Strategic Analysis Of Crh Plc - Case Study Example

? STRATEGIC ANALYSIS OF CRH PLC Introduction This paper involves a strategic analysis and a business analysis of CRH PLC, a building material manufacturing entity with its headquarters in Ireland. The company has focused on an internationalisation and expansion drive since the 1970s. It now utilises a unique strategy for corporate management, strategy and competitive drives. The report will first identify the strategy that CRH pursues. This will involve the critical analysis of the strategic approach used by the company to attain success over its history. The second section of the essay will examine the nature of parenting advantages that CRH has attained. It will examine the extent to which CRH has created value over the years by vertical integration and entrance into other markets. The third segment of the paper will critique the corporate-level management of the company and how this has been used to attain optimal results. This strategic analysis will involve the critique of secondary sources to ascertain important ideas and concepts. This will be applied in the analysis and eventually culminate in the final portion which will involve the development of a programme for future action by the corporate management team of CRH. Strategy of CRH Strategy is defined as “the way a company creates value through the configuration and coordination of its multimarketing activities” (Furrer, 2011 p2). This means strategy is about the ways a means a company makes the best of its activities to provide optimum results from its affairs. Johnson and Scholes state that strategy has three main features: 1. It is a long-term plan 2. It affects the entire organisation and 3. It involves top level management Strategy is therefore the plan and pattern of an organisation which is used to streamline its affairs in order to deal with competition and thrive in an industry (Langeer and Hapiewocki, 2011). It is formulated by careful examination of the business environment and the formulation of an appropriate strategy (LaForge et al, 2010). The strategy of CRH plc revolves around three things, vertical integration/internationalisation, product development and niche-market leadership. This enables CRH to maintain a robust and strong system of managing across a wide frame of activities and products to retain competitive advantage and maintain leverage. Vertical Integration & Internationalisation Vertical integration is the combination in one firm of two or more stages of production normally operated by separate firms (Johnson and Scholes, 2012). This means a firm acquires another entity that operates within its industry and merges the different businesses to operate and attain results. Since the 1970s, CRH has sought to expand and acquire new entities around the world in order to expand into different markets. They used the expertise of the local markets and this allowed them to control different markets and gain advantage in those foreign markets. Through this, CRH, an Irish entity has 50% of its revenue from North America and 35% from Europe and is growing in the emerging markets with 15% of its revenue from this part of the world. Clearly, the process of vertical integration is helping them to control strategic outlets. Product Development The consequence of globalisation and internationalisation has caused CRH to adapt to the local environments within which they operate. To this end, CRH has become a major entity in product development to fit the exact needs of various global segments they operate within. CRH produces various products and services that are in demand in a given environment and they learn about it through their federal system of management which allows various units to remain autonomous. This enables the various regional leaders to come up with strategies and develop products that are relevant to their unique markets and their unique needs and expectations in the region. Product development is aided by a proactive system where the market research is conducted and revenue generation is examined to attain a responsive strategy. This allows the company to continue producing things that are in constant demand and allows the firm's products to remain in constant demand. Niche-market Leadership CRH is a market leader in some specific areas and aspects that it has the competitive advantage in. The company focuses on the heavyside which involves concert and other hardware which are rare and cannot be easily manufactured. Through this, they are able to retain competitive advantage which is difficult for their competitors to duplication. Hence, CRH remains unique and a strong contender in the market since competitors will need to be heavily capitalised to stand a chance against them. The niches they concentrate in at the lighside of the industry are heavily segmented and they only focus on areas where they have absolute and complete advantages. This enables them to stay focused and stay ahead of their competitors. The core strategy of CRH is to become a global entity and continue to rise to pursue opportunities in diversified markets around the world. This allows CRH to become a major entity that has a balanced portfolio with numerous options. Through vertical integration in foreign markets, proper segmentation and concentration and focus on specific niches they have absolute competitive advantage makes CRH a major entity and this lies at the heart of its strategy. Parenting Advantage Companies may want to expand and include various subsidiaries in order to attain various advantages (Goold et al, 2012). To this end, the parent focuses on the core business activities and the subsidiaries are used to create value through the control wielded by the parent (Goold et al, 2012).The parent company gains advantage as the owner