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The Corporate Dealmaker

Article · February 2004

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Marc T. Austin

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ractices

Cemex has developed a system for absorbing best practices from its acquisitions—even as it moves to align their processes with corporate standards. Here’s an overview highlighting how the system might transform the HR function at an acquired company.

9 STANDARDIZATION GROUPS

CommercialCustomer-facing processes and

logistics for cement business

FinanceCash management, bank relations

and capital markets

ControllershipAccounting and

cost management

Human resourcesRoles and responsibilities, compensation, recruiting

Ready-mix concreteProcesses specific to ready-mix business

Information technologyNetwork architecture, hardware

and software standards

OperationsProduction and

quality assurance

PlanningAnalysis, budgeting

and forecasting

ProcurementSourcing and supplier

relationships

Businessprocess experts• Proven experience and recognition in specific fields

TYPICALSTANDARDIZATION

GROUP

3. Each standardization group includes a dedicated process expert

in that particular area

Group leader• Coordinates team activities and analysis

Executive sponsor/business

process owner

• Corporate vice president responsible for strategic direction

• Oversees as many as three standardization groups

Human resources• Helps align cultural and organizational elements

IT support• Development of process methodologies andgap analysis

• Internal consultingand change management

• Diagnosis and assessment of process performance

Oaapa

Standardization groups examine practices in nine different functional areas

1

2 3

Ali

gn

ing

pro

cess

es, a

bsorb

ing

bestpractices

DC

How the giant cement producerintegrates acquisitions fast—while simultaneously learningvaluable lessons from them

Cemex SA de CV, the global cement and ready-mix con-crete producer, has plants and customers all over theworld. Nowadays many of those customers can pull theirtrucks up to the local Cemex depot, punch a button andload up with cement. The system saves time for cus-

tomers, who no longer need to wait for factories to open, and moneyfor Cemex, which no longer incurs excess labor costs trying to meetthe erratic schedules of heavy construction projects. Did this unat-tended loading process—no small technical feat—come from Cemex’s

by MARC AUSTIN

BEST PRACTICES

26 CORPORATE DEALMAKER

Global integration the Cemex way

030104CD_cemex(26-29) 2/23/04 3:42 PM Page 26

Internet recruitment

Use of onlinetraining vendor

ers es

iness

t directionree

ocess

gmentessment nce

PROCESSES REPLACEDWITH THE “CEMEX WAY”

(illustrative)

RETAINED PROCESSES(illustrative)

Source: Cemex SA de CV;

Corporate Strategy Board

Of the practices that are replaced, many are cataloged for possible future adaptation and use

Many processesare replaced by

“Cemex Way” standards, but some are absorbed

into the “Cemex Way”—and rolled

out to other unitsaround the world.

In-house compensationprocessing

Biannual merit increase

Annual performancereview procedure

4. Working closely with the country implementation team, the standardization group

determines the gaps between the acquisition’s processes and those of the “Cemex Way.”

4

5

Acquiring Growth Accelerators,

DC

BEST PRACTICES

CORPORATE DEALMAKER 27

corporate headquarters in Monterrey?Yes and no. Yes, because it’s part of asystem of standardized business prac-tices; no, because the practice actuallyoriginated in Spain at a company Ce-mex acquired in 1992.

Called the “Cemex Way,” this busi-ness-process standardization system isan important tactical tool developed byCemex in the course of meeting a majorstrategic challenge. Today, Cemex is anindustry leader with $7.3 billion in 2003 revenue. Inthe early 1990s, however, it was a much smaller com-pany, with the bulk of its sales in its home market inMexico. Anticipating rapid global consolidation inthe cement manufacturing and distribution industry,Cemex decided to help lead the process. From 1995through 2001, the company completed more than 25acquisitions around the world, moving quickly to

claim a presence in developing countriesin Asia and Latin America, as well as indeveloped markets in the United Statesand Europe.

