Strategic Positioning and Strategic Direction of CRH Plc - Case Study Example

Corporate Level strategy of CRH Plc. Table of content 1. Critical evaluation of strategic positioning and strategic direction of CRH Plc for securing competitive advantages The Strategic positioning of an organization is done with a purpose to find the best fit for the organization with respect to its external environment. An organization operating within an environment observes several external forces on it which are applied due to the activities of the external environment and the industry which have the potential of influencing the business operations of the organization (Thompson & Martin, 112). To have more clear understanding of the strategic positioning and its analysis Michael Porter’s Five Forces Model can be used which helped in generalizing the strategies for gaining competitive advantages in the industry. The forces are concerned to following aspects, rivalry among the existing firms in the industry, threats of new entrants in the industry, bargaining power of the customers and the suppliers, and threats related to availability of substitute of the product offered by the organization (Onsman, 16). 1.1 Five Forces Analysis – Industrial analysis 1.1.1 Rivalry among the existing firms The company has many competitors in its specific industry due to emergence of many new companies who have business at international level. During the period of 1990s the market was controlled by large companies of construction industry which mainly used their matured domestic market as the strength to expand their business to other nations. When the construction industry was booming the supply rate of several firms increased drastically which in association of several corporate activities resulted into disappearance of many big brands of the construction sector though many brands were actively performing their business o international level. 1.1.2 Bargaining power of customers The construction industry has remained very fragmented from very beginning and its production rate varied with the location and several other associated factors such as the values and cultures. The business has tended to become location specific due to variation sin the building regulations of the locations which provided support to the customers in terms of bargaining. Other encouraging factors of increased bargaining power of the customers is more number of companies which have entered into the construction and building market with increasing demand of building an construction. The company also realized that by the time of development that the customer base was also consolidating with the time which was also major strength for the company. By this consolidation of customer base the needs of customers also homogenizing as a result of which the demand was also increasing. 1.1.3 Bargaining power of suppliers The company has a very crucial association with its suppliers which brought the company among the best performers especially in US market. The company had agreements with major suppliers in the industry which enhanced their potential in the industry. The company adopted the acquisition polices to have more number of companies under its name which also supported in making them independent performer in the construction industry. As the number of competitors was increasing the company invested more in familiar business which reduced their dependence on the suppliers for raw materials (REGIONAL COUNCIL, 2007). 1.1.4 Threat of new entrants The company has always been exposed to the threats of new entrants into the industry since after the evolution of CRH several other companies have entered into the construction market which has raised the competition level. Most of the construction and building materials have standard specifications which remain same throughout the world. Due to this fact the entry into the market becomes less difficult for new comers. Moreover the nature of the industry remained fragmented all over the business locations which resulted into proliferation of the facilities. These factors also contributed to lessening of the barriers for new entrants. 1.1.5 Threat of substitutes The threat of substitute for the company is very much obvious since many more organizations are present in the construction industry which poses threat of providing substitute product to the market. A major problem which is specific to the construction and building industry is that the products of building and construction materials have standard specifications which remains fixed for all of the locations. This has raised the problem of availability of substitute product in the market. The environment posed many challenges and risks on the industry which were identified by the company as a result of which it took a strategic approach to have overseas investments in businesses which are more familiar to the building and construction industry. The company mainly emphasized on specific strategies such as its organic market penetration in Irish construction industry which was on role during 1970s. The overseas expansion of the company came into scenario in late 1970s which mainly concentrated on acquisition for expansion. The company during late 1990s focused on business development and larger acquisitions. The company believed in having multiple platforms through which it will deliver its performance and growth. 