Strategic analysis of CRH PLC

Introduction

Background information of the company

CRH is one of the leading building materials companies in the world. It is headquartered in Ireland. In 1970, two Irish companies (Cement ltd and Roadstone ltd) merged to form CRH. The company grew over the years and by 2009 it had expanded to 3500 locations in 35 countries (Moroney, 2010) and had employed more than 80,000 people to work in its premises. The company’s revenues are also recorded at a cyclical average of £17 billion per annum. The company enjoys a substantial presence in the major world economies including North America and Europe. It has also expanded to emerging markets such as Eastern Europe and Latin America. The success of CRH is attributed to its corporate governance strategy which has received several industry awards. The company is also well known for its corporate social responsibility which has guided the company towards a successful involvement in environmental and safety practices. The company’s financial reporting, investor relations and excellent innovations are also some of the biggest CRH’s strongholds in its strategic planning.

Purpose and scope of the case study analysis

International companies often use a number of strategic planning options to attain its corporate objectives and gain competitive advantage in the highly competitive world markets. With the increasing competition in the world market, companies are now engaging in strategic activities that will enable them to claim a substantial market share in the market. In order to achieve its strategic targets, companies need to understand their environment (industry), attain effective strategic capability, develop an effective organizational culture and come up with relevant strategies to compete successfully with their competitors in the market. This case study analysis will use various analytical models to analyse, evaluate and give recommendations for the strategic planning of CRH. This paper will therefore involve environmental analysis, strategic capability analysis, organizational culture analysis and determination of the company’s strategic options and competitive strategies using relevant analytical model.

Strategic Analysis of CRH

Environmental analysis

Choice of an appropriate analytical model

There two models which can be used to analyse a company’s environment. PEST model is used to analyse the political, economic, social and technological factors affecting the company. This approach is more important in feasibility studies than in strategic planning. The second model called Porter’s five force model is a relevant model for this case study. In strategy direction, strategy implementation and strategic management it is important to analyse the main competitors in the market so as to establish and implement the best strategies to gain competitive advantage over them. It is therefore important to analyse Porter’s five forces that drive competition so as to align the company’s strategies to a more competitive position in the industry.

Porter’s five forces model

Porter’s 5 forces model is mainly used to determine industry profitability. This is done by deeply examining five forces that shape competition. These forces are: Threat of new entry, bargaining power of suppliers, threat of substitute products or services, bargaining power of buyers and rivalry among existing firms. Porter (2008) suggests that companies need to respond strategically to competition in their industry so as to achieve long-term profitability.

Established rivals are the most dangerous competitive forces that can drive down the profitability of firms and overall industry profitability. Rivals may attract customers from other companies, driving down their profitability. There are also other four competitive forces that drive down firm industry profits. First, customers (buyers) cause a decrease in firm’s prices by playing rivals in the market against each other. Profitability therefore highly depends on the bargaining power of buyers. Suppliers may also limit the profits of a firm if they charge high prices on their supplies. On the other hand, potential entrants pose a threat of reducing profits by introducing their new capacity and hunger for a market share. Substitutes offered by competitors may also attract customers of a given firm and force down their profits. It is therefore important for a company to shape these forces in its favour.

The building materials industry is composed of several firms which operate as rivals against each other. CRH is therefore faced with a threat of existing rivals. Some of the established rival firms in the industry include Grafton Group plc, Cookson group plc, Eleco plc, Red Dragon Air Conditioning ltd, Value Doors UK ltd, Hanson UK, Norfolk Roofline services, Cooleasy ltd and Granite solutions among others. These companies offer substantial competition to CRH, making it lose some of its customers and experience a decline in profits. CRH has engaged in various strategies to deal with this competitive force. First, it attempts to invest in new capacity from time to time so as to retain its customers and avoid losing them to rival firms. The company also develops new products so as to win more customers and enjoy a bigger market share than the rival firms. Furthermore, the company carries out diversification by investing in different categories of building materials. This is opposed to some rivals who specialize in some types of building materials e.g. Norfolk Roofline Services Company located in Norwich which specializes in roofing materials.

The bargaining power of suppliers also influences the profitability of CRH. Generally, CRH is able to relate positively with its suppliers. The sustainability programs of CRH include the company’s dedication to the interests of its stakeholders including its suppliers. The company also standardizes its raw materials’ requirements so that it can switch easily among suppliers if current suppliers no longer conform to the company’s profitability and pricing requirements. On the other hand, the bargaining power of buyers has been influenced by the availability and entry of rivals in the market. Currently there are many competitors in the market which give buyers a stronger bargaining power, making firms in the market to reduce prices so as to entice the buyers to purchase their products. To counter this bargaining power of customers, CRH has expanded its products. This has enabled the company to win the loyalty of customers. As mentioned earlier, CRH frequently develops new products and invests in new capacity in order to retain its customer despite the increased competition experienced in the building materials industry. Threat of substitutes is also countered by the same strategy of offering a wider variety of product availability.

