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Friday, 30 May 2014 14:43

Cement Roadstone Holdings (CRH) Plc Featured

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Cement Roadstone Holdings (CRH) Plc


Cement Roadstone Holdings (CRH) is a highly diversified company that deals with the production and distribution of building materials. It is an international organization that operates in over 35 countries and employees over 76,000 people (CRH, 2013). The company was established through the merger of two Irish companies; Roadstone Limited and Cement Limited. Since its establishment, the group has experienced significant growth through acquisition and other strategies. In 2012, the group earned €18.7 billion in revenues, and an operating profit of €1.075 billion (CRH, 2013). CRH focuses on three core businesses; extracting primary materials; adding value to building materials, and distribution of building materials. CRH core products include cement, bitumen, ready mixed concrete, and chemical lime (CRH, 2013). CRH is a public company with its stock listed in the London Stock Exchange, the Irish Stock Exchange, and the New York Stock Exchange.   


 Vision and Mission

CRH vision is to become a global leader in building material, deliver sustainable returns to shareholders and reduce its dependence on a single market through achieving a balance in its product portfolio and geographical presence (CRH, 2013). This vision is the foundation of CRH corporate strategies. The company has established exposures to all segments of the construction industry, enabling the company to diversify its product. The company has also expanded across different geographical regions. Europe is CRH largest market, but the company has operations in other markets including the developing economies.


 SWOT Analysis

Strengths

Strengths are factors within a company that present advantages to the company (Collis & Montgomery, 2008). A strong financial position is a major point of strengths for CRH. CRH has recorded remarkable financial performance in the last decade. In 2012, the firm made revenues of over €18.7 billion and an operating profit of over €1.075 billion (CRH, 2013). Financial resource can be a major source of strength for an organization is it enables an organization to finance activities such as marketing. Financial resources also enable an organization to attract, motivate and retain the best talent. Financial resources have also been a key driver of CRH aggressive growth strategies. In the last decades, the company has acquired tens of companies in Europe and other parts of the world (Jarrar & Smith, 2011).


This acquisition would not be possible without a strong financial base. CRH financial position has provided the organization with a cheap option of financing capital projects and other activities such as corporate social responsibility initiatives. Strong financial performance also increases the credit rating of an organization thus enhancing the ability of the organization to raise funds.A diversified product portfolio is also a key area of strength for CRH. CRH operates a diversified product portfolio from cement, glass, and bitumen to communication systems (CRH, 2013).


Having a diversified product portfolio gives CRH a multiple stream of income thus increasing the company’s revenues. The diversified product portfolio also cushions the organization from risks that affect a given product. For instance, a decline in the price of cement will not have a devastating impact on the operations of CRH because the company deals with other numerous products (Jarrar & Smith, 2011). In addition, the diversified product proposal increases CRH appeals to customers because it boosts the company’s ability to fulfill multiple needs of the customer under one roof.A diversified market is also key point of strength for the organization. CRH has established a strong presence in key European countries such as the UK, Germany, and Poland.


The company has also ventured into developing economies such as India and China (CRH, 2013). CRH has also established operations in the American continent. Geographical diversification has expanded the company’s market thus leading to an increase in the company’s revenues. Geographical diversification also cushions CRH from geopolitical risks. For instance, the economic turmoil in Europe has not had a devastating impact on CRH because the company has operations outside the European region.A large scale of operation is also a major strength for CRH. CRH operates in over 35 countries and has over 3500 operation sites in these countries 9CRH, 2013). The large scale of operation exposes the company to a wide market thus increasing the company’s revenues.


It also enables the company to take advantage of economies of scale (Jarrar & Smith, 2011). This is because the company can acquire goods and services in bulk giving it a massive bargaining power. The large scale of operation also increases the firm capacity to provide materials and services at the lowest price. The ability to take advantage of economies of scale reduces organizational cost thus enabling the firm to offer low prices. The large scale of operation also enables the firm to serve a large volume of customers thus requiring a small profit margin in order to make the desired profits. The large volume of customers will compensate for a small profit margin and enable the company to make the intended profits. A small profit margin also means low prices for the consumer.


 Weaknesses

            A weakness refers to factors within an organization that present disadvantages to the organization. Product diversification is a major point of strength for CRH. However, this organizational characteristic can also become a weakness. Organizations that focus on developing multiple products often fail to develop distinct competency due to lack of specialization (Jarrar & Smith, 2011). Focusing on multiple product lines means that CRH has to divide its resources, and energy among all these product line. This can hinder the organization from achieving the full potential of the company in terms of product development.