2. Style and culture of CRH’s corporate-level management with regards to its value-adding potential to parenting and portfolio management. CRH Plc has a very consistent and clear strategic vision which emphasizes on being international leader in building material with a continuous delivery of superior performance and growth. The credit for the success of CRH Plc is entirely goes to its exceptionally committed and capable management and staff members who created and maintained its unique culture which is reflected in the widespread operations of CRH Plc all over the world. The company has a separate federal group which mainly emphasizes on the growth of the company. Forming a separate group for entertaining activities pertaining to organizational growth provides the company additional advantage towards its growth. The strategies adopted by the firm for the purpose of development are also developed and tested prior to its implementation. This approach has been brought in practice since the establishment of the company during 1970s (CRH-a, 2009). Two very inseparable features of the company are performance and growth which are required to be delivered during their business operations. The company focuses more on having measured performance and growth which brings more clarity between the desired and actual level of performance and growth. The experience management team of the organization also supports them in improving their business skills by critically reviewing the management development strategies at regular intervals. The management team has been developed by inculcating managers from different streams such as managers who are developed internal to the organization, professionals from finance and developmental activities which are highly qualified, builders with visions, and the owners and entrepreneurs who have joined the organization to contribute to the construction industry. The performances are always recognized and rewarded at CRH which helps them in attracting, retaining, and motivating the exceptionally talented managers for the organization. The rewards which are related to the performances are based on the targets of creating the shareholders values. The rewards for performance are provided in forms of share option to the managers who are encouraged to identify with the views of shareholders’ long term interest. The company also facilitates participation and savings related share options to their employees which help in creating communities which have variable interests depending upon the different regions and nationalities. The business operations of subsidiaries of CRH Plc also get benefited from this act of the management team (CRH-b, 2009). The company also maintains a unique balance of business on the basis of its regions of business and product categories which it has. The geographic locations of CRH mainly consist of North America, Western Europe, and several other emerging regions out of which majority of its business are concentrated in North America and Western Europe. From products point of view the company has its majority in materials which is followed by the concrete products and the distributional activities. Apart from these certain amount of business is also focused on other products (CRH-c, 2009). The market/product portfolio of CRH represented few notable characteristic features which were leadership and the balancing between the geographic, product and segments of the business. In context of leadership the company focused more on assuring security and maintenance of its local and regional markets which was also maintained in its product segments and niches. The other unique feature of the company regarding its portfolio management is its balance in the geographic, product and segments which provide more smoothness to the effects of varying economic conditions of different locations. This balancing of the business aspects on various aspects also provided the company with more growth opportunities. 3. Realistic time-frame identification for strategic management planning of CRH CRH Plc was established in 1970 by the merger of Irish Cement and Roadstone/Wood which was a building material company. From the period of 1970 the company has seen many changes and growths till the present time during which the company emerged as a major player in the construction industry in international market. The entire metamorphosis of CRH Plc and its strategic planning from 1970s till the current phase of time can be viewed into three major episodes of development. The changes which have been brought by the strategic approaches adopted by the company are evolutionary in nature. The achievements made by the company comprised well managed learning process of building and augmenting the competencies which are involved into the management layers of the organizational structure of the organization. The major incidents which could be observed from the past activities of the companies could be divided into three major phases which are as follows – During the period of 1970s the CRH Plc was established and during the time Irish construction industry was on boom due to reformation activities of the Irish economy. The company took great advantage of the favorable situation and capitalizes the market by its vertically integrated organizational structure. The favorable market conditions helped the company to lead the heavy building materials and products business in domestic construction market of Ireland. After capitalizing the Irish market the company during late 1970s decided several strategies to be adopted to minimize the risk and challenges posed by the market onto the industry. Under the strategic approach the company made decision of overseas investments but specifically to the industries which are familiar to the company’s business of construction materials and building. The company emphasized on acquisition of small and medium sized organization of same business types, among which many were family-owned businesses. The major acquisitions in European regions started from mid 1990s prior to which several acquisitions were made in UK and The Netherlands market. Due to sever attack of recession during 1991 in UK and US made the business conditions very challenging for the company in those markets. The company during those tough times focused more on cost reduction over its production process and adopting leadership in the targeted market areas. The growth and acquisitions developed further during the period of 1994 and more investments were made during the year of 1996. During the period of 1999 the company took strategic moves in acquisition of several other small and mid sized companies of the same industry type. The beginning of 2000 proved to be of considerable gain for the company despite of several challenges posed by the industry on the company. The rate of growth continued during the period of 2001-02 which also posed challenging situations for the company. Despite several challenges the company made its significant deal by acquiring Cementbouw which was a leading Dutch building material group. Several other acquisition were made in the mean time which continued in 2007 also when the company recorded total 78 acquisitions and continued the pace in future. The company’s management always kept an eye on its efforts which focused more on commercial delivery of the products and also ensuring resistance from unfavorable and challenging circumstances (CRH-d, 2009). 