Business Strategy of Lafarge Tarmac Ltd - Case Study Example

Business Strategy Introduction Lafarge Tarmac Ltd is a building materials company whose headquarters are based in Birmingham. The company works as a 50:50 joint endeavour and is owned by Anglo American and Lafarge, and was established in March 2013 by the merger of Anglo Americans Tarmac UK and Lafarges UK operations. In July 2014, Anglo American consented to offer its stake to Lafarge, to help Lafarge in its merger with Holcim and alleviate rivalry concerns. Lafarge declared in February 2015 that the business would be sold out to CRH plc, once Anglo American had sold its shares. The merger of the Tarmac and Lafarge organizations in the UK may have been a noteworthy undertaking, yet this ought to shock no one given the measure of the portfolio and advantages of each company, their joined assets, and the different legacy products or services that they both needed to incorporate into one new organization. From the beginning, uniting the qualities of two of the UKs top and most powerful materials companies – Lafarge (with their quality in concrete items, solid concentrate on R&D and advancement) and Tarmac (with their national foot shaped impression and quality in totals, street contracting, and solid ethic of customer service) – was continually going to be a huge undertaking. According to Graham, Smart & Megginson (2012), merging of two major companies comes with its challenges as well as the benefit. Stahl & Mendenhall (2005) adds that merging is one of the business strategies that any company should consider as a means of improving its operations and the market share. Task One How Lafarge Tarmac’s missions, visions, objectives, goals and core competencies inform strategic planning The joint venture company has established cognitive structures for present and future prosperity. Primarily, the two firms entered the venture to fulfill certain objectives, goals and vision. The daily business of the joint venture is usually mission. Mission The mission for the venture is to be provide incomparable products and services in the construction field that are geared towards promoting safety and sustainable development. The mission motivates the company to provide solutions to various dilemmas experienced in the building and construction sector. In essence, the company’s activities are tailored towards achieving the already established mission. Vision The vision of the company is to be a leading company in the global construction field. Objectives and goals To develop a logical operational system that enhances efficient procurement process. To create quality brand. To enhance sustainable development by establishing measures that regulate the use of fossils fuels. To produce products that do not emit greenhouse gases. Core competence The merging of the two companies gave them an upper hand in the industry. The core competence of the company is a diverse workforce and sufficient infrastructure that facilitates quality production and transportation of materials from the production site to the required destination. That is, the company’s employees are specialists in the various areas of occupation and, therefore, it can be observed that the company has a promising future for development. In essence, strategic planning cannot be effective in absence of competent and reliable personnel. In addition, a well-structured production infrastructure is inevitable for proper implementation of strategic plans. Therefore, the Lafarge Tarmac Ltd has most of the required facilitates for the implementation of an outstanding strategic plan. In essence, the various competence components of the company have been very influential in its outstanding performance in the industry. Strategic Plan formulation Lafarge needs to pay attention to their position in the market, the company’s vision as well as goals that are pre-established while formulating their strategic plan. This will ensure that the company has continuity of processes which are geared towards a common goal. For effective strategy formulation, information and ideas need to be gathered from all organisational level so as to have a strategic plan that is readily accepted throughout the organisation and one that will develop a sense of ownership among the staff members. As Lafarge offers the most innovative and diverse products in the market, many competitors will aim to improve their services and products so as to counter the products of Lafarge. Companies need to provide products that serve their customer’s needs so as to remain competitive in the industry, expand their businesses and t create customer loyalty (Piperopoulos, 2012),. Lafarge needs to factor in the potential threat from competitors and the possible actions that the competitors will take so as to enhance the functionality and diversity of their products and remain ahead of their competitors. Strategic Business plan techniques at Lafarge In order to have an effective business plan, Lafarge Tarmac Ltd needs to use the BCG growth share matrix to evaluate the level of resources needed to invest in their different market segments. This technique has four components; the dog, the cow, the question mark and the star. In order to achieve informative results, Lafarge Tarmac should segment all its operations and evaluate the level of return from each segment. The segments that require less investment input but still provide the company with huge benefits should be classified as cash cows. According to Stern, Deimler & Boston Consulting Group (2006), cash cows provide companies with huge returns from little investments while at the same time they fund most of the company’s operational costs. Lafarge Tarmac needs to retain the level of investment necessary to sustain the cash cows. Lafarge Tarmac should also evaluate the segments whose returns match the level if investments. According to Stern, Deimler & Boston Consulting Group (2006), these segments need to be classified as dogs since the value they add to the company is limited. The dogs should be taken through thorough investigation after which the management should consider exiting them from business. The segments that are still new in the market