason for doing something – as above.5. (Advertising) a research rating that measures how the rational and emotional elements

of a commercial affect consumer intention to consider, visit, or buy something.

ii. INTRINSIC AND EXTRINSIC MOTIVATION

Motivation, in humans anyway, consists of intrinsic and extrinsic motivation. (Fig. 1)

Intrinsic motivation comes from within the individual in carrying out a task. If a person says,

“I am exercising because my girlfriend likes me to”; that’s extrinsic motivation. If he says, “I

am exercising because I need to look good”; that’s intrinsic motivation. Intrinsic motivation

is driven by intrinsic desires – said to be sixteen of them:

Intrinsic motivation and the 16 basic desires theory:

Starting from studies involving more than 6,000 people, Professor Steven Reiss has proposed a theory that find 16 basic desires that guide nearly all human behavior.

The desires are:

1. Acceptance, the need for approval2. Curiosity, the need to think3. Eating, the need for food4. Family, the need to raise children5. Honor, the need to be loyal to the traditional values of

one's clan/ethnic group6. Idealism, the need for social justice7. Independence, the need for individuality8. Order, the need for organized, stable, predictable

environments

9. Physical Activity, the need for exercise10. Power, the need for influence of will11. Romance, the need for sex12. Saving, the need to collect13. Social Contact, the need for friends (peer

relationships)14. Status, the need for social

standing/importance15. Tranquility, the need to be safe16. Vengeance, the need to strike back

Extrinsic motivation comes from outside of the person. Money, threats, other forms of rewards are all

extrinsic motivators.

Sometimes a person needs extrinsic motivators to build up his/her confidence level to an extent of

comfort so that the internal motivation can kick in. We think that Nucor employees had their extrinsic

motivation built up first, in the form of financial gains/guarantees, level social standing, empowerment,

Fig. 1

Management’s trust etc. all these gave them the self-confidence and making them want to do more for

themselves and for the company.

Following Maslow’s Hierarchy of needs and Herzberg’s Motivation –Hygiene theory, it can be seen that once the basic needs and security are taken care of , and a sense of belonging sets in, then it’s all go for intrinsic motivators of ego (recognition and status) and self-actualization (creativity and self-realization). (Fig.2)

Employees need ‘maintainers’ and ‘motivators’ (Herzberg) in order to become great employees such as Nucor has amassed. These are also referred to as ‘Theory X and ‘Theory Y’ respectively (Douglas McGregor's theories of motivation).

(Fig. 2)

Maintainers are needed to satisfy the basic needs of an employee, before he can think of furthering his services in his organization. Examples of Maintainers:

Working conditions* Company policies* Job security* Pay and benefits* Relationships with coworkers* Supervision* Status*

Motivators only come into ‘action’ once the maintainers are in place. Any company or employer, who takes care of the maintainers and theory X, will be having a group of Motivated and theory Y employees.

Examples of Motivators:

Achievement* Recognition* Satisfying work* Responsibility* Advancement* Growth*

Examples of motivating factors:

Full appreciation of work done* Feeling of being in on things* Sympathetic help with personal problems* Job security* Good wages* Interesting work* (probably) Promotion and growth in the organization (not stated) Personal loyalty to employees* Good working conditions* Tactful discipline* (assumption)

Everything marked with an ‘* ‘existed at NUCOR. (Please note the few comments). So, again NUCOR is following the book.

Therefore it is understandable that the performance at NUCOR is what it is because they have been following the book. Using Social Mathematics to create a formula4:

Job performance is viewed as a function of three factors and is expressed with the equation below. According to this equation, motivation, ability, and environment are the major influences over employee performance.

Motion they have in plenty as we have seen above. The environment is definitely conducive. We assume that the employees had the ability. Since it is indeed a mathematical equation, it follows that if any of motivation, ability or environment improves, then performance will improve. If any of these decreases then performance will suffer.

Therefore may we suggest that the ‘art of Motivation’ at NUCOR is actually the knack of following the book diligently?

Then there is the other factor of money; the way it is paid to the employees.

Nucor’s pay system is said to be one of the most difficult to emulate and is thought to be the greater of the contributors to motivating the employees. It is an extrinsic motivator that could theoretically lead to intrinsic motivation on the long run.

At Nucor the guaranteed pay is almost half of what other steel companies pay their workers. But the bonuses are tied to the production of defect-free steel by an employee's entire shift, which can triple the average steelworker’s take-home pay.