The successful integration of thesenew subsidiaries was, obviously, a cru-cial part of the process. But the speedand global scale of Cemex’s acquisitionprogram made integration especiallychallenging. Cultural and regulatory dif-ferences, always a factor in cross-border

deals, loomed especially large. In the cement indus-try, environmental regulations, local unions, govern-ments and powerful national customers make a lapsein cultural sensitivity a potentially huge source ofdeal-value destruction.

The problem for Cemex was how to speedily cap-ture value in its purchases without crushing what ithad bought. The solution, developed over the course

The problem

for Cemex was

how to speedily capture

value in its purchases

without crushing

what it had bought

INFOGRAPHIC by STEVE HART

030104CD_cemex(26-29) 2/23/04 3:43 PM Page 27

28 CORPORATE DEALMAKER

DC

of multiple deals, turned out to be morethan a means of smoothing integration—more, even, than a method for preserv-ing valuable, locally appropriate varia-tions in the way business is done. TheCemex Way is a method of systemati-cally mapping, cataloging and dissemi-nating acquired business processesacross the global enterprise. Now, overhalf of Cemex’s standardized businessprocesses—ranging from accounting andcost management, to compensation andrecruiting to customer relationship management—come from acquired companies.

As part of a broader study of deal managementand post-merger integration practices, the CorporateStrategy Board worked with Cemex to document theCemex Way—which, while just one approach to in-tegration management, is one that companies facingsimilar challenges may find instructive.

Cemex established a series of teams to oversee theidentification and collection of business processesacross nine functional areas of the business (see chart,page 26). The teams are known within the companyas E-groups, stemming from the Spanish word “es-tandardización,” or standardization.

Each of the nine standardization groups consists ofa business-process expert with 10-plus years of

experience in a specific functional area (say, finance,operations or planning); a group leader; plus infor-mation technology and human resources support.Standardization groups are overseen by an executiveat the vice president level or above, with some seniorexecutives taking responsibility for more than one.So, for instance, the finance, controllership and plan-ning standardization groups are overseen by a vicepresident in finance; the VP of procurement over-sees the procurement E-group; and so forth.

The mission of each group is to work closely withteams from the acquired company to compare theirprocesses with those encoded in the Cemex Way—an undertaking the company refers to as businessprocess gap analysis. The goal is to iden-tify areas where Cemex Way processesshould be adopted by the local companyto speed integration and boosteconomies of scale, while also figuringout which practices should be left inplace to meet local cultural, market orregulatory demands. About 20% of anacquired company’s practices are typi-cally retained.

That leaves about 80% of local prac-tices replaced by Cemex Way standards.

This might be expected to create plentyof ruffled feathers among local manage-ment teams—but here’s where the Ce-mex Way differs from standard integra-tion practice. Instead of simplyscrapping 80% of local practices to en-sure rapid standardization, the stan-dardization groups catalog those prac-tices and store them in a centralizeddatabase. Next, those processes arebenchmarked against internal and ex-ternal practices. Some—like unattended

loading of trucks—turn out to be a better way of ac-complishing the task in question.

These superior processes are refined into enter-prisewide standards, adding to Cemex’s future arse-nal of cost-saving and revenue-enhancing processimprovements. Once adapted to the Cemex Way, andcertified as best in class, they can be rolled out acrossthe enterprise in as little as three months.

The benefits are considerable—not just for theprofitability of the global enterprise, but also formorale and motivation at the newly acquired com-pany. Imagine spending years improving a particu-lar cost accounting system only to be told by an ac-quirer that you’ll be forced to use a clearly inferiorapproach simply for the sake of rapid integration.Now consider the message Cemex can give: “We areoverriding your business processes to get you quicklyon board, but within the year we are likely to takesome part of your process, adapt it to the Cemex sys-tem and roll it out across operations in more than 30countries.” The prospect of such recognition can bea major means of retaining critical local talent.