and have not benefitted the company from any returns should be classified as question marks. With time, the question marks can either turn to dogs, cash cows or stars. The management needs to thoroughly evaluate these segments and retain only those that have a potential to grow and benefit the organisation from huge returns on investment. The fourth segment which is dubbed the stars comprises of products that are the most competitive in the market and benefit the company with huge returns. These segments need to be well resourced to make Lafarge Tarmac a market leader. According to Meldrum & McDonald (2007), directional matrix helps companies to make strategic direction on their investments. After analyzing the company’s performance using the BCG matrix, Lafarge Tarmac will need to use directional policy matrix to determine their future investments and to formulate effective future investment strategies. The directional policy matrix concentrates on specific market segments and the capacity requirements of the company to be effective in operating the segment. While evaluating the segment using the directional policy matrix, the management will evaluate the returns from the segment, potential growth of the segment, the anticipated margins of income and resources needed to operate the segment. The findings of the management should be compared with the company’s ability to compete effectively in the segment and the skills and competences needed in the segment. The management of Lafarge Tarmac should consider investing in the segments that are most promising and once that the company is well equipped to achieve success. Task Two Organisational Audit Benchmarking According to Zairi & Leonard (1996), benchmarking is the process of evaluating the best practices in the industry and emulating them so as to remain competitively relevant in the industry. The joint venture means that Lafarge Tarmac is able to implement best practices from both Anglo American, which is a market leader in customer service and Lafarge, the market leader in provision of quality concrete materials. This makes Lafarge Tarmac the benchmark in the construction industry. SWOT analysis The merger of Lafarge and Anglo American provides Lafarge Tarmac with enough skilled workforce and management as well best practice in the industry. The adoption of best practice and provision of quality products are the foundation Lafarge’s competitive advantage. The weakness of Lafarge Tarmac was to integrate the two companies to function as one. Much time ended up being used to integrate the two companies instead of increasing productivity. With the merger already established, Lafarge Tarmac has an opportunity to expand its geographical coverage and venture into other neighbouring countries. This can be made possible by the level of resources at the disposal of the company as well as the availability if sufficient workforce. After the competitions commission assessed Lafarge Tarmac, it made recommendations that Lafarge Tarmac needs to dispose some of its assets in the UK. This will serve to empower the competitors at the expense of Lafarge Tarmac. Formulating an effective strategic plan will ensure Lafarge remains to be the market leader even after disposing some of its assets. Product positioning According to McKinley (2005), products are better positioned if they provide the satisfaction and achieve the purpose that they were meant for. Lafarge Tarmac is better positioned in the construction industry due to its many innovative products that are well accepted in the market. Lafarge’s products provide solutions to many industry needs making them outstanding in the industry. Value-chain analysis According to Liedtka & Ogilvie (2011), Value chain analysis comprises of interaction with partners to evaluate the effectiveness of the company’s processes. Lafarge Tarmac’s competitive advantage lies in its ability to provide new innovative products to its clients. The wide customer service network means that Lafarge Tarmac can serve its clients using the least time possible as compared to its competitors. Ansoff’s matrix According to Bachmeier (2009), Ansoff’s matrix is used to evaluate the company’s growth strategy by focusing on its market penetration plan, market development potential, and ability to develop its products as well as to diversify its product range. The merger of Lafarge and Anglo American enabled Lafarge Tarmac to increase its operations branches throughout UK. These branches enable Lafarge to penetrate in the industry due to enhanced coverage. Lafarge is also able to develop its market by distributing its products to places that it was not able to serve before. With over 500 formulations of concrete, it is evident that Lafarge Tarmac’s product development strategy is effective in serving the market needs. Lafarge Tarmac has also managed to diversify its market operations through targeting different forms of construction projects and serving them with their innovative products. PESTLE Analysis Prior to the union of the two firms, Lafarge bowed to political pressure to sell its assets in Derbyshire so as to be permitted to form the merger. This meant that Lafarge Tarmac would have to enrich its competitors with the sale as competitions authority seeks to ensure a balance competition in the industry. The merger had huge economic benefits to Lafarge since it enabled it to serve more clients and use economies of scale to maintain customer loyalty. With a wide range of products that serve wide customer requirements, Lafarge Tarmac is able to contribute to the social development of the community by offering them effective solutions to their needs. This in return brings forth huge returns from large number of customers. Lafarge Tarmac has managed to employ new technology in the formulation of its ready mix concrete products. These products that were non-existent have revolutionized the construction industry, making it more profitable and sustainable. Despite all the developments, Lafarge Tarmac has had to fulfil all the legal requirements of sustaining a merger business. The most recent is the directive to sell its assets that originated from the competitions authority. None the less, Lafarge