The threat of entry of new firms is also another force that shapes CRH’s competitiveness in the market. UK, USA and Ireland have been attracting new building materials companies in the recent past. Some of the above mentioned companies are new entrants in UK market including Eleco plc which is expanding to various regions of UK which used to be dominated by CRH. As a result, CRH is pressing harder with its competitive strategies to outdo competition. The competitive strategy that is most used by CRH is acquisition. The company has been engaged in what seems to be unending series of acquisitions. Moroney (2010) suggests that CRH plc completed over 750 acquisition deals between 1978 and 2008. €16.7 billion have been spent so far to complete these deals. These acquisitions have enabled the company to reduce the competition from the firms it acquires and to increase its diversification portfolio.

Strategic Capability analysis: Value Chain

Porter defines value chain as a chain of activities carried out by a firm in a given industry in order to deliver valuable products or services to its customers. A firm’s products undergo a chain of activities in a given order. The products gain value at each level of the value chain. Independent activities give products less value than chains of activities. The success of a company’s value chain is determined by the effectiveness of the company’s supply chain management Grant, 2003). CRH’s value chain is managed by a good management team which is aware of the impact of the company’s value chain. The figure in appendix 2 illustrates some elements of value chain as proposed by Porter. CRH has been able to run its value chain using most of the elements in the figure. This has added value to its products in order to meet the customer’s needs.

Firm infrastructure

Firm infrastructure refers to the factors that lead to the successful operation of a company in production, inventory management, distribution, and information flow (Chopra & Meindl, 2010). CRH enjoys wide range of tangible and intangible resources which contribute to successful operation of activities within the company. First, acquisition of other companies has given the company a wider resource-base. The acquired companies are now the company’s important resources. The company’s diversity in products and services is also another resource that boosts its value chain. CRH operates strong-vertically integrated materials and residential and nonresidential products (CRH plc Annual Report, 2011). The company also has a strong penetration into various locations across the world and has taken leading positions in all of its major markets. This strong market share enables it to gain reputation and customer loyalty.

Human resource management

CRH has over 180,000 employees across the world. These employees play crucial roles in the company’s value chain. They are management by a strong human resource management to become productive resources in the company which add value to the company’s products and services (Chopra & Meindl, 2010). This is done through an appropriate recruitment, selection, training and development processes. The company hires qualified individuals to run its activities to develop valuable products that customers will buy. Training and development is also a continuous program within CRH which enables the company to meet the changing innovation and product needs.

In-bound and outbound logistics

Logistics should be developed by firms in its operations so as to come up with competitive activities that add value to the company’s products (Chopra & Meindl, 2010). CRH plc has gone beyond mere strategic planning to include logistics in its supply chain so as to add value to its final products. The company has developed distribution mechanisms which are specifically designed to build an extensive network of locations so as to penetrate even major metropolitan areas in its markets. The company distributes its products to general building contractors and Do-it-Yourself customers (DIY) in Europe (CRH Annual Report, 2012). This is achieved through a strong category and logistics management.

Operations

There are many operations involving the design of CRH’s products. The company operates in primary materials business as well as trade in products for use in residential and non-residential land. These operations are undertaken in over 35 locations in Ireland, UK, Asia, North America and Latin America. The company distributes its materials though both contractors and DIY stores. Sales revenue for the company increased by 5% in 2011, indicating that the company’s value chain operations have been successful in adding value to the products and materials of the company. This increased customer demand, hence increasing the company’s sales volume. Part of the company’s operations is the acquisitions which the company has undertaken over the past. These acquisitions have led to success in operations of developing and stable regions covered by CR. The increasing uncertainty in Euro zone financial market did not hamper the company’s operations. The company carried out restructuring activities resulting in restructuring costs which reduced the company’s EBIT. Finally, the distribution of the company also benefited from the company’s acquisitions. This also increased the company’s sales revenue.

Organizational culture analysis

The organizational culture of CRH can be analysed using McKinsey’s 7-S framework. This framework is a strategic planning tool used by organization to monitor internal changes of an organization (Kane, 2006). The 7S are Structure, Strategy, Systems, Skills, Style, Staff and Shared values. These are illustrated in appendix 3.  The seven elements need to be realigned and mutually reinforced to ensure that the company functions effectively.

