STRATEGY CONCEPTS AND APPLICATIONS ASSIGNMENT Submitted by- MODINA MONIR SAFA Submitted to- JIM MILLIGAN Submission date-21-01-2011

WORD COUNT: 2560 (Exclusion of cover page, table of contents, refference, appendix )

TABLE OF CONTENTS PAGE NUMBER EXECUTIVE SUMMARY.. INTRODUCTION OBJECTIVE CORPORATE MANAGEMENT . MAJOR COMPETITORS OF CRH ANALYSIS .. SWOT . PEST FIVE FORCES INDUSTRY . BCG 1 1 1 1 2 2 3 4 4

UPWARD SPIRAL OF CREATIVE BUSINESS .5 FACTORS BRINGING CHANGE TO CRHS INDUSTRY CONCLUSION 6 6 7 8 9

RECOMMENDATION . REFFERENCES APPENDIX .

Executive summary:In strategy concepts and applications module assignment I have critically evaluated the competitive position of CRH through the use of positioning tools such as PEST, SWOT, BCG, Five forces industry analysis .i have also identified the driving factors which bring change in the industry. after evaluating all the analysis and factors I have recommended some future strategic options on the basis of relevant theories and frame work for CRH to remain competitive .i have put emphasis on its business portfolio composition and product market relationship. through this whole report the current competitive position of CRH and future options are highlighted. The strengths , weaknesses, threats, opportunities, political, economic ,socio cultural factors ,industry analysis through all these the analysis has been done.

Introduction:CRH plc was formed through a merger in 1970 of two leading Irish public companies, Cement Limited (established in 1936) and Roadstone Limited (1949). The newly formed group was the sole producer of cement and the principal producer of aggregates, concrete products and asphalt in Ireland. In 1970 CRH had sales of c. 26m, 95% in Ireland. CRH is an Ireland-based global holding company that manufactures and distributes building materials in the United States and throughout Europe. The head quarter of CRH is in Dublin, employed 80000 people in over 1000 subsidiaries in more than 3000 locations in 26 countries .The firm operates three segments: materials, products, and distribution. The materials segment produces cement, aggregates, and asphalt. The products segment makes a variety of materials such as concrete and architectural glass. The distribution segment supplies roofing and interior construction products. CRH was awarded for financial reporting , investor relations, and excellence innovation in environmental and safety practices.

Objective: the objective of CRH is to maintain and developa balanced portfolio across regions, products and construction sectors. CRHs strategic vision is to be a responsible international leader in building materials delivering superior performance and growth. The groups strategy is to seek new geographic platforms in its core businesses and to achieve strategic balance .

CORPORATE MANAGEMENT:The corporate management of CRH was strong and under control. integration management of CRH was decentralized, coordinated and standard.

Major competitors of CRH:1. LAFARGE COPPEE S A:

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The company is one of the world's top makers of cement, aggregates, concrete, and gypsum (alongside such heavyweights as Holcim and CEMEX). Cement accounts for about 60% of the building materials supplier's sales. Lafarge gypsum products (about 10% of sales) include wallboard, plasters, and insulation. The company has more than 2,000 plants operating around the world. Lafarge's growth strategy is to shift focus from Western Europe and North America to emerging markets such as Africa, the Middle East, Asia, Central Europe, and Latin America, which now account for more than half of sales. 2. CEMEX SAB DE CV:-3rd The building materials company is one of the top cement makers in the world (along with Lafarge and Holcim). The majority of its sales come from cement; the company has more than 60 cement plants and an annual production capacity of more than 95 million tons. It also produces, markets and distributes ready-mix concrete, aggregates, and clinker (an intermediate product used to make Portland cement). CEMEX operates in North America (through CEMEX Inc.), as well as in Africa, Asia, Europe, the Middle East, and South America. The US, Mexico, and Europe account for about 80% of revenues.3. HOLCIM LTD Profile

Holcim is one of the world's largest cement makers (along with CEMEX and Lafarge) with an annual production capacity of approximately 200 million tons. The company operates in some 70 countries around the world; its international subsidiaries include Holcim (US),St. Lawrence Cement in Canada, Aggregate Industries in the UK, Holcim (Australia), and Holcim Apasco in Mexico. Although geographically diverse, Holcim sticks to the basics when it comes to products: cement, clinker, concrete, aggregates, and lime. The company also offers research, import/export trading, consulting, and management services for the construction industry.