Tarmac is committed to provide innovative solutions that are environmental friendly and sustainable. Porter’s 5 force analysis Regardless of the huge coverage by Lafarge Tarmac, there still remains to be threat of competition from new entrants. Lafarge Tarmac can counter this threat by provision of quality products to ensure customer loyalty. With the ability of Lafarge Tarmac’s concrete products to reduce time in construction projects, the customers are able to handle multiple construction projects within a short period of time, thus increasing their purchase power. Lafarge Tarmac on the other end has the potential to alter the prices of the products due to the functionality of these products. However, Lafarge Tarmac stands to benefit more by employing economies of scale in its operations. In order to counter potential of losing market share to substitute products, Lafarge Tarmac will have to keep innovating its products and ensuring availability of the products whenever the customers are in need. The merger of two rival companies means that Lafarge Tarmac is able to provide timely services and employ new technology while at the same time controlling the market share with its wide range of products. Stakeholder analysis As Lafarge Tarmac formulates its new strategies, the management needs to understand the extent that the new strategies will have on their stakeholders. This will ensure that the new strategies do not have a negative effect on the company’s image and performance. Understanding the stakeholder’s needs will also help the company to be able to enhance co-operation with stakeholders. Companies need to rank stakeholder interest and contribution to the overall goal of the company (Dransfield 2004). This ranking will ensure that the organizational strategies are in line with stakeholder expectations subject to priority. The management will have to understand who their stakeholders are, evaluate the level of importance of all stakeholders, strategize how to be effective with handling and satisfying the stakeholders and finally engage the stakeholders meaningfully in a manner that will benefit the organization. Task Three Approaches to strategy evaluation and selection Market entry strategy There are various market entry strategies that companies willing to enter a market can employ. According to Birkin, Clarke & Clarke (2002), this includes fortifying an organization utilize its own particular assets. This method of dealing with organization development is slower than others, yet it has generally low in advance expenses, making it an appealing alternative for little entrepreneurs who need to extend their organizations yet dont have a lot of fluid capital. A company can also penetrate the market through a merger or acquisition. This enables the company to enjoy the other company’s ready established structures as well as workforce. Lafarge Tarmac has employed this strategy to increase its market share in the UK. This has enabled Lafarge Tarmac to offer up to standard customer care services while at the same time providing competitive products in the market. Companies may choose to enter into a mutual agreement that set the processes of their operations as they enter the industry through strategic alliances. Companies that enter into strategic alliance aim to enhance their mutual benefit and reduce the impact of direct competition that would otherwise be evident if they were operating individually. This form of agreement can be implemented where joint ventures and acquisitions are involved. According to Wilkof, Burkitt & Stothers (2005), trademark licensing is an understanding between the owner of the trademark and a company willing to use the trademark in business. Usually, such agreements provides for both parties to ensure that the image of the trademark is maintained through provision of quality products. This is an effective strategy that businesses use to penetrate the market and it allows new entrants to benefit from the image of the trademarked product. Companies can also choose to penetrate a market through a franchise. New entrants choose well established companies and use their trade mark name as well as processes in provision of services to clients. The owner of the franchise regulates the operations of the franchised business n exchange for a fee that is agreeable between the parties involved. Substantive growth strategies Horizontal and vertical integration According to Henry (2008) at the point when an organization needs to penetrate the market effectively, it can do so by expanding its business coverage or through acquisition and merger. In the event that the company decides to acquire another existing company, it can do as such in a manner that deliberately improves its present operations through vertical or horizontal integration. In the vertical integration plan, organizations extend by picking up control of their whole inventory network. This sort of combination can push the company ahead toward the end consumer, or in reverse toward the materials for products production. Vertical integration permits an organization to control the whole assembling procedure, from crude materials to the end product. This generally means better cost and quality control. When a company integrates horizontally, it procures or converges with different organizations that do the same thing. Horizontal combination permits an organization to venture into new domains without the high cost of starting a fresh, in light of the fact that a current, productive business is generally less costly than the expense of starting another business. Horizontally integrated organizations may profit by economies of scale. Related and unrelated diversification According to Witcher & Chau (2010) diversification is achieved when organizations target to benefit from multiple sources of income which are different. This can further be divided in to two, related and unrelated diversification. Related diversifications evident where company ventures into separate business that relate to each other closely. The merger of Lafarge and Anglo America can be classified as related diversification since both companies operate in the same industry. Unrelated diversification