4. Evaluating alternative strategic decision for CRH Plc with regards to its portfolio and opportunities for related and/or unrelated diversification The developmental strategies adopted by the company and its unique way of maintaining the balance between its geographic diverse business locations, products and segments. The balance maintained by the company towards its products end consisted 41% from its materials, 36% from its other associated products, and 23% from its distributional activities. In context of its geographical balancing of business can be divided into America with 53% and European regions accounting for 47% of the total business. Considering the different sectors of the business the company divided its business as 45% for residential including RMI and new projects, 30% for non-residential, and 25% for infrastructural businesses which can be broadly viewed as 55% for new projects and 45% from the RMIs. 5. Recommended strategic directions required within CRH corporate–level management The challenges and changes which are required to be meeting for the company’s future development have a diversified range of factors of both domestic and international market. The company’s business relations with other nations have developed over time especially in case of US which has played a major role by contributing major part in brining more investments opportunities for Ireland. The continuous inflow of foreign investments made in Ireland’s market has ensured the growth and economic stability of the country. The domestic market of Ireland is also influenced by the societal movements which takes place in the country. The US has played a crucial role in this context also by prioritizing the peace process at the Northern Ireland Peace Process which also supported the development for other regions also where the chances of conflicts were prominent. At present the nation also possesses highly educated and skilled workforce which is competent enough to meet the challenges of international market (Buckley, 2008). To be more potential player in the international market the company should focus more on its additional services towards the societal development such as CSR which should signify the values and commitments of CRH Plc. The company has its initiative towards CSR activities since its inception and has served as a key element of all the company’s activities (CSR Report, 2005). The company should focus more on its developmental strategies which it has considered till date, i.e. adhering to its core businesses and the industry, more emphasis should be given to investments made into the domestic market of Ireland since the company has a command over its domestic market. Being a low-cost product and services facilitator the company could have more return from the domestic market of Ireland and secure its market also for its future use. Dominating the domestic market will give the basic support to the company while expanding the business to overseas locations provides the company with more platforms for growth and developments. So the company should also continue its overseas expansion to give better pace to the business. More strategic approach is required to have better negotiable skills towards the sellers which could lead to meeting the customers’ needs. A regular evaluation, approval, and reviews are also required to be practiced by the company which will enhance its business opportunities. Performing big deals is not of less use for the company but it should focus more on mid-sized transactions and deals which have proved to be of potential effect in improving the company’s performances and its position in the market. Another major point of concern for the company is its array of subsidiaries which require a balanced approach of the company for the development of the company and its overall subsidiaries. The basic activity required to be taken care of by the company is towards its performance and growth in the domestic as well as in the international market (Mahony, 2005). 6. References Thompson , J. & Martin, F. (2005). Strategic management: awareness and change. 5th ed. Cengage Learning EMEA. Onsman. (2004). Management Powertools. Tata McGraw-Hill. REGIONAL COUNCIL. (2007). INDUSTRY NEWS. [Online] [December 12, 2009] Available at - http://pci.org/view_file.cfm?file=JL-07-MARCH-APRIL-17.pdf CRH-a. (2009). CRH-About CRH. [Online] [December 12, 2009] Available at -http://www.crh.com/crhcorp/about/characteristics/ CRH-b. (2009). CRH-About CRH-Characteristics of CRH. [Online] [December 12, 2009] Available at -http://www.crh.com/crhcorp/about/characteristics/ CRH-c. (2009). CRH-About CRH. [Online] [December 12, 2009] Available at -http://www.crh.com/crhcorp/about/characteristics/ CRH-d. (2009). CRH-About CRH-History. [Online] [December 12, 2009] Available at - http://www.crh.com/crhcorp/about/history/ Buckley, M. (2008). The Ireland Chamber- Message from our President. [Online] [December 12, 2009] Available at - http://www.iccusa.org/president.php CSR Report 2005. (2005). Sustainable Performance and Growth. [Online] [December 12, 2009] Available at - < http://www.investis.com/crhcorp/csrpres/full0801.pdf> Mahony, L. (2005). CRH- An Irish MNC’sAssessment of China. [Online] [December 12, 2009] Available at - < http://www.irelandchina.org/downloads/0506_ica_liam_presentation.pdf> . Read More