of the subsidiary through various cross-business synergies (Knoll, 2011). In other words, the parent uses some benefits and opportunities from the subsidiaries to improve their competitive positioning. Parenting advantage involve portfolio mix, cost advantages and economies of scale (Knoll, 2009). Parenting advantage allows a firm to diversify its portfolio by adding new products and services by utilizing the expertise and competencies of the subsidiary. Cost advantages and economies of scale come with the fact that the firm acquires more and pays less. There is the stand alone influence, linkage influence, central functions and corporate development aspects of parenting which brings advantages (Garner and Bergmans, 2012). Also, there is the access to capital which can aid in attaining certain ends and management expertise which improves performance in a symbiotic manner (Klier, 2010). Parenting advantage is steeped in the fact that controlling equity stakes in the subsidiary enables a firm to gain leverage by using its control in the corporate governance structures in the subsidiary (Klier, 2010). This leads to managing and exploiting common capabilities which can lead to improvement in operations, technology and market penetration (Kaplan and Norton, 2011). As identified above, CRH's strength has been in the ability of the company to expand and gain competitive advantage through its expansion and globalisation plan. CRH's operations and desires has been based on the need of the company to control new outlets in different countries. And this is done by researching and acquiring middle ranked firms. These firms aided in the product development aspect which related to the unique and distinct markets. The process was to find specific companies that were doing well and had an appreciable understanding of the local markets CRH wants to expand into. With this, they were able to get a pool of skilled and experienced managers who had some familiarity with the local markets. With that, done, CRH could build upon the expertise and skills of staffs to incrementally improve their stakes of survival in these regions. Unlike growing the business organically, CRH could use their influence in the newly acquired subsidiary to direct affairs in their preferred route. At the same time, CRH could also learn about the local markets and use the expertise and goodwill the firm possessed to grow and expand appropriately. Through this, CRH could grow and expand into relatively unknown markets and countries around the world. Another advantage was that CRH consolidated its culture in a win-win system through the subsidiary firms they acquired. The used a federalist model of running their affairs and gave their subsidiaries autonomy. However, they studied the culture in a way that promotes profitability by concentrating on products and niches that were productive. With this, they could use their parental advantage to improve earning and also link up the local entity to other units of the business in other parts of the country to attain more results from their operations and affairs. Corporate Level Management of CRH The corporate level management of an organisation is linked to the corporate governance systems and structures of the entity. It involves the people authorized by owners of the company to use the resources of the firm and also authorize important aspects and components of operations and affairs (Langford and Male, 2012). Corporate level management revolves around the directors and managers. The directors are appointed by the shareholders and owners to run and monitor affairs of the entity whilst managers undertake the day-to-day and routine management of the firm (Abrams, 2010). The corporate level management of a company undertakes the authorization of affairs and they examine different demands and expectations of the environment before granting certain permissions. This is in the power of the board of directors who steer affairs in an organisation (Hill and Jones, 2011). However, the day-to-day affairs remain with the managers of the entity. In most cases, the system and norms through which power and authority is granted in an organisation is depicted by the organisational chart or organogram (Langford and Male, 2012). This shows the power relationships between the organisation's directors, managers and staff members. It shows the relationship between various units and components of the organisation. CRH is an organisation that is fairly decentralised. The Chief Executive Officer, CEO heads the entire organisation. The Chief Executive Officer is a representative of the management on the board of directors. This enables him to interact and link the management with the directors and provide justifications for various affairs. The Chief Executive Officer presides over two mainstreams: The functional stream and the geographical stream. This creates a kind of a matrix structure for CRH. This is because there are various strategic business units or group functions like Finance, Development, Human Resource amongst others. On the other hand, there is the geographical division of the different components of the business. And this include the division into the European, American and Developing Countries' units. Under each regional section, there re various strategic business units that are a replica of the central business units and the managers have reporting responsibilities to the regional head as well as the global business unit heads. The corporate level management system of CRH is a federal-oriented system. In other words, the various regional managers have a high degree of autonomy and they look at the local conditions and circumstances to take decisions for their regions. This leads to some of the most critical and crucial decisions that bring competitive advantage