Analysis:In the combination of Pest and Swot analysis which reveals driver of change in an industry. Five forces analysis can reveal insights about potential future attractiveness of 2

industry. through this whole report after analyzing Swot ,pest BCG and five forces analysis some driving factors are identified which bring changes in its industry .and also some strategic options are offered to remain competitive and to continue its unrivalled growth. SWOT: Some major strength are mentioned hereSTRENGTH: The major strength of CRH enjoying 36 years of unrivalled growth and performance should be continued in the long run to hold its position in building material industry.

two characteristics of CRH product/service portfolio is leadership and deliberate geographic balance of product and segments which smoothen the effects of varying economic conditions and provided greater opportunities for growth. CRHs approach of project evaluation, approval and review should be more focused. For achieving continuous success. an other most important strength of CRH is that cash earnings were two third higher than reported EPS. This is a major factor which enabled CRH to achieve its strategy acquisition led expansion overseas.

Weakness: the finance functions of CRH was conservative. So, CRH should change it as evolutionary change. Technology is non proprietary as due to high transportation cost, economies of scale became outweighed .so, to have larger economies of scale its technology should be protected by patent, copyright.

Opportunities;

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To remain competitive in building material industry CRH should adopt the opportunity of development of new plants, capacity extension and major upgrades. To expand its business into different regions it should keep the balance between different geographic segments.

Threats; CRHs expectation of earning 15% return on assets is a threat for CRH as they were not able to achieve their target. So, CRH should have correct estimation of RONA to sustain development.

Pest analysis: Economic factors -due to being in mature stage CRH enjoyed stable economy. -balance in segmentation of different geographic areas. -high value ratio results high transportation cost which affect its economy . Political factors:

1.irish operation under the CRH portfolio had a low rate of manufacturing corporation tax(12.5)% 2.due to often change in position of managers corruption became low, as job description were flexible. Which affects its political environment. Technological factors: -standard product and market affect its technology. -utilization of communication technology -use of technical advisors at divisional level. these factors affected CRHs competitive position. Socio cultural factors: -harmonization of customer needs. -acquiring professionals from different regions. These factors are affecting CRHs culture.

5 forces industry analysis:4

1.Threat of established rivals: After analyzing I came to know the threat of rivals are low for CRH. So, it is a big competitive advantage for CRH. 2.Threat of new entrants: CRH has high threat of new entrants. So ,it should focus on the common forms of new entrants to reduce all these factors. 3.Threat of substitutes: As the threat of substitutes for CRH is high it should produce differentiated product to reduce this threat. 4.Bargaining power of customers: CRH has low bargaining power of buyers which a competitive advantage for CRH. 5. Bargaining power of suppliers: It is also a competitive advantage for CRH as bargaining power of suppliers are also low. BCG: After analyzing BCG of CRH i came to know which products and materials are profitable for CRH and would help CRH to maintain its competitive position. STARS: U.S asphalt ,US concrete products US architechtural glass fabrication etc which are stars means they have high growth and high market share. So, CRH should invest more in these products and materials as they are enjoying a number 1 .position in an industry QUESTION MARK: US aggregates, US interior product distribution are question marks which market growth rate is high and market share is low. . They are enjoying number 3 or 4 position in an industry. CASH COW: ready mix concrete (America) are cash cow enjoying number .6 position in an industry

