CRH the Strategic Positioning and Direction - Essay Example

The Strategic Positioning and Direction CRH Plc the Dublin based construction company is structured into three production sections namely: Materials: the manufacturing sector that produces cement, aggregates, asphalt & readymade mixed concrete; Products segment: concerned with the manufacture of concrete merchandise & assorted construction-allied goods & services and; Distribution: occupied with the promotion, supplies and trading of the products to the construction industry and the do-it-yourself (DIY) market (Maroney, 2007). CRH stratagem has mainly been structured along the following modules: Investment in fresh growth areas. Establishing fresh products and markets. Acquisition of mature mid-sized firms in addition to periodic acquirement of larger firms. Figure 1: CRH Divisional Segments Source: Own Notes CRH through its core business of building material products has positioned itself as a market leader by acquiring promising established firms in diverse markets both locally and globally. The firm has also evolved a stratagem of varying its expansion in varied geographic, merchandise and diverse sectors hence spreading or securing a financial stability from the different regions while offering expansion prospects. This has enabled the firm to surpass other companies within the same industry through its unique competitive advantage. In this regard, CRH acquisition or expansion unto the US market has greatly propelled its growth as the region has become its main growth market from the 1990s [See Figure: 2]. Nevertheless the domestic Irish market has been dominated by CRH with a 60 percent share of the cement market that generates a 40 percent return on net assets reflecting the vibrant Irish building segment and minimal mechanized company tax at 12.5 percent and the profoundly devalued chattels. Figure 2: CRH Market Distribution Source: Maroney (2007) Pg. 721 One of CRH’s management stratagems is the operation of a federal structure consisting of undersized core home office and four regional product oriented segments. CRH has thus encouraged autonomous management utilising local market familiarity of the local managers to take advantage of local market knowledge while maintaining a tight leash on company guidelines and rules. The U.S. Office of Personnel Management (1999) advocates the application of the Balanced Scorecard framework to evaluate various growth sectors in an organisation. This encompasses a transformation stratagem into functioning conditions by evaluating a complete assortment of perceptions including: financial, clients, in-house, and information and development (U.S. Office of Personnel Management (OPM), 1999, p. 25). CRH uses a similar strategy by closely monitoring its various divisions and regions (Maroney, 2007). CRH espouses a thorough move towards projects appraisals, progress and reassessment. The dual focus of performance and augmentation has been reinforced in the autonomous entities. The use of prescribed and interactive strategic plans, usually specific five year plans was enforced. Stretch targets have been set for pecuniary and functioning production process hence enabling early essential appraisal of any underperforming projects thus sanctioning appropriate assistance faster and appropriately. Benchmarking and best practice measures were entrenched through sustained enhancements including re-engineering products to yield higher returns mainly through enhanced competency. From the peer comparison with similar public listed construction firms in the industry at the NYSE [See Table:1], CRH demonstrates a strong market position with favourable market capitalisation, second overall ($14.5 billion) and enviable growth rate (16.47 percent) and high return on investment (16.28 percent) (Ockham Research, 2009); (YahooFinance, 2009); (GoogleFinance, 2009). Table: 1- Benchmarking CRH has maintains a small core pool of skilled managers drawn from the company’s own development and also from the acquired companies. Maroney (2007) ascribes this management strategy to CRH’s skill, dependability and durability. Bratton (2003) argues that strategic human resource management requires both ‘formal and informal learning’ to reinforce an organisation’s ‘core competencies’ which will underpin its competitive advantage. Maroney describes this as ‘CRH’s market-driven, performance-related remuneration policy aimed at creating shareholder value’ (Pg.724). The company has underlined this by reinforcing training, amiable remuneration policies including share options for key managers, minimal turnovers, regular change and promotions (Pg.722). CRH has thus managed to integrate its human resource management policies as espoused by Beer et al (1984) within its business strategy. Bratton describes this stratagem as having HRM ‘strategically integrated’ in the organisation (Pg.12). Beer et al (1984) argues that ‘An organization’s