CRHs Strategic Vision - Case Study Example

Running Head: Strategic Management Student Name: Student Number: Tutor: Course Code: Date of Submission: Introduction Company Description The CRH was founded in 1970 with its headquarters in Dublin, Ireland. Being a player in the Building Materials & Fixtures industry, the CRH Plc is a diversified international company that engages in building materials through manufacturing and distribution of a wide range of materials and products for building works. The structure and organization of the company is such that it has six business segments in Europe and America, which are structured down to three specific departments as one Materials segment in Europe and USA, one Products segment in the two regions, and one Distribution department in Europe and America. The Materials segments across Europe and America engage primarily in the production and sale of primary materials including cement, aggregates, ready mixed concrete and, asphalt while the products segments engage in the production and sale of mainly architectural and structural concrete products. They also engage in clay and insulation products, materials, and glass products. The distribution segments have the responsibility of engaging in businesses of builder's merchandising activities and selling constructions materials to the public. CRH’s strategic vision is to ensure responsibility of being an international leader in its industry of specialty and delivering unparalleled performance and growth (CRH Annual Report 2005, pp. 1,). The future role of the company is developing strategies to enable it serve its key stakeholders well. This is the reason behind the desired future performance and state of the CRH. PART 1: Choice of Models To evaluate CRH critically, the choice of a model for analysis is very important to help in understanding the company’s strategic management. For the purpose of this paper, PESTLE and Ansoff’s matrix models of analysis and theories are used to help unravel how factors in the macro environment may affect CRH and understand the main business strategies within the building industry and to understand CRH’s stakeholders. According to Scholls et al. (2006), most organizations operate their businesses in the context of a complex PESTLE (political, economic, social, technological, legal, and environmental) sphere. Additionally, these PESTLE variables in the business environment results in opportunities for organizations while others will exert some operational threats to the organization. PESTLE The PESTLE Analysis is a tool widely applied in corporate and organizational analysis and evaluation of key drivers of change in the business environment. As mentioned above, the abbreviation (PESTLE) stands for Political, Economic, Social, Technological, Legal, and Environmental factors affecting business operations either positively or negatively. The tool is quite important as it allows room for the assessment of the current strategic or business environment and potential changes. The primary idea of the tool is, if the project is in a better position than its competitors, it would be in a better position to respond to changes more effectively. The PESTLE Analysis tool is also useful for business planning, strategic planning, marketing planning, product development, and organizational planning (Norman W and MacDonald, 2004). The PESTLE tool offers researchers and company strategists with factors that need proper research and brainstorming for better performance. The following section offers a better discussion of these factors. The Tool Components Political: Every organization and business has both internal politics and external politics. The internal politics that affect business like team jealousies and personal interests are common occurrences that need proper management by the project’s stakeholders. The external politics are those that lie beyond the control of the stakeholders. Such external aspects include labor laws, revenue and tax policies, trade reforms, environmental policies, and political stability. Economic: This considers all factors that may affect both external and internal economic environment of an organization. The internal (otherwise known as micro-economic)are factors that affect the business’ viability. The external (macro-economic events)refer to interstate taxes, interest rates, recession, rates of inflation, economic growth rate, foreign exchange rate, minimum wage, wage rates, and unemployment among others (Kazmi, 2008). Sociological: According to the tool, sociological factor takes considers all factors that affect the social coexistence of the market and the operating community. Thus, shareholders must consider advantages and disadvantages of the business to the people in the surrounding environment. These sociological factors in most cases include cultural expectations, adherence to community norms, population dynamics, environmental factors such as global warming, and career variations. Technological: This factor in the PESTLE Analysis model takes into consideration all factors and events that affect technology. Since technology often goes obsolete considering the daily inventions in technology and emerging business trends, it is important to review technology to ensure that it is up to date. The factor also considers all other factors that may prevent entry to certain markets (Scott and Kesten, 2007). Legal: All legal aspects like employment, quotas, taxation, imports, and exports are the major factors taken into consideration when analyzing the legal factor of the model. Environmental: In this case, ecological and environmental aspects