Lessons from Nucor steelUpasna Paul

Chitra SrivastavaBarrett Newsome

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Reversing the ParadigmOLD: Knowledge is powerNEW: Sharing Knowledge is powerThese days 80% of the Fortune 500 companies have Knowledge Management teams and 25% have CKOs (Chief Knowledge Officers)

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Building Effective Social EcologySocial Ecology is the social environment within

which people operate.Examples: workplace, teams, group work, etc

Culture, structure, information systems, reward systems, processes, people and leadership are the determinants of social ecology.

The word ecology suggests that the social system should be viewed not as a random collection of different elements but as a comprehensive whole in which the various elements interact with one another

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Staying ahead in the industry while maintaining a good Social EcologyUnless enterprise continuously generates new

knowledge, it will soon be playing tomorrow’s game with yesterday’s tools. And unless knowledge is pumped efficiently throughout the network, the enterprise will not only pay the price of reinventing the same wheel but will also risk becoming prey to competitors that are able to replicate its ideas rapidly

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Information systems vs. Social EcologyBoth IT and social ecology play central role in

knowledge management.IT platforms are neither proprietary nor

unique and therefore provide at best a temporary advantage.

Whereas sustainable advantage depends on how smart a company is at using the technology which in turn depends fundamentally on the social ecology.

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“Knowledge is power.”Knowing the correct way to apply this

statement is imperative for an organizations growth.

“Shared knowledge is power.”The example given in the article is an

example of a person using their coercive power. It was more important to those individual to have self gain and recognition.

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Encourage Learning/Sharing KnowledgeProfessional excellence is difficult to achieve

outside of a good organization. Conversely, flourishing organizations are difficult to develop without good people. A domain where the intersection of professional and organizational goods is particularly important, especially in our information age, is the sharing of knowledge

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Structured Vs. Unstructured KMExplicit /Structured knowledge is

knowledge that has been or can be articulated, codified, and stored in certain media. It can be readily transmitted to others. The information contained in encyclopedias (including Wikipedia) are good examples of explicit knowledge.

Tacit /Unstructured knowledge is knowledge that is difficult to transfer to another person by means of writing it down or verbalizing it.

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Two central tasks of Knowledge management 1. Creating and acquisition

• Creation of new knowledge• Acquisition of external knowledge• Retention of proprietary knowledge

2. Sharing and mobilization• Identification of opportunities for sharing• Inflow/outflow or motivation of

receiving/sharing• Transmission—building effective transmission

channels

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Nucor SteelIs headquartered in Charlotte, North Carolina

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. The company maintains some of its largest operations in Birmingham, Alabama

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Nucor SteelIt is the Largest steel producer in the United States It has over $6.2 billion in sales annuallyIt is also considered to be the nation's largest recyclerIn 1972 the company adopted the name Nucor

CorporationNucor Products include: 

• carbon and alloy steel in bars, beams, sheet, and plate• steel joists and joist girders• steel deck• cold finished steel• steel fasteners• metal building systems• light gauge steel framing

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Nucor Steelhttp://www.youtube.com/watch?v=AT1B68IgT

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Social Ecology: Nucor CorporationNucor accumulates knowledge in three categories: Knowledge Creation Knowledge AcquisitionKnowledge Retention

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Nucor Steel & Knowledge ManagementCreating Knowledge:

In order to have knowledgeable employees you have to find them, Nucor set up their plants in rural with

hard working people readily available. Employees could earn higher bonuses only by

discovering new ways to boost productivity (sandbox) Managers encouraged employees to experiment, which empowered them and gave them a feeling of

trust for the employer. Nucor states that a company that does not tolerate

failure will severely inhibit experimentation, “Don’t keep making the same bad decisions.”

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Nucor Steel & Knowledge Management cont..Knowledge acquisition

Mind-set and behaviors They had Experts in the industry They had complete Confidence in organization’s ability Ability to face risk

Nucor acquired their knowledge through taking risk, but they always would make sure that the risk was worth the reward

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Nucor Steel & Knowledge Management cont..Knowledge retention

They had been Successful in identifying mutual interests and goals

Operating policies cultivated loyalty and commitment The “Share the pain” policy

No layoffs during recessions Reduced work week; reduced wages Greater reduction in pay for managers and CEOs

In no time Nucor had the Lowest Turnover rate

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Nucor Steel & Knowledge Management cont..Identifying opportunities to share knowledge

Systematic collection and sharing of performance data was made visible within the company.

Knowledge outflow/inflow—encouraging employees to share/receive knowledgeGroup-based incentives

Share own best practice with peer units to boost the performance of the entire bonus group

Plant manager’s pay linked to company’s performanceBonuses were based entirely on group

performancesThey motivated sharing of knowledge and best

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Nucor Steel & Knowledge Management cont..

Building effective and efficient Knowledge transmissionStructure of knowledge requires appropriate

channel for transmission They Shared Highly structured/codified knowledge

through Information technology They Shared Unstructured knowledge also through

Face-to-face communication Transfer of people between departments and plants

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Nucor Steel & Knowledge Management cont..

Intraplant Knowledge transfers: Built a social community promoting trust & open communication

Kept the number of employees small (250-300) High degree of interpersonal familiarity Annual dinner with plant manager only to discuss business

Interplant Knowledge Transfers: Detailed performance data was distributed to all plant managers General managers met three times/year to review facilities

performance Composite teams would visit plants to share best practices They reassigned people from one plant to another on basis of

expertise Best practices were built in to new plant start-ups They were convincing people to accept and use the knowledge

they receive Strong performers were showcased before their peers; weak ones

were exposed to intense heat of peer pressure.

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Framework for building an effective knowledge managementMaximizing knowledge creation and acquisition

They had encouraged employees to set stretch goals Set targets that cannot be achieved without innovation

They Provided high-powered incentives Increase person’s level of risk in performing a task

They Cultivated Empowerment and Provided “Slack” Resources Provide opportunity to be creative and work on individual

projects without asking They Provided a Well-defined “Sandbox”

A safety-net for organization Creating a culture that values experimentation means

encouraging a willingness to take risks They also Cultivated a market for ideas within the company

Employees allowed to market ideas outside of department They had a Screening mechanism to determine which ideas

should be supported and which should be abandoned 20

Framework for building an effective knowledge management cont..Maximizing knowledge sharing

Rely on Group-Based Incentives Reinforce knowledge sharing as a cultural norm Maximizes performance of the entire system rather

than that of an individual unit. Empower group to expel the chronic underperformer

Invest in Codifying Tacit Knowledge An explicit mapping of what a company knows is the

basis for discovering what it does not know Can Have high Payoffs

Match Transmission Mechanisms to Type of Knowledge

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Pathologies & challenges in knowledge accumulation & Knowledge sharingA common pathology is the “knowledge is

power” syndrome. Virtually all the pathologies that

companies exhibit emanate from some type of dysfunction in the social ecology of the enterprise.

Companies can avoid pathologies and create an exemplary social ecology for effective knowledge management as Nucor did.

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ConclusionRecreating competitive Advantage Everyday

In the emerging economic landscape, competitive advantage must be created everyday

A company’s ability to function as a knowledge machine depends not merely on the sophistication of its IT infrastructure but more critically on the social ecology that drives the behavior of its people and teams.

It requires building a whole ecosystem of complementary and mutually reinforcing organizational mechanisms

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