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UPWARD SPIRAL OF CREATIVE BUSINESS:I have related the concept of the fim matters with CRH. upward spiral of creative business 1.internal change and growth in profitsInspite of small size and limited scope ,headquarters drove the development and integration of CRH through formal and informal mechanisms. FORMAL MECHANISM: Strategy was reinforced by rigorous measurement, evaluation and control processes. CRH also adopted management development system to develop the critical experience base of managers. The adopted programs are the management seminar, the development forum, a leadership development programme (LDP1), the business leadership programme (BLP) INFORMAL MECHANISM: CRH continually reinforced its core values in formal statements of strategy , in external and internal communications and through corporate folklore. 2.merger and internal growth: CRH was formed in 1970 following the merger of Irish cement and Roadstone , an Irish building material company through three major phases of development. -organic market penetration in Ireland. -acquisition led overseas expansion. -product focus, larger acquisition. 3.More change: CRHs geographic , product and segment balance which smoothed the economic conditions and provided greater opportunities for growth. The continous improvements was relentless. 4.greater profitability: CRh had a strong and consistent track record of financial performance. CRH enjoyed a premium of 2 % in the bell weather return on capital employed ratio. Cash earnings were two thirds higher than reported EPS which is the major factor enabling CRH to fund its acquisition led expansion overseas. 5. number one position:

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From 1978 to 2006 CRH completed around 620 deals, spending over 13.5 bn over 90%in the period since 1995. CRH has the best track record of its peer group.of growing returns through acquisitions. it was estimated that acquisition accounted for 70%of CRHs profit growth . As a result, with the passage of time it will be in number 1 position .as it is already in position of top five building material companies.

The factors bringing change to crhs industry:Below some internal and external factors are mentioned which bring changes in CRHs industry. It can also named as drivers of industry development. Internal factors: . close operational control ability to react to change. instead of small size and limited scope ,head quarters drove the development and integration of CRH through a variety of formal and informal mechanisms such as reinforced strategy by rigorous measurement ,evaluation and control, flexibility of hierarchy and job description which is internal driving factor small team of experts at local, regional and international levels facilitated by technical advisors which resulted in highly innovative ideas exchanges of products. External driving factors: .local contacts personal service. acquisition lead expansion of medium sized firms. focsed on overseas expansion. focused on from product and from medium to larger acquisitions. after the formation of CRH in 1970 the three major economic drivers are organic market penetration, acquisition led overseas expansion and focus on product and laregr acquisition which is economic driver. CRHs deliberate geographic ,product and segment balance which smoothed the effects of varying economic conditions and provided greater opportunities for growth.

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. from 1978 to 2006 CRH has the best track record of its peer group.of growing returns through acquisitions. . a major factor which enabled to acquire its strategy acquisition led expansion overseas.

Conclusion:if I relate CRHs current competitive position with the stages of lifecycle of a company ,it is clear that CRH is now in mature stage. As its high growth rate , unrivalled growth, stable market, customers homogenizing needs, market capitalization, experienced managers all of these factors are the indicator of its industry evolution stage. as we know there are 4 stages of life cycles-introduction, growth, maturity and decline. So, being in the 3rd stage to remain competitive in the building material industry and to achieve its objective CRH s competitive positioning is very much important. for this some positioning tools are used in this report. -SWOT, PEST, BCG, FIVE FORCES ANALYSIS. On the basis of these tools some future strategic options are recommended to hold its position in the long run.

Recommendation:After analyzing all the forces above I would like to recommend some strategic options for CRH regarding its business portfolio composition and the product market relationship to remain competitive. Firstly I will explain business portfolio composition. Which means in which area CRH should continue its businesses. in CRHs business portfolio two market stood out which were main driver of growth since early 1990s US market operation and Irish market. CRH should invest more in this two markets because according to analysts estimation 40%return on assets for the groups Irish operations reflected CRHs 60 % share of the cement market on total island of Ireland. moreover. in Irish construction, a low rate of manufacturing corporation tax. CRHs federal structure comprising a small central headquarter and four regionally focused product 8

divisions should be continued to capitalize on local market knowledge and a high degree of individual responsibility to operational managers. The repair maintenance and improvements (RMI) sector is basically greater than the half of the total output. it has the ability to recover quickly .so, CRH should increase investment in this sector.

