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5/16/2018 CRH Diversification - slidepdf.com
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Introduction
CRH plc is one of the top five building materials groups in the world. It is
also one of Ireland’s largest industrial companies. CRH operates in 28
countries across three continents and employs around 90,000 people.
The company has three closely related core businesses:
• Primary materials (cement, aggregates, asphalt, etc)
• Value-added building products (bricks, rooftiles, insulation, etc)
• Specialist distribution (Builders’ Merchants, DIY stores, etc)
CRH was founded in 1970 following the merger of two Irish
companies, Cement Ltd. and Roadstone Ltd. During four decades of
solid growth, they have expanded their operations by a combination of
shrewd internal investment and by buying small companies in the
same industry. This case study will examine CRH’s strategy for growth
over its history and on into the future.
Growth strategies
Learning outcomes
• Performance and growth
• Identifying new opportunities
• Expansion and diversification.
Business 2000
ELEVENTH edition
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Expansion
In the early 1970s CRH set out a strategy it would retain until the
present day: to invest in similar businesses and products overseas.
At the time, this was not the only possible strategy for CRH to follow.
They could have focused exclusively on their operations in Ireland. But
this strategy would have carried risks. The Irish construction market at
the time was small and prone to cyclical changes. In other words, the
sector might boom one year and bust the next. A downturn in the Irish
market could damage CRH’s profitability. But by acquiring foreign
operations, they could spread the risk and opportunities across a
number of countries. That way a poor market in Ireland might be offset
by a booming market in the Netherlands. And by the time there is a
downturn in the Netherlands, the Irish market might be booming
again. The likelihood of all the markets busting at the same time gets
lower and lower as you move into more and more markets. This
principle is called diversification.
Not only does CRH diversify in its geographical locations, it also
diversifies its products. Starting as a cement, aggregates and concretecompany, the group soon moved into complementary product
opportunities, such as other building materials. However, CRH did not
diversify outside of its core business into unfamiliar sectors where they
did not have the same level of expertise.
Organising growth
While this strategy has evolved over the years, the broad thrust is still the
same. CRH has operations throughout Europe and North America and
platforms for further growth in South America and Asia. Less than 10%
of CRH operations are now based in Ireland. While the bulk of its activities
are outside Ireland, CRH is still very much an Irish company. A small head
office team in Dublin sets the broad strategy for the group.
CRH growth strategies
CRH has expanded through both organic and inorganic growth.
Types of growth
• Organic growth is internal growth financed from the reserves
of the company.
• Inorganic growth occurs when a firm acquires other companies,
merges with other firms or forms alliances.
CRH is a decentralised group with many subsidiary companies
operating under a wide range of names. Its strategy has been to build
leadership positions in regional and local markets. The organisation
has done this by acquiring existing mid-sized companies, continuously
improving their performance, adding to their productive capacity and
efficiency and developing new products and markets. Occasionally
larger companies are acquired. These become platforms on which to
build future growth.
The point of all this growth is to increase value for shareholders (those
who have invested in CRH by buying the company’s shares). And this
CRH has done extremely well. The company has consistently
delivered superior long-term growth in total shareholder return,
averaging over 19.5% per year for the last 36 years.
This kind of consistency would not be possible without a long-term
strategy. A business strategy provides overall direction to the whole
enterprise.
The company must first define its objectives. Then it must develop
policies and plans to achieve those objectives, and allocate resources
so as to implement the plans.
Growth is achieved
CRH has a three-part strategy for fostering new growth
across its operations.
• Invest in new capacity
• Develop new products and markets
• Acquire and grow mid-sized companies
CRHGrowth Strategies
CRH Group operating divisions chart
EuropeMaterials
EuropeProduct &
Distribution
AmericasProduct &
Distribution
AmericasMaterials
Materials Products Distribution DistributionMaterials Products
Reporting
Segments
Chief Executive
Group FunctionsFinance • Development • Human Resources • Environment • Health & Safety
Operating Divisions
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Investment
Investment is central to growth. CRH is making four fundamental types
of investments that will make continued growth possible:
• Invest in its employees
• Upgrade production facilities
• Improve efficiency• Manage performance
Invest in people
The success of CRH is very much due to having talented, committed,
enthusiastic and well-qualified people throughout the Group. They
encourage and support the continuous professional development of
the CRH team and its members.