in the local regions. Managers of regional strategic business units have a bigger obligation to examine the markets within which they operate and identify trends and come up with recommendations for the improvement of options. The training system and grooming structures of CRH ensures that the younger managers employed in the firm get to learn about the way things are run to ensure that a stable culture is built around the mainstream system that is upheld by all other managers of CRH. CRH maintains a small presence in its headquarters in order to prevent the concentration of power in a small unit or component of the company. This implies that they will be able to monitor the other units and help them to work to attain results based on their unique preferences and expectations. The formal learning mechanism and system ensures that all the different units and the different components have a specialized system of training and grooming managers in unique local environments where they operate. The informal system of grooming which includes subtle methods of training and development of managers help to consolidate different managers and groom and maintain standards. Acquisitions does not lead to outright exclusion of existing managers. Rather, managers are allowed to bring on their culture and systems in order to contribute to the firm. This is done by allowing new managers to integrate into the strategic management system by presenting their own ideas and concepts. When this is done, it is streamlined by the overall strategic level management system of CRH. Through this, they are able to improve and enhance their affairs. Strategic Recommendation for CRH Senior Management Strategic recommendations must provide a degree of strategic balance and improved the strategic positioning of a firm (Crane, 2011). It involves identifying opportunities and threats and dealing with them in the right way and manner (Mauk, 2009). There must be practicability and priority (Van Cleare and Thompson, 2012). In line of the opportunities and threats that exists in CRH, the following recommendations are preferred: 1. Improved cyclical analysis and regulation review systems: CRH must improve on the spending it makes on the compilation and analysis of information about the markets. This involves the institution of modern data collection systems and methods to learn about prospects on the markets and predict better outcomes. This will be particularly helpful in the developing world where data is not reliable. 2. Expansion into the Emerging Markets: From all indications, the markets in Europe and North America are matured now. There is therefore the need for CRH to look outside these markets and find new markets and new niches in Asia and Latin America. This will help to catch up on the growing markets and growing trends which exists in different countries that are coming up in the BRIC (Brazil, Russia, India and China) countries which are set to overtake the rest of the developed world in the next two decades. Also, there are opportunities in the newly industrialized countries which seek to build and expand their scope in the coming years. Thus, there is the need for a cautious expansion into these regions to expand the profitability net of CRH. This will involve capital investments in carefully selected locations to provide heavyside products to the local markets. This will involve investigating and finding a few countries with the right prospects. Concerning lightside products, there will be the option of exporting into new countries. And since these markets are new, there is the need for a proactive examination of the local markets. 3. Expand through Horizontal Integration: CRH is normally expanding by acquiring subsidiaries in the building material manufacturing industry. However, they can consider entering other industries and entities like the property industry. This is particularly appropriate for the emerging markets where CRH can gain some construction contracts to build high numbers of houses. And since they control the building materials industry, they can supply to the property company they will form and gain more benefits by crossing over to another allied industry. 4. Maintain Equity Funding and Management Grooming System: Debt financing is expensive. Thus, CRH will need to rely on equity funding and continue expanding through the equity funding system and methods. Also, the management grooming culture is good and so far it has yielded a lot of results and will continue to do so in the future. 5. Corporate Social Responsibility: This current era is a period where corporate image is strongly linked to corporate social responsibilities and ethics. Firms that uphold the highest standards in these areas are considered ahead of those that have no such systems. CRH will therefore need to start a corporate social responsibility system that will enable the company to maintain a positive image amongst consumers and other stakeholders. This will ensure the long-term survival of the firm and grow the firm's prospects. References Abrams, R. (2010) The Successful Business Plan London: The Planning Shop Caroll, A. B. and Buchholtz, A. K. (2011) Business and Society: Ethics and Stakeholder Management Mason, OH: Cengage Cramer, J. and Bergmans, F. (2012) Learning about Corporate Social Responsibility: The Dutch Experience New York: IOS Press Crane, C. 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(2011) Competitive Business Strategy Darby, PA: Greenwood Publishing Group. Langford, D. and Male, S. L. (2012) Strategic Management in Construction Hoboken, NJ: John Wiley and Sons. Mark, J. A. (2009) A Risk-Based Approach to Strategy Balance New York: Strategic Studies Institute Van Cleare, W. R. and Thompson, W. S. (2012) Strategic Options New York: Transaction Books Read More