Next I will focus on product market relationship. Here market segmentation and market concentration will be described. Through market segmentation CRH can address the need for a product or service that is not being provided by any other production. In market concentration there are manufacture and distribution of primary materials, heavy side building products and materials and light side building products and materials. In CRH primary sector was more concentrated and products and distribution were less contributed. Some more future strategic options are given below to remain competitive: in 2007 though the housing was slow in USA and IRELAND it should invest more in this sector as its overall impact on CRH was around 10%of sales, and was offset by growth in other sectors of activity. Cash earnings were consistently around two-thirds higher than reported EPS a major factor enabling CRH to fund its acquisition led expansion overseas. So, to achieve its strategy of acquisition CRH should maintain this earning. Hierarchy and job descriptions were highly flexible but not in POLAND .so, it should implement this in POLAND. Continouos improvement factors should be continued for further future success. such as- market driven policy, remuneration policy, the restless culture of performance and achievement, Buying industry has high profitability than supplier industry .so, to overcome the threat as a supplier company CRH should try to focus more on supplying industry. as US operation in CRH portfolio resulted average returns and remarkable low volatility .so, it should invest or expand more in US .

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The major strength of CRH enjoying 36 years of unrivalled growth and performance should be continued in the long run to hold its position in building material industry. due to low competition in this industry there is also existence of low barrier entry. CRHs approach of project evaluation, approval and review should be more focused. CRH should also be remain same in structuring the management team as before. it should also maintain external and internal relations CRH should have a framework for forecasting evolution. It should adopt evolutionary change. Like through acquisition long run changes in growth, accumulation of experienced professionals , product innovation etc. CRH should use communication technology as opportunity to achieve operational best practice.

References:http://biz.yahoo.com/ic/91/91789.html http://www.dailyfinance.com/company/lafarge-coppee-sa/lfrgy/nao http://www.linkedin.com/companies/cemex http://www.cemex.com/ http://www.crh.ie/en/our-divisions.aspx

Appendix:5 forces industry analysis: 1.Threat of established rivals: 10

The degree of rivalry determines the industry attractiveness .the attractiveness is most likely to be high in those industries where the threat of substitutes are present as crh has fragmented market , there are large number of buyers and suppliers. So , they compete mainly on the basis of price .moreover , building materials and products are largely commodities with little differences between suppliers. Building materials and products are of similar standards and largely stable. so, the threat of rivals are not high in this industry. CRH celebrated 36 years of unrivalled growth and performance since the formation of group in 1970. After the interruption of EU , there were new rules and regulations, customers base was starting uniting and customers need were also homogenizing but still in this industry market fragmentation was present. So , CRH did not face so much threat of rivals. 2.Threat of new entrants: Both potential; and existing competitors influence average industry profitability. the threat of new entrants is usually based on market entry barriers .they can take diverse form and prevent an influx of firms into an industry. when entry barrier exists it is difficult for an outsider to replicate the competitors position. Economies of scale: In this industry production is often linked to the location of reserves. in CRH due to the high transportation cost it will charge high price as a result economies of scale is outweighted. Which determines the radius of economic activity become half. Cost of entry: Cost of entry is determined by how much an organization is paying to enter in an industry.as in building material industry the market is fragmented and because of undifferentiated product the competitive rivalry is low. Most importantly, here technology is not protected by any kind of trade mark, patent.so, the cost of entry is low as aresult any firm can enter in to this building material industry.

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Cost advantages: Is not related to the size of firm but on the context of its industry.so, in building material industry any other firm can enter. CRH should lower the threat of entrants by reducing price, achieving cheaper inputs ,use of efficient process, better technology and experienced professionals. most importantly CRH can reduce cost advantages through acquisition. Differentiation; : When there is a differentiation in a market an organization is dealing with certain brand which cant be adopted by competitors. as CRHs products standard are most similar and not differentiated so the threat of new entrants are high.CRH should focus on differentiation to lower the threat of entrants and remain competitive. Government regulations. If there are so many restrictions rules and regulation imposed by government then it will weaken CRHs competitive position. 3.Threat of substitutes: CRH products are commodities and are undifferentiated. Switching cost is low so customers can easily shift towards the substitute product. All competitors are offering homogeneous products; products are similar across the market. So thats why threat of substitute products and services for CRH is high.

Factors influencing threat of substitute product: Substitutes are a greater threat when: Your product doesnt provide any real benefit compared to others product. It is easy for customers to switch

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Customer is little loyal. When price is customer's primary motivator , the threat of substitutes is greater. Threat of substitute for CRH is high as all these factors are according to CRH situation.