HRM policies and practices must fit with its strategy in its competitive environment and with the immediate business conditions that it faces’ (Pg. 25) Style and Culture of CRH’s Corporate-Level Management CRH has maintained a federalist style of management by establishing regional product oriented divisions and core group comprising of less than a hundred personnel at its company headquarters in Dublin. This core group manages the company’s finance and business development functions. CRH has maintained an annual Development Forum for selected new and skilled employees including a Leadership Development Programme (LDP) instigated in each division. Among the programs learnt were approach, individual growth and networking. Similarly a Business Leadership Programme (BLP) encompassing four divisions and company head office trained skilled managers for leadership positions. Strategic management aspires at directing, motivating and assisting individuals, both within and outside the organisation. It also requires individuals to make between main objectives, the realization of which necessitates specific strategies. Bratton (2003) describes strategic formulation as the process of ‘evaluating the interaction between strategic factors and making strategic choices that guide managers to meet the organization’s goals’ (Pg. 41). This process takes place at the ‘corporate, business and specific functional levels’. McLaughlin & Clark (1988) likens the issue of making a strategic choice to a political decision as the firms weighs in how to allocation of power within the company. Communication and instruction prospects have been entrenched within the organisations, as the firm’s acclaimed external associations are reflected in the diverse communication tools. This done using various forums or bulletin boards, training and encouraging messages like ‘right to grow’. According to CRH’s Annual Report of 2005 quoted in Maroney (2007), the ‘culture of performance and achievement’ running through the organisation is its principal potency (Pg.8). Well established unofficial networks run through diverse regions enforced by frequent transfers of managers, interaction in training seminars, benchmarking and best practices performance. Hansen et al (1999) and Mentzas (2001) stipulate the edict of ‘knowledge as a product’ whereby information and skill is positioned and maneuvered as an autonomous entity, hence an organization is able to gather, dispense, quantify, and control the information in a ‘content-centered’ or ‘codification’ approach. Strategic Management Planning Greater performance at CRH Plc has been attained through the following schemes: • Creating regional management posts • Constantly enhancing active procedures and; • Creating fresh merchandise and markets by means of keenly affected acquirements. Acquisitions CRH an Irish building material group formerly known as Cement Roadstone Holdings listed at the Irish Stock Exchange (CRH.I), London Stock Exchange (CRH.L), and the New York Stock Exchange (NYSE) was formed in 1970 from the merger of Cement Ltd (created 1936) and Roadstone Ltd (1949). The company has since acquired several other companies notably Tilcon from United States in 1996, Ibstock UK in 1999, four US companies for €251 million in 2007 namely: Conrad Yelvington Distributors Inc. (CYDI), Eugene Sand & Gravel, Cessford Construction and McMinn's Asphalt and Prospect Aggregates and US Pavestone Group for €348 million as well as Indian cement concern My Home Industries Ltd. for €290 million in 2008. CRH operations are spread in 26 countries across 3,000 locations while employing over 80,000 people in its main corporation and its over 1,000 other subsidiaries (WrightReports, 2009); (Trading Markets, 2008); (Maroney, 2007). CRH Plc building materials firm has emerged as one of the top five in the industry globally with a market capitalisation of €16.6 billion by the close of 2006. According to Moroney (2007) CRH investments since its inception has had a 20 percent equity return turnover accumulated within a hostile market environment whereby its main corporate strategy has been ‘acquisition-led expansion’ (Pg.718). Tactical Positioning CRHs tactical vision states that ‘be a responsible international leader in building materials delivering superior performance and growth’ (CRH Annual Report 2005, Pg.1&2). The firm aims at seeking innovative geographic positions in its mainstay production and gain benefit of corresponding merchandise prospects sequentially to realize strategic equilibrium and institute manifold platforms from which to convey performance and development (Maroney, 2007). Figure 3: CRH Plc Share Earnings and Dividends Growth Source: Wrightreports.com CRH Plc produces and distributes heavy building materials including: cement summative, asphalt, ready-mixed concrete, farming and compound lime, Do-It-Yourself (DIY) materials, insulation, glass and security products. Other products