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Strategic Review of CRH

Assignment
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Contents
Introduction.............................................................................................................................................. 3
CRH Corporate Structure ....................................................................... Error! Bookmark not defined.
Part I - Theoretical framework Selection, justification and Evaluation ........................................... 3
1.1 Porter Five Forces Analysis ...................................................................................................... 4
1.2 PESTLE Analysis ....................................................................................................................... 5
1.3 Ansoff Matrix ............................................................................................................................... 6
Part II: Corporate Strategic Analysis of CRH ..................................................................................... 8
2.1 Porter Five Forces Model Application on CRH ...................................................................... 8
2.2 PESTEL Analysis of CRH ....................................................................................................... 10
Part III- Conclusion............................................................................................................................... 12
3.1. Suggestion of CRH Corporate Strategy Model by Ansoff model ...................................... 12
3.2 Conclusion ................................................................................................................................. 13
3.3 Recommendations ................................................................................................................... 13
References ........................................................................................................................................... 15
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Introduction
The report is based on the macro and micro environment analysis of CRH Plc to

suggest a suitable corporate strategy for the firm. The recommendations and conclusion

at the end of report are based on PESTEL analysis, Porter five forces, and Ansoff

matrix analyses. The strategic review is based on selection of most suitable corporate

strategy for the company.

CRH is established after the merger of two Irish companies, Roadstone Limited and

Cement Limited in the year 1970. Both original companies have already made

benchmark statuses in building and construction industry. In the year 1970, the sales of

CRH are reported as €26m. The company is having its operations in 34 different

countries around the world and having staff of 92,000 employees but with major focus in

USA and Ireland. CRH remained successful because of its good operations and control

from its head office, which, no wonder is in small size but the head office ensure

smooth growth in their industry (CRH plc 2010).

CRH is specialized in in raw materials, finished products and distribution of building

materials. The first segment means materials include production of cement and its

aggregation. Products include making of architectural glass and concrete. The company

has been rewarded for good relations with investors, innovations in making environment

friendly products and improved financial reporting.

Part I - Theoretical framework Selection, justification and Evaluation

The corporate strategies of CRH to manage the macro and micro environment are

analysed in this report with the help of macro forces analysis (Porter five forces model)

and Products portfolio analysis (BCG matrix). In the end, the suitable corporate strategy

suggested with the help of Ansoff matrix evaluations.

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1.1 Porter Five Forces Analysis

Porter (1980) five forces model showed the company’s competitive position in an

industry by using five forces of micro environment. This model is selected due to its

structured view, simplicity, and suitability to the large construction and building sector

businesses of CRH.

Fig. 1: Porter Five Forces

Source: Porter (1980)

The benefits of this model include a comprehensive view, consideration of all market

players, and ability to show a structured and simpler view of market for the top

management. In contrary, this model has some major limitations due to the

consideration of markets’ static nature, stable industry profiles, and large industries

characteristics. Also, it ignores alliances and joint ventures in dynamic markets, sharing

of common information portals, and technology intensiveness of companies. This model

does not consider the internal strengths and core competencies. Rivard and Raymond
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(2006) criticized the model that it does not consider the role of competitive advantage,

corporate structure, and leadership characteristics of the companies.

In comparison to SWOT, the model is able to suggest corporate strategies for the

company (Grundy 2006). This analysis is suitable for evaluation of competitive position

of the firms in large industries like building industry of CRH. Also, a clear picture of the

whole sector can be viewed with the help of this model to determine the attractiveness

and profits expectations.

1.2 PESTLE Analysis

This analysis is a prominent tool used to measure the forces affecting company

operations from external macro environment. The analysis is actually the measure of

big picture, selected for this report due to its universal nature and good application on

large industries like construction sector (Gottfredson et al 2006). The SWOT is nearly

similar in nature with PESTEL as both measures opportunities and threats, but PESTLE

is more comprehensive measurement of macro environment.

Fig. 2 PESTEL Framework

Source: Grant (2011)

Though, when critically evaluated, the model is not found very helpful in identifying the

immediate opportunities and threats of the firm and only providing a vague picture of all
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players of surroundings. Also, the risk can be identified from this model but cannot be

measured. The model is applicable to understand the industry threats and opportunities

but does not consider the other competitive forces in it. Also, the actual value or

competency of the individual firms has not been considered in this model (Wit & Meyer

2004).

The justification of the model lies in its universal nature and applicability to all industries.

It looks at factors specifically affecting the operations of the firm in a particular country

or industry. For a global organization, separate PESTEL analyses are performed in

each operating country (Coyne and Sujit 1996).

1.3 Ansoff Matrix

Ansoff Matrix is a widely used to predict suitable corporate strategy for a firm based on

the results of strategic tools of analyzing macro and micro environment. The model is

selected to identify the future strategies of CRH in four orientations of product

development, market development, market penetration, and diversification (Ansoff

1965).