What attracts people to CRH? A competitive pay package, the
opportunity to travel, a good working environment, the ‘team’ philosophy,
flat organisation structure, challenging work assignments and internal
training programmes to prepare the next generation of leaders.
Upgrade production facilities
CRH re-invests capital in their existing facilities to improve energy and
operational efficiency and to expand capacity to meet future demand
growth. In other words, a plant producing 500 tonnes of cement a day
could easily meet local demand in 1990, but years later, the demand
could skyrocket due to a building boom. If the plant does not upgrade
to increase its capacity, then competitors will. Like all other technologies,
methods of production can become obsolete. It takes substantial capital
to re-tool an entire factory with newer, better machines, but regular
upgrading is necessary to maintain and improve competitiveness.
Improve efficiency
One way to get more out of existing factories is to make sure they are
being used to the maximum. A low capacity utilisation results in
higher fixed costs per unit, which means lower profitability. Low
capacity utilisation can be a result of over-supply in the market or
seasonal fluctuations of demand.
In Portugal, for example, the economy is going through a difficult
period with construction down approximately 3.9% for 2007, reflecting
reduced activity in housing and a significant reduction in public capital
expenditure. However, all three of CRH’s Portugese cement plants
operated at full capacity by taking advantage of strong export
markets. Investment in efficiency and environmental improvement
programmes, to offset higher input costs and improve performance,
continued at all three locations.
Manage performance
A strong focus on achievement against targets is part of CRH’s
objective of performance and growth. The ability of key players to
deliver is paramount. CRH has adopted a strong performance
management and appraisal process.
The key elements include:
1. Planning - Clear expectations and goals are set and so plans
develop to achieve these. Jobs, and how they relate to the strategic
objectives of CRH, are looked at. These plans set out key steps and
measures for staff. The A-SMART criteria are used, i.e. Aligned,
Specific, Measurable, Action-oriented, Realistic and T ime-bound.
2. Coaching - Observing and documenting performance, conducting
reviews, as well as identifying training and development needs all
provide feedback and support, and ultimately promote better
performance achievement and growth. Having a mentor or coach can
help staff to learn and develop, and reinforces effective and active
communication and performance.
3. Reviewing - Achieving results is a critical aspect of CRH’s high-
performance culture. ‘What’ the individual achieves as well as ‘How’,
are assessed and reviewed. Self-assessment, collection of
information, appraisal and a review meeting all drive performance
improvement. Employees have an opportunity to respond to
feedback. Regular formal reviews of management development
strategy are carried out by each Division, with guidance and support
provided by the Group Human Resources function.
Developing newproducts and markets
CRH has activities in 28 countries but there is still plenty of room for
expansion within those markets, and in neighbouring regions. The
Group’s wide spread across countries, regions and construction
sectors helps to smooth the effects of industry and economic cycles.
That wide spread of activities creates opportunities for further growth.
Each of the Group’s diverse operations across three continents is seen
as a platform on which to build. CRH tailors its strategy to suit each
country it operates from.
Business 2000ELEVENTH edition
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Find out more: www.crh.com
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Acquisitions
CRH has a history of aggressive inorganic growth. Throughout the 1970s
and 1980s CRH’s expansion overseas concentrated on business areas in
which the group operated in Ireland – building materials and products. The
group entered Spain in 1987 and benefited significantly in the run-up to
the Barcelona Olympics. Entry to Germany, France, Belgium and Portugal
followed during the 1990s. Many successful additions to the group were
in the US, where the company has acquired operations in over 700
locations across 46 states. By 2000, operations on the other side of the
Atlantic accounted for almost 63% of the group’s turnover.