on the other hand is evident where a company engages in different businesses that are not related at all. Limited growth strategies Do nothing According to Thompson & Martin (2005), this is manifests when the management decide to stick to the pre-established strategies where else the condition would favour a change in strategies. This as a return limits the competitive advantage of the company in the industry. Market penetration This strategy involves focusing on the available market share and improving the processes involved to serve the customer better. This strategy however does not target on expanding the market share (Thompson & Martin 2005). Market development This involves upgrading and improving the appeal of the product so as to attract customers to the products. This strategy results to slow growth of the company, since only minor changes are made (Thompson & Martin 2005). Product development Companies that adopt this strategy aim to improve their product range so as to enhance their share among already existing clients. This strategy is meant to stimulate customer loyalty rather than increasing number of clients (Thompson & Martin 2005). Innovation This comprises of coming up with unique products that serve the market need effectively (Thompson & Martin 2005). Lafarge Tarmac is keen on innovating construction materials thereby making it a market leader. In order to remain relevant in the industry and have an advantage over new entrants, Lafarge Tarmac needs to continue innovating new products. Disinvestment strategies According to Sengupta (2006), companies that lose their market share result to retrenching products and employees to cut down the costs of operations. Companies may also choose to sell parts of its operations to other company resulting to acquisition or mergers. Companies may also choose to right size its operations by exiting the products that are not profitable as well as reducing the number of staff. If these strategies fail to be effective, the company may result to disposing all its assets through liquidation. Substantive Growth Strategy Lafarge Tarmac continues to enjoy a good market share in the business of provision of construction materials. The substantive growth strategy would be the most effective strategy that will enable Lafarge Tarmac to enjoy expanded coverage of its operations. With the over 100 quarries and 70 plants, Lafarge Tarmac already enjoys vertical integration of its operations. The acquisition of firms that operate at the same level such as Anglo American sets the company to unrivalled expansion and ultimate growth to the market leader position. 4.1 Assess the roles and responsibilities of personnel who are charged with strategy implementation at Lafarge Tarmac Table 4.1a – Provide theoretical evidence to support what strategy implementation would mean to the operation of the business Strategy Implementation Business Operation (The impact of strategy implementation on the operations of the Business) Culture According to Schein (2010), a culture that is well established will affect all the operations of the company. It is the culture of Lafarge Tarmac to offer proper customer service to its clients. The implementation of the substantive growth strategy will enable Lafarge Tarmac to acquire more outlets, therefore enhancing the interaction with the clients, thereby enhancing customer confidence. The strategy will also expose Lafarge Tarmac to a wider range of ideas and opinions. Lafarge Tarmac allows its employees to contribute their opinion in decision making process. The presence of more staff will mean that Lafarge Tarmac will have more opinions which will play a vital role in decision making. The research and development team of Lafarge Tarmac will benefit from the additional information from the staff of the newly acquired company. The information harvested will assist Lafarge Tarmac to come up with new innovations that will enhance solutions to the challenges in the industry Structure According to Aquinas (2010), organizations face a major challenge in coming up with effective structures that enhance productivity from all the levels of operations. The substantive growth strategy will expand the size of Lafarge Tarmac and therefore increasing the need for a comprehensive structure that will be able to manage the company effectively. The management of Lafarge Tarmac will need to change the organizational structure by creating other positions like regional managers so as to manage the company effectively. Creation of such positions will affect how tasks are allocated to the different departments. The company will have wider coverage and more employees working towards the same goal. Resource allocation will also change since there will be increased operational costs to cater for operations of the new regions of operations. Lafarge should be prepared to face rigidity in acceptance of the proposed structure from both its employees and those of the newly acquired company. Lafarge Tarmac should also assimilate the management team of the acquired company to positions that suit their status in order to enhance productivity. Systems When Lafarge merges operations with Anglo American, two operational organization systems will be in place. The challenge that the management will face will be to harmonize the system and enable Lafarge Tarmac to operate under one system. To achieve this, the management of Lafarge Tarmac will need to orient all the employees on the system to be used and the different processes involve in a day to day operation. Lafarge Tarmac will be better placed to adopt best practice from Anglo American and integrate them in the new system of operations. Table 4.1b Use the Strategy Practice Model to identify the roles and responsibilities of personnel who are charged with strategy implementation at Lafarge Tarmac and state which methods could be used to communicate the strategy Strategists (Who?) Activities (What?) Methodologies (Which?) Executive committee In charge of Lafarge Tarmac’s strategy formulation. Through goal setting, the committee will be responsible for managing the operations of Lafarge Tarmac and supervising the activities of the firm to ensure that functions