4.Bargaining power of customers: Bargaining power are relatively high when there are few but larger player in market and when the cost of switching between suppliers are low .as I have stated above CRH has fragmented market so there are no dominant buyer and suppliers and substitutes are available, customers are fragmanted.as a result, bargaining power of buyers are low. 5.Bargaining power of suppliers: It is a mirror image of buying power. Analysis of supplier power is focus on relative size and concentration of supplier relative to industry participants and on the degree of differentiation in inputs and supply. Supplier of inputs may be able to charge prices that extract profit from their customers CRH market is fragmented there are large number of suppliers rather than a dominant one. All the firms are offering homogeneous products as products are available to a large number of suppliers so bargaining power of supplier is low. As there is large number of suppliers and if one supplier is charging high then firm can move to other suppliers and can negotiate for a favorable business deal. So supplier power is low.

Swot analysis: Strength;:STRENGTH CRH plc enjoyed 36 years of unrivalled growth and performance which is its major strength. During the period of 1970 to 2006, CRH had metamorphosed from a local player

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to one of the top five building material companies in the world with global operation and market capitalization of 16.6bn at the end of 2006. Another strength of CRH is that even in notoriously hostile industry environment it achieved a great success. Production of CRH is linked to location of reserves of varying value which lead to a proliferation of facilities and lower barrier to entry. CRH received awards over the years due to good financial reporting, investor's relations and excellence in environment and safety practices which is also one of its strength. two characteristics of CRH product/service portfolio is leadership and deliberate geographic balance of product and segments which smoothen the effects of varying economic conditions and provided greater opportunities for growth. US operations which stood out in CRH portfolio resulted above than average returns and remarkable low volatility. CRH adopted a rigorous approach to project evaluation, approval and review. CRH established a stretched target for operational and financial output measure. CRH used to measure performance formerly and on time which allowed early critical review of underperformance to identify reasons and made corrective measures and enable senior management to draw broader lessons. Another strength is that it continuously work on improvement and reengineering its products and services to get a high returns or profit through greater efficiencies. As a result of continuous growth and relentless stream of acquisition, pools of managers had increased to 350. CRH used to hire operating managers, experienced finance and development professionals, owner entrepreneurs from

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acquired companies to develop a healthy mix and depth of skills. The most strengthen characteristics of CRH management is experience, stability and continuity. CRH adopted market driven; performance related remuneration policy aimed at creating shareholder values, formal and informal mechanisms which resulted continuous success, low turnovers/rotations and promotion of employees. CRH had a strong and consistent track record of financial performance. 2006 represented the 23rd consecutive year of increase in dividend, CRH had experienced only two relatively short periods of declining earning per share. CRH's level and consistency of performance was also superior to its peers internationally. The characteristics of CRH finance function is extensive business knowledge and operational contribution, diligence conservatism and prudence. Due to these CRH achieves prominence in financial markets. Cash earning were two-thirds higher than reported EPS, this is a major factor which enabled CRH to fund its acquisition-led expansion overseas without compromising its financial principles. CRH strategy was reinforced by rigorous measurement, evaluation and control processes and by value added business contribution and advice of finance function; it ensured early intervention and appropriate corrective actions. CRH operated a group wide management development system to develop the critical experience base of managers, when they are 20s and 30s. CRH achieved excellence in external and internal relations. The culture of CRH is its key strength. CRH continuously reinforced its core values in formal statements of strategy not only internal but external communication and through corporate folklore. 15

CRH acquisitions were add on in

nature. CRH strategy of acquisition was singular in conception and execution and had proven very difficult to replicate. CRH adopted a post acquisition approach resulted high returns. CRHs strategic position was clear, durable and long lasting. CRH had internal audit to assure that it add value to improve an organizations operations.

Weakness: Cross subsidization of CRH was not tackled more attentively. CRH did expansion but only on selected areas i-e which they were already manufacturing. finace function of CRH was conservative. Technology is non proprietory ,it is not protected by copyrights ,patents trade mark. High transportation cost results outwieghted economies of scale.

Threats: CRHs view was that all kinds of operations were required to earn 15%return on net assest. although operation were not able to achieve that 15% target and if they will not achieve then the company will face losses. Opportunities: CRH can invest or having an opportunity of ongoing development corportaed new plants, capacity extensions and major upgrades. balance between different geographic segments provides an opportunity of emerging into different regions.

