A successful businessman tells how to decentralize management without creating chaos.
I am often asked, "how do you explain Nucor's success?" My stock reply is that 70% of it has to do with culture and 30% has to do with technology. The truth is, I'm not sure if it's 80% and 20% or 60% and 40%, but I'm certain our culture accounts for more than half of our success as a business. Without a doubt, Nucor's culture is its most important source of competitive advantage, and it always will be.
Of course, every company has the opportunity to build a culture that yields a competitive advantage. Yet remarkably few seem to act on that opportunity. One reason, I think, is that the culture has to be consistent to be real. Consistency is the name of the game as far as I'm concerned. And consistency begins with really believing in the culture you hope to shape. Nucor is founded on principles so basic they sound corny. We believe in treating people the way we want to be treated. That's a fundamental building block of our company. It sounds simplistic, but it works.
Don't think, though, that maintaining such a culture is easy. It demands daily attention to combat our worst human tendencies to divide ourselves into camps of "we versus they." As a manager, you can be seduced into forgetting how completely dependent you are on the people you manage.
We try to keep our focus on what really matters--bottom-line performance and long-term survival. That's what we want our people to be thinking about. Management takes care not to distract the company with a lot of talk about other issues. We don't clutter the picture with lofty vision statements or ask employees to pursue vague, intermediate objectives like "excellence" or burden them with complex business strategies. Our competitive strategy is to build manufacturing facilities economically and to operate them efficiently. Period. Basically, we ask our employees to produce more product for less money. Then we reward them for doing that well. Simple.
When I travel throughout the company, I can talk to employees doing work as diverse as drafting, accounting, production, or sales, and all of them can tell me the level of profits their divisions have attained so far for the year. We've resisted the temptation to overcomplicate what our business is about.
Keeping our business simple helps us to be unusually straightforward in our dealings with customers as well. Our pricing policy is a good case in point. Nucor publishes its prices, as does everyone else in the steel industry. But unlike most everyone else, the prices we publish for our steel products are the prices we charge. To everyone. No special discounts. No exceptions. One of the great advantages of consistently doing just what you say you'll do is the credibility you gain with customers. Your marketing doesn't have to dazzle anyone. All it has to do is present the facts.
We pretty much tell our general managers to trust their instincts. We don't look over their shoulders or ask them to submit voluminous reports explaining their actions. But that doesn't mean we're not paying attention. Delegation without information is suicide. Every week all our divisions send headquarters a few key numbers that, taken together, give us a snapshot of their basic operations from beginning to end: quotes (bids), orders, production, backlog, inventory, shipments. Those numbers for all of Nucor's divisions are printed out on one 8 1/2-by-11-inch sheet of paper.
A second weekly report, about four pages long, compares the current week's numbers with those of the preceding week, charts each division's numbers over a period of 13 weeks, and compares the current quarter with the corresponding 13 weeks of the preceding year. That enables us to look at trends. And since the reports are compiled by a computer, those comparisons are very easy to generate.
In total, we rely on about five pages of data to keep abreast of the weekly operations of 20 divisions across a multibillion-dollar corporation. I review the weekly reports every Wednesday morning over coffee. If the numbers for a particular division look out of whack, we know we need more information. In short, while we work hard to get the information we need, we work just as hard to keep our reports streamlined and ourselves free of information overload.
A lot of managers seem to miss the link between information overload and their compulsion to overcontrol their operations. But the connection is obvious. Too much information puts you in the same position as too little information--you don't know what's going on. And when you don't know what's going on, it's hard to stay out of people's hair. Fighting off information overload isn't easy. You can't wait for someone else to come along and relieve you of the burden. You have to do it for yourself. You have to fight back. The key is to identify the fraction of information that is truly useful to you, so you can concentrate on it. That was how I gradually pared down the information I'd allow others to give me to the handful of points I've just described.
I'd suggest that you focus on information that tells you what you need to know under ordinary circumstances; that will give you an early warning when something extraordinary is going on. If your company experiences a precipitous drop in orders, for example, you want to know immediately, so you can find out why and figure out what to do about it.
You should also take care to differentiate between objective and subjective information. A big part of information overload comes in the form of unneeded explanation (subjective information). I like to let the numbers do the talking and decide for myself when they're not telling me all I need to know.
Look for information that documents cause and effect . You should see a clear link between what happens within your operations and the business results. At Nucor, I receive a somewhat more detailed report from each division at the end of each month. That report, like those we receive weekly, is all data and no text. It updates us on each division's costs against budget, sales revenues, monthly contribution to earnings, and monthly return on assets employed. In other words, it shows us the results the division has generated for the month from the operations we've tracked weekly. Putting together the weekly and monthly reports shows us cause and effect. It's also simple to understand.
Finally, I'd suggest you focus on information that is easy for others to provide, so your information needs won't take away from their real work and you can rely on them consistently to provide the information you require. When you gather truly useful information efficiently and consistently, you'll know what's going on. And when you know what's going on, you'll find it a lot easier to let your people trust their instincts.
I've read books by management experts who say, "A good manager is a good manager in any kind of business. He or she can go anywhere and succeed." Don't believe it. Good management is situational. There's no guarantee that a great manager in a retail environment, for example, will be a great manager in construction. Experience in the business is a huge advantage. In fact, it is often essential. And the fundamental approaches that prove effective in one business can easily fail you in the next.
But while there are many good ways to manage, there is no excuse for being wishy-washy about how you will manage. You must choose where decisions will be made, and by whom, within your operation. Before making your choices, you must think through which decision-making structure will best serve the operations you manage.
After you choose, you must live up to the obligations inherent in your choices. Under a decentralized structure, such as the one we chose, those obligations include making an honest and sustained effort to stay connected with your people, shielding yourself from information overload, and engaging in open, constructive debate. That's a lot harder than handing out orders, but it's also a lot more interesting.
Excerpted from Plain Talk: Lessons from a Business Maverick, by Kenneth F. Iverson, with Tom Varian. Copyright © 1997 by Kenneth F. Iverson. Reprinted by permission of the publisher, John Wiley & Sons Inc. Iverson is chairman of $3.6-billion Nucor Corp., headquartered in Charlotte, N.C. Varian is a business writer based in North Carolina.
Plain Talk: Lessons from a Business Maverick will be available in bookstores around October 20 ($24.95). To order the book directly from the publisher, John Wiley & Sons, call 800-225-5945. To find out how multibillion-dollar Nucor keeps its bootstrapping spirit alive, see " Bootstrapping for Billions," by Edward O. Welles in the September 1994 issue of Inc.