are executed appropriately within the required systems and structures. Senior management team Responsible for interpreting strategies and setting procedures to be followed to achieve the organizational goal. The situational knowledge of Lafarge Tarmac will enable the senior management team to formulate operational policies that will best suit the position of the organization. Setting the procedures will enable the company to adjust to the new structures and implement the substantive growth strategy. Departmental heads The departmental heads will oversee implementation of company policies in their respective departments. The departmental heads will use their competency in communication to ensure that the company strategies and policies are well understood within their departments. They will conduct regular follow ups to ensure that the strategies are followed as stipulated. Regional Management The regional management teams will ensure that their regions operate under the company strategies. The regional managers will use their competency in communication to ensure adherence to company strategy in their regions. They will be responsible for maintaining a uniform company image across all regions of operations. Sustainability team The sustainability team of Lafarge Tarmac will work to ensure that the strategies implemented are sustainable and beneficial to the company. Through anxiety management, the team will be able to observe all levels of the company and take note of the challenges being faced so that they can advice the company on need for changing the strategies if need be. Table 4.2 Analyse the estimated resource requirements for implementing a new strategy for Lafarge Tarmac Type of resources required Access to / availability of resources Constraints/ obstacles that may affect the implementation Financial resources Lafarge Tarmac will be able to raise more funds for running the company from the merger. These funds will enable seamless operations of the company. Despite the funds being available, there will be challenges on how the funds can be accessed due to difference in systems of operations. Merging the two enterprises will create a conflict between the systems to implement in Lafarge Tarmac’s operations. This might take substantial time before finally agreeing on the most effective system to adopt for the whole company. Such cases stand to create delays in operations. According to the case study, it took Lafarge Tarmac two years to be efficient in operations since merging the two companies. Management skills Merging the two companies will provide Lafarge Tarmac with huge management experience and skills. The two management teams from both companies will be able to brainstorm and come up with the best strategies to implement in the company. There might be challenges and supremacy battles among the management team of the two companies. Some managers may feel superior that those of the other company. This might frustrate some member of the management team and affect their overall performance. Work force The merger will enable Lafarge Tarmac to cover large geographical areas; this will mean that Lafarge Tarmac will need to have a large number of staff in order to perform effectively. Both companies that merge will provide the staffing needs of the formed company. These staff will be best suited for the job since they understand the operations and the industry well. Having many staff will affect the financial position of the company when it comes to paying salaries and wages. Lafarge Tarmac will have to ensure that there is optimum productivity from the staff and high return on investment in order to be sustainable. Operating space With the many staff on board, Lafarge Tarmac will need to have sufficient operating space to ensure that the staffs are able to perform effectively. The assets of the two companies will provide this to the staff. The wide coverage of the merger will necessitate the management to conduct regular site visits. This will increase the cost of operations for the company. It will be in proper for Lafarge Tarmac to place regional directors who will spear head of regional operations and report to the top level management. This will reduce the time and resources needed to conduct frequent site visits. 4.3 Evaluate the contribution of SMART targets to the achievement of strategy implementation in Lafarge Tarmac Targets (corporate, operational & individual) to be reviewed and evaluated SMART principles (specific, measurable, achievable, realistic and time constrained) Tool of evaluation/control and its suitability to evaluate/control the target Corporate Lafarge Tarmac targets to be the market leader in the construction industry by commanding a large market share. This is made possible through the merger of the two companies Lafarge and Anglo American. This can be evaluated through income analysis as well as evaluating the number of clients that Lafarge Tarmac serves in relation to the clients in the market. Operational Lafarge Tarmac prioritizes the provision of up to date customer care including dialled deliveries so as to be efficient in serving the customers and encourage customer loyalty. Innovating new products ensures that Lafarge is able to satisfy the needs of its clients in the dynamic industry. This can be measured by conducting customer satisfaction surveys as well as evaluating the number of repeat clients. The management can also evaluate the time take to attend to a client. Individual Lafarge Tarmac focuses on individual well being by ensuring safety in the workplace as well as adopting the use of employment strategies that result to job satisfaction among the company staff. This can be evaluated by analyzing instances of accidents and injuries in the workplaces. Job satisfaction can be evaluated by evaluating the rate of staff turnover. Reference List: Graham, J. R., Smart, S. B., & Megginson, W. L. (2012). Introduction to corporate finance Australia, South-Western/Cengage Learning Kaplan, S. (2012). The business model innovation factory: how to stay relevant when the world is changing. Hoboken, New Jersey, Wiley Stahl, G. K., & Mendenhall, M. E. 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