comprise of lighter materials including plumbing, heating, electrical, and illumination materials. The firm is therefore engaged in new construction projects encompassing residential, industrial and public works as well as repair, maintenance and improvement (RMI). Table 1: CRH Sales Growth and Acquisitions 1970 1980 1990 2000 2006 2007 Sales (€Bn) 26m 0.4 1.7 8.9 18.7 20.0+ Countries 2 5 7 19 27 28 Source: Research and Markets (2008) According to Harrington & Cunningham (2009), the challenge for Irish businesses is to shift from its overreliance on construction to international enterprises as well as changing management strategies. Harrington & Cunningham argue that modern managerial practices require leaders to go beyond providing ‘planning, leading, organising and controlling’ to become facilitators. Goffee et al (2007) stress that for effectual management of people in a company; it necessitates a consideration of incentives, work arrangement, recompense schemes, and group demands. As part of strategic planning and managing people, Baldwin (2009) argues that a manager should first ensure that they groom employees to take up other duties other than the accustomed ones. This guarantees the avoidance of the ‘Peter Principle’s’ whereby once an employee is promoted to an elevated position fail due incidences lack of preparation or inability to meet the responsibilities required. To avoid such scenarios, Baldwin suggests that a leader or the company should first assess the skills and knowledge needed to succeed in the post by identifying the correct attributes for the right candidate. This includes the strengths and weakness of the potential candidates hence may need to mould the individual staff to conform to the required standards of the position (Baldwin, 2009). Corporate Culture Conversely Arnold (2002) attributes a company’s growth variance to systematic market influence (over 50 percent), industrial influence (13 percent), and the balance due to the firm’s own performance. The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce identifies several economic indicative parameters to discern a firm’s stock performance (Arnold, 2002) [See Table: 2]. CRH Plc has maintained a corporate culture that emphasizes on teamwork and empowering employees for enhanced performance and growth. Similarly the company has made social responsibility a long-standing commitment hence ‘make people feel good about dealing with the company’. The company has also encouraged an entrepreneurial spirit of risk taking from the autonomous regions and division to tap in natural talent through the locally engaged staff. Table 2 Source: BEA 2002 Recommendations The current global recession which was occasioned by excessive and careless lending policies particularly in the housing sector offers a major challenge to CRH’s growth objectives. This has led to a marked slowdown in the building sector as the credit crunch impacted on the construction industry in the developed countries where CRH has major market presence in the US and EU countries. Nonetheless, CRH has actively expanded in the new growth markets of India and China through strategic acquisitions: My Home Industries Ltd in India and Jilin Yatai Group operating in the Heilongjiang region where it has established a cement factory (Trading Markets, 2008). CRH must therefore maintain its core strategy of periodic geographical acquisitions that will enhance its market position while augmenting the corporation’s development strategy. This can be actively achieved in a five year period. The economic slowdown in the developed countries necessitates the firm to push for more impetus and growth in the newly emerging markets. In strategic management modules, MindTools.com (2009) propagates the use of a Stakeholder Management Technique as an effective method of managing all the people who are affected by your decisions. CRH Plc can utilise this technique to tactically engage the significant stakeholders in the building industry for a more pronounced strategy within the autonomous divisions and regions. This enables you win their support by first analysing the diverse stakeholders and then planning on how to cultivate their support thus applying a stakeholder-based approach. Can be achieved by CRH immediately. Figure 3: Power/Interest Grid for Stakeholder Prioritisation Source: MindTools.com The stakeholders concept advocates for classifying your stakeholders on a Power/Interest Grid (See Figure: 3), hence identifies how you relate with the different stakeholders to have an equilibrium relationship that advances your interests. The specific position on the grid therefore depicts the actions you take with the person. The individual’s position on the grid shows you the actions you have to take with them. Most companies regard their human resources talent as their greatest asset and for an organisation to succeed; managing the people within the firm will require great perspicacity