The justification of this model lies in its usefulness as a corporate strategy tool for large

organizations like CRH. Also, this model considers both risks and returns to facilitate

planners of the firm because it identifies the intensity of risks involved in selecting any

strategic alternatives in future business operations. Magretta (2002) studied the strength

of each strategic alternative by considering the available resources and core

competencies of the firms.

When critically evaluated, model is found to have some limitations like showing the big

picture of the industry only. The model ignores the internal changes and capabilities of
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the forms that different companies in the same industry. Limitations of Ansoff Matrix

involved suggestion of broad level strategy only and ignorance of multiple complex

strategies in different markets. Real life situations are more complex and 3x3 matrix of

Ansoff has been proved to be more applicable in these situations. This model in fig. 4

has used extended markets and modified products orientations also (Moore 2005).

Fig. 4: Ansoff Matrix 2x2 model

Fig. 5: Ansoff 3x3 Matrix

Source: Ansoff (1965)

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Part II: Corporate Strategic Analysis of CRH

2.1 Porter Five Forces Model Application on CRH

The CRH competitive positioning in constriction business can be analysed by this model

as it contains all forces of micro environment. The source of competitive advantage for

the company achieved after this analysis and it leads to one of the generic strategies for

the company.

2.1.1 Bargaining power of Buyers

The construction industry has been stayed fragmented with varied production rates

according to the requirements of buyers,. The buyers of CRKH range from individual

scales to the public organizations. Company has possessed diversified portfolio of

buyers in both markets of USA and Ireland. The bargaining powers of buyers are high in

this industry because of the presence of multiple players and governments control on

the prices in public projects. On the other hand, ;loyalty of customers is high in this

industry due to high involvement products, therefore, company can manage achieving

new orders easily from existing customers.

2.1.2 Threat of new entrants

The construction industry has high sunk costs and required huge initial investments to

establish plants and purchase machinery. Hence, the threat of new entrants of CRH

size is quite low in operational countries but small business is rapidly growing in rapidly

grooming building and construction industry. CRH has established its massive

operational capacity in domain countries but son will face threat of new entrants due to

new investments from strong groups of the industry.

2.1.3 Bargaining power of suppliers

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Due to heavy dependence of supply of raw material for cement and other building

products, CRH has maintained favorable relationship with suppliers in all these years.

These suppliers have played an important role in growth of the company in international

markets especially in USA. The fulfillment of agreements was always a key to success

for CRH. The bargaining power of suppliers is quite low in this industry due to presence

of large group of suppliers and very few giant businesses like CRH. Therefore, suppliers

are also interested in keeping long term relationships with the company.

2.1.4 Rivalry among the Competitors

As the rate of new entrants has been increased in recent years, therefore, CRH has

many competitors in established markets of USA and European countries. This trend is

reverse of that in nineties when the markets was controlled by CRH and few of its

competitors,. Due to heavy expansion in urban areas I new millennium,. The

competitors’ network increased in local and international markets (Gale Cenagage

Learning 2010).

2.1.5 Threat of Substitute Products

The substitutes in construction industry are not readily available as cement and

aggregates are still available at low prices but with the passage of time, due to the huge

increase in demand, the substitutes will be developed due to the advancements in

technology. Also, the scarcity of raw materials for cement can create the heavy need of

substitutes in coming years.

On the basis of above analysis, the suitable Porter (2008) generic strategy for CRH is

still cost leadership due to low differentiation required in building material. Company can

stay competitive in international markets also by offering quality products at low prices
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due to strong supplier relationships and high bargaining power of competitors and

buyers.

2.2 PESTEL Analysis of CRH

2.2.1 Political factors:

CRH is enjoying low tax rates (12.5%) in Irish government role which is subsidized its

operations in home countries. The stable political system and low corruption rates in

Europe and USA have helped the company to flourish rapidly, but in new economies of

Asia like that of CHINA and India these two threats are high. The dependency on

government projects has made the company prone to changes in political structure of

each operating country.

2.2.2 Economic factors

CRH has an established structure and at its mature stage of businesses, therefore its

surroundings are capitalized in stable economies like that of Europe and USA. The

company has balanced geographic segmentation of operating countries and preferred

to expand only in established and growing economies. High energy and fuel prices

globally have increased transportation costs and federal tax structures; therefore,

company is facing more burdens on its operating expenses as compared to past

decades. Due to the increase in transportation and logistics costs, CRH has lost the

economies of scale in recent years. Patented technologies and copy righted production

methods can help the company to achieve economies of scale. The business cycles of

CRH are larger than the economic cycles in amplitude and duration.
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2.2.3 Socio cultural factors

The company nature of business is not largely affected by social and cultural factors but

changes in family structures, living styles, urbanization have changed the demand of

new housing projects that has created profits for the country. The company has also

capitalized the available technically trained manpower and unskilled labour of

developed and under developed countries. In Asian countries like China and India,

cultural and social factors are important in company operations, labour practices,

employees’ relations, and corporate social responsibility factors.