Diversification can also hinder innovation with an organization because the company has divided its attention among multiple product lines (Jarrar & Smith, 2011). It hinders the organization from focusing its resources on one product. Product diversification also leads to the creation of complex organizational structure, which increases the number of decision-making channels. Similarly, market diversification also presents a number of disadvantages to CRH. First, market diversification can hinder CRH ability to meet and exceed customer expectations (Burger, 2010). Customer satisfaction has become the ultimate goal of all organizations that intend to survive the modern business environment.


Customer satisfaction can only be achieved when an organization is able to meet and surpass the expectations of customers. Different markets have different characteristics, needs and expectations (Burger 2010). Therefore, products that meet the needs of one market may fail to meet the needs of another market. Thus, geographical diversification can limit customer satisfaction by delivering standardized products to markets that have different needs and characteristics. Market diversification hinders an organization from focusing its attention and resources towards meet the needs of a given market. This is because the company has to divide its attention and resource among different markets.


This can also limit the ability of the firm to deliver optimal satisfaction to customers.A large scale of operation also exposes CRH to various weaknesses. The most significant weakness is that the large scale of operation reduces CRH flexibility in terms of responding to changes in the external environment. Large organizations tend to have complex and bureaucratic organizational structures (Castan & Fariza, 2009). These structures are necessary because they define the relationship between employees thus enhancing coordination and creating order. However, the complex structure may slow down decision making processes (Castan & Fariza, 2009). This may make CRH slow in terms of responding to opportunities and threats in the external environment.


 

Opportunity

Opportunities are factors outside the organization that present advantages to the organization. One of the opportunities for CRH is the rapid growth within the developing economies. CRH has ventured into developing economies such as China and India (Jones, 2013). These countries have recorded remarkable economic growth in the past decades. Rapid economic growth in correlated with increased construction activities, which present an opportunity for CRH. The rapid economic growth has also led to growth of the middle class within these countries. This is likely to increase the demand for improved housing facilities thus increasing demand for residential construction. This also presents an opportunity for CRH.  Currently, India accounts for 4% of the global construction market share while China accounts for 18% of the market share (Jones, 2013).


Growth is also anticipated in other emerging economies such as the Philippines, Vietnam, and Indonesia.Another opportunity is the rebound of the US housing industry. In 2012, United States sales contributed to 45% of CRH total revenues (Catts, 2012). This figure marks a significant improvement in the US market. The number of new houses that were started in the month of October 2012, rose by 3.6 percent. The US market has begun to lift itself off from the economic crisis that devastated the housing industry. This trend presents an opportunity for CRH to expand its influence in the American market and increase revenues. Jones (2013) has projected that the three markets; India, China, and the United States, will account for 60% of construction growth by the year 2025.


Urbanization, especially in developing economies, also presents a significant opportunity to CRH. Urbanization refers to the movement of human populations from rural areas to urban centers (KPMG, 2012). Urbanization is on the increase in many countries around the world. It is projected that over 70% of the world’s population will be living in urban centers by the year 2050 (KPMG, 2012). This trend presents immense opportunity to CRH. This is because urban growth is likely to increase demand for residential houses. This will, in turn, increase the demand for construction products. Urban growth will also increase demand for office and business space leading to a further increase in the demand for construction products. 


 Threats

Threats are factors outside the control of the company but which present disadvantages to the company. Environmental concerns are among the major threats facing the construction industry. Emerging fears of climate change and environmental degradation are piling pressures on societies to implement strict environmental laws and policies. For instance, there is increased pressure on governments to reduce greenhouse gas emission by 50% (Moule, 2013).  Implement such an environmental policy will have a significant impact on CRH production. The company will incur huge expenses in trying to develop production technologies that will minimize greenhouse gas emission from its factories.


Environmental policies can have a significant impact on CRH since the company deals with extraction of primary products.Inflation is also a significant threat to CRH’s operations. Inflation refers to the increase in the prices of commodities. Inflation will affect the activity of CRH in various ways (Moule, 2013). First, inflation will increase the cost of acquiring materials for the company. This is likely to increase the cost of production, increase prices of the firm’s product, and/ or eat into the company’s profits. Similarly, inflation will also increase the cost of labor. Currently, CRH employs over 75,000 people (CRH, 2013). Inflation will increase the cost of living for these employees compelling the company to increase their salaries.