by the management. At CRH, the company leadership seem to have adhered to these principals by integrating learning schemes and encouraging internal communication. Lindner (1998) advocates for a blend of systematic bundling of benefits, including career enhancement, progression, internal and external stipends, and non-financial rewards. Gamez, el at (2006) depict HRM strategies as a multiple-step process a manager undertakes towards achieving the desired objective. These are voluntary choices and cannot be enforced though maybe inspired by the employee’s management through properly infused performance management systems. The lack of a positive attitude has been attributed to generating negative emotions within the organizations ranks as employee become de-motivated leading to massive absenteeism and illnesses that impact negatively on many lost working hours and medical insurance expense (Fredrickson, 2003). CRH must enhance the firm’s HRM strategies to greater strength through more focussed training schemes that not only encompasses the firm’s managers but also the line staff for more effective operations. A continuously process achievable immediately. Figure 5: CRH Proposed Growth Strategy Contemporary organizations have come to value the crucial importance of customer service to their continued survival. Firms with good customer oriented policies are able to able to maintain client royalty albeit the current fierce competition. The release of correct, regular and appropriate product information to workers, clients and providers across all channels is one of the fundamentals in retaining and acquiring new clientele. CRH Plc must sustain its drive for improved client service in face of the shrinking markets in its traditional strongholds of North America and Europe while extending the same decorum to the emerging growth markets of Asia and Latin America. The company’s amicable internal communication should be maintained while evolving modern technological innovations to advance the contacts. This can be implemented within a three year period enhanced continuously. To survive in the market, Porter’s (1985) indicates three generic strategies in form of: a differentiated product or service; lowered cost; and, or concentrating on a specific market sector. CRH is already uniquely placed to exercise innovative products due to its long association in the market, lower cost price as opposed to the costly entry cost of competitors, and may concentrate on one specific sector like power generating or just mere supply. This strategies may reduce the production costs hence enhance financial efficiency. CRH must implement an efficient IT system with proficient technological equipment and systems that assist in the acquisition, preservation, and propagation of the information. The system adopted must incorporate the financial, operational, and the strategic sectors. However the major challenge will be to leverage the system to exploit the organisations competencies to create a competitive advantage. A good system provides proper strategic information for planning and budgeting while ensuring company revenues are objectively analyzed. This strategy can be achieved within a five-year period. Figure 4: Industry Distribution Source: Maroney (2007) Pg.721 Conclusion CRH Plc has managed to progress substantially through well executed of geographical acquisitions of vital companies as well as developing them equitably. The strategy of maintaining a mean core team in their central offices in Dublin, Ireland while expending almost free reign to the autonomous regions and divisions has worked amicably for them. This has been enhanced through periodic training and open communication within the organisation. To sustain the momentum, CRH must adhere to these objectives while incorporating new measures including diversifying from their core construction market to other areas like telecommunication, transport among others. CRH should also encompass training for all staff and ensure incorporation of innovative new technologies in the firm to enhance efficiency [See Figure: 5]. References Arnold, G (2002) Corporate Financial Management 2nd Ed. London: Financial Times Pitman Publishing Baldwin, M D (2009) Are You Promoting Your People Wisely? CSSP.com: Simplified Strategic Planning, Inc. Beaumont, M C (2003) Strategic Management of Suppliers: An Australian Case Study. Sydney: Faculty of Business and Economics. Beer et al (1984) Managing Human Assets, Pp. 25. Bratton, J. (2003). Strategic human Resource Management. Air National. Constructiondigital.com (2008) CRH to Buy Pavestone Group for €348 million. Retrieved December 12, 2009, from Constructiondigital.com: CRH (2008) CSR Report 2007 - Sustainable Performance and Growth. Dublin: CRH; Corporate Social Responsibility Cunningham, D H (2009) Irish Management 2.0: New Managerial Priorities in a Changing Economy. 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