2.2.4 Technological factors:

The impacts of technology are affected CRH in standardization of products and

increasing the production speed and accuracy. The company has utilized the

advancements of information and communication technology. The availability of high

tech machines and technical advisors has helped the company to better its competitive

position in the market. Capacity expansion, plant upgrades, and computerization of all

process are needed to sustain the competitive advantage of the company.

2.2.5 Legal Factors

The legal structure of the operating countries has affected the alliances and joint

ventures of CRH with local businesses and suppliers. Also, changes in labour and

industrial laws and tax reforms have direct impact on company operations. Company

has used acquisitions and alliances strategies in global expansion, needed legal

supports to manage practices in various countries. Also, the legal systems of one

country have given benefits for the company in its income transfers and suppliers costs.
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2.2.6 Environmental Factors

Cement and construction industry ids highly criticized due to the heavy amounts of air

and water pollution associated with it. With the increase in global warming awareness

and strict environmental standards in developed nations, CRH needs to employ more

standardization in environmental protection. CRH has been famous for its

environmental practices in industry and awarded many times on innovation in

environmental initiatives.

Part III- Conclusion

3.1. Suggestion of CRH Corporate Strategy Model by Ansoff model

He markets of US and Ireland are developed for CRH but it is penetrating in new

economies of Asia like that of China and India. As products in construction industry

have low margins of development and innovation therefore, product development

strategy might be useful in established markets but in new markets, the suitable

strategy is still market development and penetration. Therefore, company is using all

four quadrants of Ansoff matrix in different countries construction industry and here is

no unified strategy to be suggested at this stage.

Overall, being an established and large company in construction business, CRH could

use nine grid model of Ansoff in its global markets operations to finalize corporate

strategy with reference to various markets. Also, the complexity of markets nature and

large product portfolio makes it difficult for CRH to select a single corporate strategy.

According to this analysis, it should be a combination of market development and

market penetration. Therefore, the matrix quadrants of market penetration and market

development are still applicable to the company. Diversification is not very suitable
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strategy due to less variation in cement and other building material. Also, product

development is not very much needed as CRH has many products in growth phase and

only Ready mix Concrete is the mature and cash earning product. Therefore, there is

less capacity of new product development.

3.2 Conclusion
The vision of CRH shows it as a responsible construction company and a leader in

building materials, best quality products in established markets of USA and Ireland

results and exceptional performance. The company can expand new geographic

boundaries and to develop new products in existing markets. The above analyses with

the help of PESTEL, Porter five forces model and Ansoff matrix, it is evident that CRH is

an established leading company in its base countries with operations in 34 other

countries. The company needs to explore new markets with existing products and

developed newly entered markets.

3.3 Recommendations
Following recommendations are given to improve the competitive position of CRH in the

industry.

1. The business portfolio of CRH shows that two major markets showed the growth

pattern since the year 1990 and the two markets are US and Irish market. According to

analysts, the company is generating 40 and 60% revenues from both the markets. It is

advisable for CRH to invest in developing economies like India and China also by

investing in high profile projects and to make local alliances and partnerships.
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2. In Ireland, CRH need to concentrate on repair, maintenance and home

improvement brands to gain high revenues and market expansion with new products

development and it is also advisable for CRM to invest in this particular

3. More investments in building customer relationships and strong enterprise

solutions for employees and suppliers will facilitate the company’s growth in new

economies. The countries where market is concentrated, there is a wide distribution of

materials, other products related to building and construction and minor building

products material from CRH will be successful.

Words: 2500 (excl. TOC, references, front etc.)

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References
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Coyne, K.P. and Sujit Balakrishnan (1996), Bringing discipline to strategy, The

McKinsey Quarterly, No.4.

CRH plc, (2010), 2010 CRH Report, retrieved from http://www.crh.ie/ on September 14,

2011.

Datamonitor (2010), Global Construction Materials. Reference Code: 0199-2030.

Gale Cenagage Learning (2010), Strategic Developments in Construction Materials

Industry. Close-Up Media Inc

Gottfredson, M. & Puryear, R. & Phillips, S, 2005, ‘Strategic Sourcing From Periphery to

the Core’, Harvard Business Review, Vol. 83, No. 2, p. 132-139.

Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model.

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Porter, M. E, 1980, The competitive advantage, New York: Free Press.

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Porter, M. E. (2008). “The Five Competitive Forces That Shape Strategy.” Harvard

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