This implies that the company will incur large labor costs thus affecting prices and profits. In addition, inflation will also affect the purchasing power of potential consumers thus reduce the demand for housing. This will, in turn, reduce the demand for construction products thus affecting the company’s revenues.The economic condition in Europe is also a significant threat to CRH. The European region has been largely affected by the Eurozone crisis (KPMG, 2012). Most economies in this region have declined. The economic crisis has affected CRH in various ways.


The crisis has led to low purchasing power of consumers thus decreasing the demand for houses. This has, in turn, affected the demand for CRH. Europe is CRH major market and, therefore, a reduction in the demand for CRH products is bound to have a major impact on the company’s performance. There are fears that the economic crisis in Europe will persist further affecting the demand for CRH products.


 Company and Industry Success Factors

The construction industry comprises of suppliers of construction materials, and firms involved in constructing, demolishing, and renovating buildings and other structures. One the critical success factors in the construction industry is leadership (Kivark & Arslan, 2009). Leaders provide an organization with a vision and a sense of direction. The inspire confidence among other members of the organization and inspire them to work towards the goals of the organization. Without good leadership, an organization is likely to pull in different directions. Leadership introduces synergy into the organization thus enabling the organization to succeed. Leadership is closely related to management. Management refers to skills in planning, organizing and coordinating the activities of an organization (Kivark & Arslan, 2009).


The company leaders must also posses the skills required to plan for strategies that will lead to the realization of the company’s vision.  In this competitive environment, organization must make long term plans on how they intend to compete against fierce rivals.Another critical factor is the financial condition of the firm. Construction is a capital intensive business (Kivark & Arslan, 2009). Construction companies require a large financial outlay in order to manufacture construction products or undertake construction projects. Thus, a company must have the ability to mobilize financial resources in order to succeed in this business. The third success factor is favorable economic condition. The construction industry is highly sensitive to the economic conditions within the market (Moule, 2013).


Poor economic conditions result in depreciation of property value thus discouraging demand for housing products. Similarly, purchasing a house or property is a significant investment that requires significant financial investments from consumer. Poor economic conditions affect the purchasing power of consumers that causing a significant drop in the demand for construction products.Operational efficiency is also a key success factor in the construction industry. Inflation has been identified as one of the significant threats to the construction industry (Kivark & Arslan, 2009). Inflation has threatened to increase the cost of production, therefore, increase the prices of the final products.


Similarly, inflation affects the purchasing power of consumers. In order to sustain demand for construction product, construction companies need to ensure that these products remain affordable amidst inflationary pressure. The only way this can be achieved in through increase operational efficiency. CRH has invested in plants, equipments, and technologies with the aim of improving its operational efficiency.Employee development is also a critical success factor for construction companies. The construction industry has become extremely competitive (Kivark & Arslan, 2009).


Players within this industry have to find sustainable sources of competitive advantage. Short term sources of competitive advantage such as price are easily replicated by competitors thus eroding the firm competitive edge. The easiest way to develop distinctive advantage is by investing in employee development. Human resources strategies are difficult to replicate since they entail cultural and behavioral elements, which are difficult to copy. Similarly, human resource development can support other distinctive advantages such as innovation, superior customer service, and efficiency.


 CRH Driving Forces

One of CRH driving forces is an aggressive growth strategy. The company has adopted a rigorous cash generation and capital allocation strategy in order to fuel the company’s growth (CRH, 2013). CRH focuses on reinvesting it existing assets and acquiring well-run businesses in order to gain access to new development activities and create a platform for future growth. The company has made various vertical and horizontal integrations in the developed and developing economies in order to enhance the company’s position. In 2013 alone, CRH has completed takeovers worth over $ 513 million (CRH, 2013). CRH acquisition strategy has enabled the group to establish a strong production and distribution network in different geographical locations.


Accessibility to primary material is also a critical driver for CRH (CRH, 2013). The group runs integrated primary material businesses that own long-term reserves in CRH major markets. The company’s integration strategy has exposed it to long-term permitted building materials reserves totaling 15 million tons. Availability of primary materials has been a key feature in CRH growth.Ability to deliver a wide range of quality products has also been a key driver of CRH success. In the modern business environment, customers prefer an organization can provide quality products in the most convenient ways. CRH manufactures a wide variety of products for use in commercial and residential construction projects (CRH, 2013).


