Growth strategies

Learning outcomes
Performance and growth Identifying new opportunities Expansion and diversification.

Introduction
CRH plc is one of the top five building materials groups in the world. It is also one of Irelands 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 CRHs strategy for growth over its history and on into the future.

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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.

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 CRHs 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.

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 companys 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

Not only does CRH diversify in its geographical locations, it also diversifies its products. Starting as a cement, aggregates and concrete company, 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.

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.

Organising growth
Growth is achieved
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 Group operating divisions chart Chief Executive
Group Functions Finance Development Human Resources Environment Health & Safety Operating Divisions Europe Materials Europe Product & Distribution Americas Materials Reporting Segments Materials Products Distribution Materials Products Distribution Americas Product & Distribution

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

CRH
Growth Strategies

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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

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 CRHs 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 Time-bound.

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.

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 CRHs highperformance 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.

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 CRHs Portugese cement plants operated at full capacity by taking advantage of strong export

Developing new products 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 Groups 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 Groups 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.

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Acquisitions
CRH has a history of aggressive inorganic growth. Throughout the 1970s and 1980s CRHs 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 groups 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 Groups 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 Groups 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.

Conclusion
CRHs 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.
While every effort has been made to ensure the accuracy of information contained in this case study, no liability shall attach to either The Irish Times Ltd. or Woodgrange Technologies Ltd. for any errors or omissions in this case study.

Glossary
Capacity utilisation: A firms 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 firms 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 simply the volume of business (total sales revenue) over a period of time.

Student activity
Word Search 1. CRH was formed through the _______ of two companies. (6) 2. Internal growth financed from a companys 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 companys shares are known as _______? (12) 5. When CRH decides to acquire a company, it __________ the terms with the acquired company. (10)

Some of CRHs 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 Stngsel (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

N X R S E F D E Y C S

G E W E L L V J U Y H

N C G G G X X T Y L A

G I E O W R X G U M R

U N F T T O E K D Q E

P A S K P I V M G R H

X G I P Y F A Y K R O

U R B N Z N H T Z Y L

F O F N X U G T E D D

L E Z S N U R K X S E

F C I N A G R O N I R

Find out more: www.crh.com www.business2000.ie