The structure adopted by CRH is a federal structure with a central headquarters in Ireland. There are also four other product divisions located in various regions. This is illustrated in figure four in the appendix section. The company is also reinforced with strategy. The company’s strategy is to invest in new capacity and to expand to new products and markets through acquisition and other mechanisms. This has led to increased sales volume of the company. A sound system is also effectively implemented in the company whereby the company’s management communicates effectively with the company’s stakeholders including shareholders, employees and creditors. Information flow in the company is effectively perpetuated by a strong Management Information System.  The company’s operations are also implemented through a synergy of activities from production to distribution whereby information is passed effectively to various participants in the operations. The company also hires skilled workers. The skills of the company are therefore sufficient for the operational success of the company. The company’s Staff also undertakes its operations through teamwork.

Despite aligning most of the 7S in its operations, CRH seems to ignore shared values in the company. Shared values refer to the beliefs and cultures of an organization or a society which are shared by the members of the society or the organization (Ahlstrom & Bruton, 2009). The company concentrates more on personal success and achievements of various departments and individuals. The managers of the company are very hardworking and committed to the overall success of the business but the company does not show any indication of shared values within the organization. There is no strong cross-cultural management practice to ensure that the beliefs and culture of the company is aligned to the diversity of culture in the company.

Conclusion

There have been various economic challenges affecting UK’s top companies over the past few years including the Euro Zone financial crisis of 2011 which hit European financial market. This affected CRH but the company managed to maintain its productivity and profitability, achieving €18,081 billion sales in 2011, reflecting an increase of 5% from the sales of 2010. The company also realized an EBIT of €1,656 billion in the same year, reflecting an increase by 3% from the EBIT of 2010. This has been attributed to an effective strategic planning, implementation and management by the company. It has been noted by this case study analysis that the company’s competitive strategies have effectively placed the company in a good competitive position. In fact, the main strategies of the company are meant to gain competitive advantage, which has actually bore fruits. Acquisitions, product diversification and customer oriented strategies have enabled the company to gain customers over its competitors. The company’s value chain has also been found to be managed effectively by the company. The use of logistics in the company’s distribution is one of the most important elements of the company’s value chain. The firm infrastructure, operations and human resource management are also well incorporated into CRH’s value chain. This has created value addition to the company’s products, hence attracting more customers, increasing its sales and boosting its profits. The company’s organization structure is also effective because the federal structure enables the company to manage the company from a central headquarters. This reduces administrative costs which could have been incurred if decentralized organizational structure was used. However, the company does not apply the rule of shared values as proposed by McKinsey’s 7s framework. Despite the company’s engagement in corporate social responsibility through environmental concerns, it still seems to be seeking prosperity at the expense of the society. It does not align the beliefs of various members of the company to the operations of the company. It does not also involve the society’s views in its performance.

Recommendation

This paper recommends that CRH should wake up to the task of sharing its views and belief’s with the society. Instead of concentrating only in making profits, the company should also share its prosperity with the society by engaging in social practices that are likely to add value to the society. The company should also allow its members including employees to participate in programs that will enable them to socialize, share experiences, values, beliefs and ideas. This will ensure that all members are able to work together harmoniously despite their cultural differences. This should also be extended to the society through multi-cultural programs. In order to develop effective shared values, the company should practice effective cross-cultural management in its operations.

 

References list

Ahlstrom, D, & Bruton, GD, 2009, International management: Strategy and culture in the             emerging world. Australia: South-Western. References list

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Chopra, S & Meindl, P 2010, Supply Chain Management – Strategy, Planning, and Operation,      4th Edition, Upper Saddle River, Pearson Education.

CRH Annual Report, 2011, CRH Annual Report 2011. Retrieved on December 9 2012 from the Company’s website, http://www.crh.com.

Grant, RM, 2003, “Strategic Planning in a Turbulent Environment: Evidence from the Oil”, Strategic Management Journal, 24, 6, pp. 491-517.

Kane C. 2006, “Management’s Role in Shaping Organizational Culture,” Journal of Nursing Management vol. 14, pp. 188–194.

Liedtka, J, 2000, “Strategic planning as a contributor to strategic change: a generative model”, European Management Journal, vol. 18, no. 2, pp. 195–206.

Moroney, Mike, 2010, “CRH plc: Successful corporate-level strategy in a challenging environment”, J.E. Cairness School of Business and Economics.

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Porter, Michael, 1996, “What is Strategy?” Harvard Business Review, November–December, 61-78.

Porter, Michael E, 2008, The Five Competitive Forces That Shape Strategy, Harvard business Review.

Roy, D, 2009, Strategic foresight and Porter’s five forces: Towards a synthesis, München: GRIN.

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