that are either economic or social in nature are of great concern. These factors may include natural calamities such as earthquakes, temperature, monsoons, access to transport, ground contamination, and nearby water sources (Hanson, et al., 2011). Advantages •Simple and easy to use and understand •Offers better understanding of the business environment •In a broader perspective, it encourages strategic thinking •Reduces the impact of future business threats •Enables organization to identify possible opportunities and seize them Disadvantages •The user can easily oversimplify data •The tool needs regular update to be relevant and effective •Requires users from different perspectives and departments •Requires users to access data sources, this would be expensive Business environment continues to change drastically and businesses find it difficult to engage in developments (Anthony Henry, 2008, pg 61). Ansoff Matrix This is a strategic marketing and planning tool that interconnects company’s marketing strategy with the general strategy for growth and offers four alternative strategies for growth. These strategies include market penetration, market development, product development, and diversification (Mulcaster, 2009). Market Penetration: Here, the organization markets its existing products to its existing product consumers. This implies that the organization increases its revenue through advertisements, promotion, and brand repositioning. Market Development: In this case, the organization markets its existing products to new customers. Therefore, there are no changes made to the product but sold to new audiences. Product Development: The organization develops a new product and markets it to its existing customers. The newly developed product may replace the existing products (Charles, et al., 2012). Diversification: This is where the products and the customers in the market are completely new. Related diversification implies that the organization remains in the sector or industry of specialization. Unrelated diversification means the organization changes the industry and has no specialization in the new one (Johnson, et al, 2008). Advantages A good model for assessing strategic direction Helps in identification and analysis of growth opportunities Offers room for strategists to consider both expected returns and risks as well (Babette & Craig, 2008). Disadvantages It is difficult to fit some real world situations into the four growth strategies offered by the model (Anthony Henry, 2008, pg 61). Broad understanding It only considers new products and markets and ignores the complexities involved or other alternative growth strategies PART 2: PESTLE Analysis of CRH Political In the construction industry, the government plays a role within the operation of manufacturing of building materials in terms of material standards. Therefore, there are some fines for any company that fails to meet some regulations. The following are some of the factors that that are likely to cause some change in CHR’s actual results from the expected results in the company’s strategic plan. 1. Changes in laws and regulations that govern the construction industry, including changes in accounting standards, changes in the rate of taxation, and environmental laws in in its local or foreign environments 2. Changes in the building and construction business environment that may include, without limitation, competitive market, and product pricing pressures 3. Political conditions that may include political instability, civil unrest, change in government, and the reaction to transfer capital across borders. 4. CHR’s ability to penetrate emerging markets and seize the opportunities, which also depends on economic and political conditions, and the company’s ability to form great alliances with local companies for better mergers Economic Analysis for CRH In both Europe and the US, the economy is strong and nearly every part of the two economies is growing and flourishing well. This is in spite of the fact that the US and other economies in Europe faced a downturn in the 3008/2009 financial crisis. Thus, the two economies are stabilizing and getting better by the day (CRH, 2011). The Federal Reserve and the European Union are doing their best to help their economies grow. Lowering the interest rates for instance will ultimately trigger increased consumer demand in the economy. This implies that companies will tend to expand and increase use of debt as because of the low borrowing rates initiated by the governments. CRH will have the ability to borrow money for investing in other products and acquire new companies, as the interest rates are low. This also means that the company would borrow enough money to improve its technology and to invest in research for new products and other business opportunities such as new markets (CRH, 2011). Before the 9/11 terrorist attacks on September 2001, the United States government has been on the move to ensure fast recovery in its economy and it is only just recently that they achieved the economic levels they desired. Construction of new buildings and other structures for infrastructure is at the peak and RMI of existing structures takes place on daily basis. This means that the demand for building materials is high and a prerequisite for economic developments across the globe (CRH, 2011). Development of residential, commercial and public sector buildings are a great step towards economic development. This also includes infrastructure developments such as dams, airstrips, railroads, bridges, and roads. This translates to improved economy and high demand for building materials. Social