Nucor gave out more than $220 million in profit sharing and bonuses to the rank and file in 2005. The average Nucor steelworker took home nearly $79,000 last year. Added to that was a $2,000 one-time bonus (gratuity) to mark the company's record earnings and almost $18,000, on average, in profit sharing. Not only is good work rewarded, but bad work is penalized. Bonuses are calculated on every order and paid out every week. At the Berkeley mill in Huger, S.C., if workers make a bad batch of steel and catch it before it has moved on, they lose the bonus they otherwise would have made on that shipment. But if it gets to the customer, they lose three times that.

Now that’s extrinsic motivation with a capital M!

Managers also get a take-home pay that is only 75% to 90% of the market average. But in a great year that same manager might get a bonus of 75% or even 90%, based on the return on assets of the whole

plant. Calculated, on an average to bad year, their take-home pay is compromised. But in a good year their pay is only limited by how well the company is doing; the better the better! And, “…that teaches us that we don't want to be average or bad. We want to be good," says James M. Coblin, Nucor's vice-president for human resources.

Pay disparities are modest at Nucor compared to other companies in the US, where the typical CEO makes more than 400 times what a factory worker takes home. But, last year, Nucor's chief executive collected a salary and bonus precisely 23 times that of his average steelworker. DiMicco did reasonably well making $2.3 million in salary and bonus (plus long-term pay equaling $4.9 million) and that's because Nucor did well. However, when things were bad as in 2003, when the company was dealing with an industry downturn, and barely made a profit, DiMicco made $1.4 million. He does get a few stock options, and most of his restricted stock and other longer-term bonuses don't materialize if the company doesn't beat the competition and outpace a sample group of other high-performing companies.

An executive’s pay is geared toward team building. The bonuses of sectional and divisional managers depend on the entire corporation's return on equity. So, they not only have to look out for themselves, but also for their counterparts in other plants. So it is not surprising that at the beginning of the article, a technician from one plant went to the help of another, ‘without’ being asked to. On the front it looks like the employees are intrinsically motivated to do so. But actually, he is being extrinsically motivated, again with a capital M, to do so; the consequences otherwise could be detrimental to his financial health.

CONCLUSION ON NUCOR’S ART OF MOTIVATION

Nucor’s art of motivation is related to the way they treat their employees, by the book. It is also related to the ‘carrot’, or the ‘whip’, at the end of the stick, as an extrinsic motivator. We prefer to look at as a whip. The way the money issue is dangling over their heads, and the monetary loss in case of failure, no doubt is bringing in the money, but at a cost. As long as the workers are happy with the situation, as it seems to be, things will be moving along fine.

Whether this will work in Asian countries is a big question mark. It is probably working very well in Japan, in the motor industry, e.g. Toyota; and extended on to its sibling Perodua, although to what extent we cannot see. The motivators from the social point of view are alright, but the ‘whip’ overhanging may not auger well for many countries, even though it is probably the way to go for defect-free products and monetary rewards.

WHAT CAN BE BORROWED?

Will this work in a service oriented place like our hospitals? Let us look at the formula again:

Performance=Motivation∗Ability∗Environment

Motivation=Maintainers+Motivators

Therefore, the hospital employees’ performance will come from motivation, their ability and a conducive working environment. For the administrative staff, the ability is their own, and the office environment needs to be made conducive in whatever way. Their motivation depends on what the maintainers and motivators are going to be. The management has to draw up a list of each and then see where improvement can be made, so that motivation is improved and, through it, performance. Monetary and other extrinsic motivators will play a big role.

For the service staff, such as the nurses and doctors, the intrinsic motivation is, generally, much greater than any extrinsic motivation. Therefore no matter what, the extrinsic motivators are going to be of lesser value. What needs to be improved is the working environment; more friendly and respectful will be very helpful; their ability can be improved through continuing education, giving them greater self-confidence; and making sure that their maintainers are well taken care of; all of these, or even any of it, should improve intrinsic motivation and thus their performance. Their performance is a big part of what brings patients back to the hospital.

THANK YOU.

References:

1. http://www.businessweek.com/magazine/content/06_18/b3982075.htm 2. http://en.wikipedia.org/wiki/Motivation 3. The Book on Management, by Frederick Herzberg: pg195.4. http://www.flatworldknowledge.com/pub/1.0/organizational-behavior/45448#ftn.fwk-bauer-

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