Regional and product group managers identify opportunities for
acquisition in their areas. These opportunities are then evaluated. If
CRH chooses to go ahead with the acquisition, it negotiates the terms
with the acquired company. Then the two companies work together to
integrate their operations.
Traditionally, CRH has acquired mid-sized companies, but it does
make 1-2 very large acquisitions per annum. The aim is to build up
leadership positions in local markets by either adding to existing
activities or moving into new markets. Acquisitions are often family
businesses that fit with the Group’s existing operations.
With its deep knowledge of the construction industry CRH can bring new
products, management and financial resources to help develop and
expand the businesses it acquires. It is organised on a product basis with
a regional focus so that it is easier to share expertise across the Group –
expertise that can be tailored to suit local product or cultural needs.
Measurement is seen as another key element in the success of CRH. It
uses its broad knowledge of the construction industry to set targets and
measure the performance of the businesses within the Group. In that way
it seeks to standardise best practice across the Group encouraging local
managers to learn from their colleagues elsewhere in the Group.
Good internal communication is seen as essential to achieving the
Group’s objectives. To ease the transfer of information and expertise
across the Group the top 100 managers are brought together each
year to agree strategy and debate important issues. These meetings
also help managers to get to know one another so that a manager can
pick up a phone and call or visit a colleague if he or she has something
new to teach or to learn.
Some of CRH’s 2007 acquisitions
Plastybeton (Italy): plastic spacers and formwork accessories
Halfen-Frimeda (Norway): metal-based construction accessories
distributor
Sodeco (France): magnetic accessories products for the
construction industry
Tuvan Stängsel (Sweden): fencing, gates, outdoor security and
access control systems.
OREP (France): perimeter fence detection systems
Cinor (France): load-bearing walls and reinforced and
pre-stressed concrete beams and columns
Dalton (Denmark): concrete stairs and balconies
Ergon (Poland): structural concrete operations
Anderton Concrete Products (England):precast concrete fencing
products
Conclusion
CRH’s long-term growth strategy has delivered extremely good results
consistently for 36 years. Their three-part approach of invest, develop
and acquire will continue to inform them as they move forward into
new markets, new products and new opportunities.
Word Search
1. CRH was formed through the _______ of two companies. (6)
2. Internal growth financed from a company’s own reserves is
known as what type of growth. (7)
3. When a firm acquires, mergers or forms alliances with other
companies this is known as _____ growth. (9)
4. Those who invest in company by buying the company’s
shares are known as _______? (12)
5. When CRH decides to acquire a company, it __________ the
terms with the acquired company. (10)
Student activity
Capacity utilisation: A firm’s productive capacity is the total
level of output or production that it could produce in a given time
period. Capacity utilisation is the percentage of the firm’s total
possible production capacity that is actually being used.
Capital expenditure: Funds used to acquire or upgrade physical
assets such as property, industrial buildings or equipment.
Diversification: Spreading assets across geographical locations,
markets, industries or products. This decreases the risk of big
losses, but also makes it harder to outperform the overall market.
Turnover: Turnover is s imply the volume of business (total sales
revenue) over a period of time.
Glossary
N G N G U P X U F L F
X E C I N A G R O E C
R W G E F S I B F Z I
S E G O T K P N N S N
E L G W T P Y Z X N A
F L X R O I F N U U G
D V X X E V A H G R R
E J T G K M Y T T K O
Y U Y U D G K Z E X N
C Y L M Q R R Y D S IS H A R E H O L D E R
W h i l e e v e r y e f f o r t h a s b e e n m a d e t o e n s u r e t h e a c c u r a c y o f i n f o r m a
t i o n c o n t a i n e d i n t h i s c a s e s t u d y , n o l i a b i l i t y s h a l l a t t a c h
t o e i t h e r T h e I r i s h T i m e s L t d . o r W o o d g r a n g e T e c h n o l o g i e s L t d .
f o r a n y e r r o r s o r o m i s s i o n s i n t h i s c a s e s t u d y .