Analysis for CRH Many U.S and European citizens are much concerned about the safety of their buildings and the standards of the building materials. This has affected the building industry in that many citizens are switching for non-established and developing companies to well-known companies such as CRH. The need for trusted materials and safe buildings is a day-to-day requirement in every society and has been the social requirement for every community (CRH, 2011). This therefore means that CRH’s established brand is of high benefits to the company. Since the company also acquired many awards in environmental and safety practices, its trust by the consumers is unparalleled. Technological Analysis for CRH Although technology is non-proprietary in building industries, it helps in defining the effectives of company’s advertisement, marketing, and promotional strategies. The use of internet to make deals and contracts, use of television for advertisement and marketing, and the use of internet in research for new markets are also important. Finally, as the technology faces improvement on daily basis, there has been development of new machineries and their introduction to the market at all the time. Due to introduction of this new technology and machineries, the production of building materials ought to change and thus increased production in CRH. Environment Analysis The key environmental issues of the building industry are consumption of raw material and natural resources such as water and energy, VOC emissions from painting buildings, emissions of greenhouse gases through consumption of fuel in manufacturing, and production of hazardous and non-hazardous waste (CRH, 2011). Almost all the six segments of CRH’s manufacturing process affect the environment. Industry affect the environment through noise and emission of carbon dioxide, which contribute to global warming and therefore, legislations on noise and environmental emissions will affect future sustainability for organizations. Legal Analysis for CRH The group complies with various legal requirements in both local and international market. Harmonized building regulations, product standards, and tendering procedures has enabled the company to venture into new markets. However, there may be variations in building regulations between regions, different construction practices, and stringent tendering procedures. This may limit market entry for building companies. In the European market for instance, the group organized the Euroforum for its employees to enable the group comply with Section 13 agreement of EU Information and Consultation Directive (CRH, 2011). Ansoff Matrix Analysis of CRH Market Penetration The CRH plc Group has been penetrating new markets since its inception in Ireland in 1970 as evidenced by the current 3500 offices spanning 35 countries in Europe and America. The Group started with a small headquarters in Dublin where less than 200 employees are judged with the responsibility of marketing strategies and planning for future developments of the group (CRH, 2011). The group continued selling its primary products such as asphalt, cement, ready mixed concrete, and aggregates to its existing customers. Market Development The Group ventured new markets by selling its existing products to new customers across Europe and later on America. The Group developed new markets through acquisition and development of other related small-business companies in oversees countries. The first market development and expansion started in UK and Netherlands and then the mainland Europe before expansion to US in 1977 (CRH, 2011). Product Development From the mid-1900s, the Group expanded in a limited, but very highly rewarding way by venturing into new products such as merchanting and DIY. Clay brick products, security fencing, and glass fabrication in the US and sold it to its existing customers (CRH, 2011). This increased the Group’s scope of operations. Diversification The Group constantly engaged in related diversification through acquisition of more small-business building and construction companies that fitted its strategy and management goals. It also incorporated the acquired companies’ managers to fill positions in the Group’s senior management. PART 3: Conclusion By application of Ansoff’s matrix model of analysis, CRH plc Group would develop new products and venture into new markets. By developing new marketing and product development strategies, the Group will most likely come up with new products such as ceramics, building envelope, conformal coating, and damp (structural). This will give the Group an added advantage over their peers in the market (Scott and Kesten, 2007). The Group will also increase its operational scope and reach out to more customers through acquisition of other small-scale companies. Furthermore, strategic planning and training of personnel would improve confidence and hence realization of new products and market opportunities. Reference Anthony H 2008. Understanding Strategic Management, New York, Oxford University Press Babette, E & Craig, S 2008, Analysis without Paralysis: 10 Tools to Make Better Strategic Decisions, New Jersey, FT Press. Bloomberg, 2008, CHR Profile. UK. Accessed Feb, 04, 2013, From: http://www.bloomberg.com/quote/CHR:LN/profile Charles W. L. Hill, & Gareth R. Jones, 2012, Strategic Management: An Integrated Approach, (10th ed.), Boulevard, Erin Joyner. CHR 2011, Preliminary Results and Report, Dublin, Accessed Feb, 04, 2013, from http://www.crh.com/reports/CRH-2011-Full-Year-Results-Report.pdf CRH 2011, About Us. Dublin. 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