Each standardization group, on average, identi-fies two to three practices per acquisition, meaningthat Cemex typically identifies 15 to 30 new practiceswith every deal. The business process experts workyear-round identifying and refining corporate prac-tices and establishing benchmarks for future prac-tice. Standardization groups work with companiesin different industries to develop best practices ineach of the nine functional areas, and regularly con-

tribute to the due diligence process foracquisition candidates. Standardizationgroups are responsible for the globalrollout of newly developed processes,and for their maintenance as well.

How are the standardization groupsthemselves judged? Performance met-rics are based on both the number ofnew practices identified, but also on thequality of the practices as determined bywhether they are adopted into the Ce-mex Way canon. Incentive bonuses are

BEST PRACTICES

The Cemex Way is a

method of systematically

mapping, cataloging and

disseminating acquired

business processes across

the global enterprise

Standardization groups

work with companies in

different industries to

understand and develop

best practices in each of

the nine functional areas

030104CD_cemex(26-29) 2/23/04 3:44 PM Page 28

CORPORATE DEALMAKER 29

BEST PRACTICES

based on reaching business process innovation tar-gets established at the outset of each year.

Cemex has clearly found a way to get acquisitionson board quickly. For example, the integration ofHouston-based Southdown Inc. in 2000 (its largestdeal to date at $2.8 billion) took only four months.Equally clearly, Cemex can identify best practicesand build a library of them. But how does Cemex getits businesses around the world to actually adopt theCemex Way processes?

The solution lies in the budgeting process. Busi-ness unit leaders are required to build their budg-

ets around the productivity or revenue enhancementsthat can be anticipated from adoption of the variousnew practices. With best-practice efficiencies bakedinto the business unit budgets, it becomes remark-ably difficult for business unit leaders to just ignorethe new practices unless they have some other way ofgenerating the same or greater cost efficiencies. Notsurprisingly, most opt for the Cemex Way.

The value created by the standardization groupscan be gauged by the length of time they have oper-ated and also by the impact they have had on the Ce-mex organization more broadly. Over half of Cemex’scurrent business practices—ranging from finance to

operations—comes from the steady stream of acqui-sitions the company has made in the past 15 years.This has had a profound effect on the company’soverall profitability. According to one study com-pleted by Stanford Graduate School of Business inthe late 1990s, Cemex was generating about 12.5% ofits gross annual profit as a direct result of the processimprovement—and the Cemex Way has been pro-ducing $150 million in cost savings every year since2000.

Cemex is continually looking for ways to im-prove its business processes and capture the bene-fits of its global position. Not surprisingly, the Ce-mex Way continues to be one of the most valuableprocesses of all. CD

Marc Austin is a research director at the CorporateStrategy Board (www.corporatestrategyboard.com),part of the Corporate Executive Board, a Washington-based membership organization serving more than2,000 of the world’s leading organizations with best-practices research, support tools and executive educa-tion. This article was based on research from CorporateStrategy Board’s study “Acquiring Growth Accelera-tors,” which profiled a variety of M&A best practicesand was prepared with the cooperation of Cemex.

DC

Source: Cemex SA de CV;

Corporate Strategy BoardAcquiring Growth Accelerators,

2001: United States

• Increased efficiency of truck maintenance, part replacement and reduced staffing• New security training procedures

1980s Mexico

• Improved fleet management andlogistics efficiency• More robust cash flow forecasting and management of payments and collection• Standardized, flexible IT platform for distribution management

Early 2000s: Asia region

• Initial testing of applications in the Philippines, Taiwan and Singapore resulted in new network and productivity standards

Early 1990s: Spain

• Streamlined metrics and budgeting process • More rigorous controls and better information for financial negotiations• More efficient plant management technology and tools• Petcoke use in cement kilns

Mid-1990sBangladesh

• Increased efficiency of water transportation procedures

Mid-1990s: Bahamas

• Construction of cement pallets

Mid-1990sto present:South America

• More streamlinedand frequently updated controllership,accounting andcost-management systems• Stronger customer care culture Cemex presence

A world of innovations Origins of selected best practices integrated into the “Cemex Way”

030104CD_cemex(26-29) 3/17/04 2:35 PM Page 29

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