These products include building systems, construction accessories, clay bricks and blocks, aluminum glazing systems, architectural glass, architectural concrete products, communication, and transportation systems. CRH’s ability to deliver a variety of products enhances the firm’s ability to fulfill multiple needs of clients thus providing the client a convenient experience.  In addition, CRH has made investments in modern plants and equipments in order to improve the quality of its products. This has enabled the group to improve the levels of customer satisfaction.A highly motivated workforce is another driving force of the organization. CRH employs over 75,000 people across 35000 locations (CRH, 2013). CRH has adopted a decentralized structure and entrepreneurial environment in order to empower its employees and foster innovation.


The company is also committed toward developing the skills and leadership capabilities of its workers. CRH has a strong succession strategy that aims at promoting the values of the organization and supporting the careers of its employees. The company’s human development strategy focuses on assigning challenging tasks to employees and providing targeted mentoring and coaching. The company also provides formal education and training programs to its employees. This environment has enabled CRH to attract, motivate and retain the best talent.Corporate social responsibility is also key part of CRH operations. CRH recognizes that it is part of societies in which it operates and has remained committed towards fulfilling its responsibilities towards these societies (CRH, 2013).


 Environment and climate change are some of the major areas of concern when it comes to corporate social responsibility. CRH focuses on developing the highest standards in environmental protection. The group has developed extensive programmes that seek to improve energy efficiency, increase recycling, reduce waste, and optimize water use. CRH is on target to meet its pledge to reduce carbon emission by 15% of its 1990 levels (CRH, 2013). The company has also established programs for rehabilitating worked-out queries and pits and maintaining biodiversity in areas where these operations existed. Also at the heart of CRH corporate social responsibility initiatives are people and communities. CRH supports local communities through the provision of employment opportunities and support for community enterprises and projects.


 Use of International Strategic Alliance in CRH

Strategic alliance is a partnership created by parties to pursue a common objective but remain separate entities (Wakeam, 2013). Use of strategic alliances has been a key strategy for growth in CRH. CRH has entered into strategic alliances with various companies in order to gain access to new markets and opportunities. Joint ventures enable the company to establish its operations in a new market within a short time and minimize the risks associated with operating in strange market. CRH has entered into strategic alliances with companies such as Semapa leading to the creation of joint venture known as Secil (CRH, 2013).


 Conclusion

CRH is a major player in the global construction industry. The company manufacturers and distribute diverse construction production to various markets around the world. Europe is CRH major market. However, the firm has operations in other regions including the US, South America, India and China. The company has various strengths including a strong financial position, large scale of operation, and a diversified product portfolio. The company is also presented with a number of opportunities include growth of developing economies and rebound of the American market. However, CRH has to overcome various weaknesses and threats.


 References

Bryson J. Ackermann F. & Eden C. (2007). Implementing the Resource Based View Strategy. Public Administration Review.  

Burger A. (2010). Conglomeration versus Strategic Focus. November 12, 2013. http://fic.wharton.upenn.edu/fic/papers/99/9929.pdf

Castan J. & Fariza A. (2009). Determinants of Organizational Structures. International Comparative Management. 10 (3): 566- 577

Catts T. (2012). CRH Wields $ 1.9 Billion for M&A as U.S. Housing Rebounds. November 12, 2013. http://www.bloomberg.com/news/2012-11-20/crh-wields-1-9-billion-for-m-a-as-u-s-housing-rebounds.html

Collis D. & Montgomery C. (2008). Competing on Resources. November 8, 2013. http://hbr.org/2008/07/competing-on-resources/ar/1

CRH (2013). Annual Report 2013. November 12, 2013. http://www.crh.com/reports/2012-Annual-report.pdf

Jarrar N. & Smith M. (2011). Product Diversification. Journal of Applied Management and Accounting Research. 9 (2): 43- 60

Jones J. (2013). Global Construction to Jump 70% by 2025. November 12, 2013. http://www.asce.org/cemagazine/Article.aspx?id=23622327424#.UoIOIXDQnfI

Kivark  S. & Arslan G. (2009). Critical Factors to Company Success in the Construction Industry. Journal of Human and Social Sciences. 4 (8): 561- 564

KPMG (2012). The Great Global Infrastructure Opportunity. November 12, 2013. http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/global-construction-survey-2012/Documents/infrastructure-opportunity.pdf

Moule J. (2013). The of Construction. November 12, 2013. http://www.integrity-software.net/news/the-future-of-construction-five-threats-revealed/

Wakeam J. (2013). The Five Factors of a Strategic Alliance. November 12, 2013. http://iveybusinessjournal.com/topics/strategy/the-five-factors-of-a-strategic-alliance#.UoIh8nDQnfI


 

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