Pest analysis:Economic factors 1.one of the characteristics of building material industry is construction is a mature sector in the western world which 16

reflects stable economic activity and populations. average growth is less than half of the rate of economic growth. 2 .the segment balance of CRH different geographic had smoothen the effects of varying economic conditions and provided greater opportunities for growth. 3. during 1976-2006, CRH has metamorphosed from a local player supplying the small peripheral Irish construction market to one of the top 5 building material company in the world with global operation and market. of 16.6 bn. 4. buliding material industry have high weight to value the ratio which resulted high transportation cost. 5. since 1990s a number of international building material indusries emerge so local differences between geographic markets were eroding. driven by institutional factors a harmonizations of building regulations. product standards, tendering procedures occurred. 6.CRH business cycle are larger in duration and larger in amplitude than economic cycles. Political factors: 1.irish operation under the CRH portfolio had a low rate of manufacturing corporation tax(12.5)% 2.due to often change in position of managers corruption became low, as job description were flexible. Technological factors: 1.CRHs bulding materials and products are standard ,similar and stab le overtime. production processes are also standard through the use of technology. 2.CRH was utilizing communication technologies e.g- the use of e-mail, bulletin boards, internal news magazine etc. 3.at division level, technical advisors used to facilitate betz practice activities by small teams of experts at local, regional and international levels. Socio cultural factors: 1.since the mid 1990s the indusrys customer base was consolidating , customers needs were homogenizing and they were becoming more demanding. 17

2.CRH received awards over the years for innovation in environmental practices. 3.CRH used to acquire different professionals from different regions. 4. due to use of technical advisors CRH starts reducing costs and offered better quality and services to their customer.There is also possibility of supplier integration in order to obtain higher prices and margins as it has done through acquisition. BOSTON CONSULTING GROUP (BCG) is developed by BRUCE HENDERSON of the Boston consulting group in th .early 1970's According to this technique, businesses or products are classified as low or high performers depending upon their .market growth rate and relative market share It is a portfolio planning model which is based on observation or assumption that company's business units can be classified :into four categories (Star (high growth, high market share (Question mark (high growth, low market share (Cash cow (low growth, high market share Dog (low growth, low market share

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STARS

QUESTION MARKS

U.S asphalt U.S Concrete products Construction (accessories(Europe (Fencing and security(Europe (Clay products(Europe U.S Architectural glass fabrication U.S Precast concrete products (Cement(Europe Agricultural & chemical (lime(Europe

U.S aggregates U.S Interior products distribution

CASH COWS

DOGS

America ready mix concrete HIGH

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Relative market growth

LOW

RELATIVE MARKET SHARE HIGH LOW :CONCLUSION Though BCG matrix has its limitations it is one of the most famous and simple portfolio planning matrixes used by large organizations having multi products. It helps to screen the available opportunities and helps company to think how it can make most of them. It is also used to identify that corporate cash cow can be best used to .maximize the company's future growth and profitability STAR: U.S asphalts, construction accessories in Europe, fencing & security in Europe, U.S concrete, clay product, U.S glass architectural fabrication, U.S precast concrete product, cement in Europe, agriculture & chemical lime in Europe are star having a high relative market share or relative market .growth and enjoying a number 1 position in an industry QUESTION MARK: U.S aggregates and U.S interior products distribution are question mark having a low relative market share and high relative market growth. They are enjoying number 3 or 4 position in an industry. In order to convert question mark into star, there is a need to change the :variable of marketing mix The product attributes should be change to provide more value to the customers (by improving product quality).

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Price should be decrease which would increase the sales revenue. Add new distribution channels and increase the intensity of distribution in each channel. Increase advertising expenditure would increase market share unless competitor respond with similar increases.

This would increase its relative market share and convert them into star. CASH COW: ready mix concrete (America) are cash cow having a high relative market share and low relative market growth. It is enjoying number 6 position in an industry. To convert cash cow into star there is a need to reduce the price so that customers can buy more and by providing them a special offers and sending them monthly newsletter and telemarketing them and let them know that they got a gift waiting for them when they call back. This would increase .market growth and ultimately convert product into star

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