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Civil and Environmental Research [Link]
ISSN 2224-5790 (Paper) ISSN 2225-0514 (Online)
Vol.9, No.8, 2017
Carrying Out A Strategic Study for Lafarge to Recommend A
New Strategic Direction for This Organisation Which Could
Improve Its Competitive Advantage in the Construction Industry
Mustafa A. Al-Shammari
Civil Engineering Department, College of Engineering, Al-Mustansiriyah University, Baghdad, Iraq
Abstract
Lafarge, which is one of the well-known organisations in the construction industry over the world, is selected in
this research as an example of a construction organisation to carry out a strategic case study and produce a
professional report, which will analyse the main challenges and opportunities facing this organisation, through
using some strategic analysis tools such as, PESTLE framework, SWOT analysis, Porter’s five forces model and
BCG matrix, in order to investigate and recommend a new strategic direction for it, based on the findings that
will be discovered. In addition, out of three strategic options, which will be identified and appraised, an option
will be proposed to the company with justification to improve its competitive advantage over the construction
industry.
Keywords: Lafarge, Strategic study, Competitive advantage, Strategic analysis tools
1. Introduction to the Organisation (Lafarge at a Glance)
1.1 Lafarge Group Profile
Lafarge, which was originally founded in France in 1833 as a limestone mining company, nowadays is the world
leader in building materials. It presents in 64 countries worldwide and employs 68,000 people. The group today
plays a key role in urbanisation by offering building solutions using cement, aggregates and concrete. It has
1,600 industrial sites around the world. (Lafarge Group Profile, n.d.). Figure 1 shows the group geographical
portfolio:
Figure 1. Architecture of WOZIP
Figure 1. Lafarge Group’s Geographical Portfolio
The figure below visualises the group’s strategic distribution of assets to support market growth:
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Figure 2: Lafarge Group’s Global Strategic Distribution of Assets
The group worldwide presence and sales by business line in 2012 are shown in figures 3 and 4 respectively:
Figure 3: The Worldwide Presence of Lafarge Group through its Sales in
Figure 4: Lafarge Group Sales in 2012 by Business Line
1.2 Lafarge UK Profile
Lafarge UK today is the market leader in cement with around 40% market share, and it holds top ranking
positions in aggregates and concrete. The Lafarge’s two sister companies in Britain are Lafarge Cement UK and
Lafarge Aggregates & Concrete UK (Lafarge in the UK, 2013).
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1.2.1 Lafarge Cement UK
Lafarge UK is the only cement producer in Britain with nationwide coverage. Through its acquisition of Blue
Circle cement plants in 2001, Lafarge Cement UK nowadays supplies nearly 50% of the market. Across the UK,
it has 6 cement plants, and employs 1100 people (Lafarge in the UK, 2013). The company’s annual profit
reaches about £280 million a year (Lafarge Cement UK Limited, n.d.).
1.2.2 Lafarge Aggregates & Concrete UK
Through the acquisition of Redline in 1997, Lafarge has developed its business of aggregates, concrete, asphalt
and contracting in the UK. It nowadays also provides waste management and recycling services. It has 200 sites
and 2,000 employees across the UK, and its revenue reaches around £486 million a year (Lafarge in the UK,
2013).
2. The Organisation’s Vision, Mission and Objectives
According to Johnson, Whittington, and Scholes (2011, p. 8), the organisation’s goals, which draw on its vision,
mission and objectives, are one of the three main themes that should be included in the organisation’s strategy
statement. Table 1 outlines Lafarge’s vision, mission and objectives.
It is important to mention that Lafarge UK strategy is same as the group’s strategy
Table 1: Lafarge’s Vision, Mission, Objectives and Values
Lafarge’s Vision ‘What do we want to achieve?’
Lafarge’s first aim is to be the clear industry leader in sustainability and a role model in the industry with
their environmental and health and safety performance. Second, it aspires to be one of the UK’s leading
responsible businesses in building materials.
Lafarge’s Mission ‘What business are we in?’
Lafarge’s mission and commitment is as follows:
"Offering our customers the best in innovative materials and reliable products and services".
"Reinforcing our position as the world leader for our suppliers, employees, customers and
shareholders".
Lafarge’s objectives ‘What do we have to achieve in the coming period?’
Lafarge’s objectives are as follows:
"Lafarge seeks to strengthen its place as a world leader in building materials in terms of market
share, innovation, customer image, geographical spread and profitability’".
The group focuses on sustainable development through reducing the carbon emissions of its
products and buildings, improving the energy efficiency of its production processes and
finding solutions for reducing construction costs.
3. The Organisation’s Financial Performance
Although the sales of Lafarge UK decreased in 2012, the group increased its sales through growing in emerging
markets worldwide. Table 2 summarises the 2012 financial performance of Lafarge group, and Lafarge in the
UK and Western Europe.
Table 2: The Financial Performance of Lafarge Group, and Lafarge in the UK and Western Europe in 2012
Lafarge Group Lafarge in the UK and Western Europe
(For more information see Figures 3 and 4 on
pages 2 and 3)
• The group gained €15,816 million as revenue on • Cement, aggregates and ready-mix concrete
sales and €432 million as a net income of the sales of Lafarge UK reduced by 8%, 9% and
group share. 15% respectively due to the impact of the
• The group’s sales increased by 3.5% through slowdown in construction activities.
growing in emerging markets. • The Lafarge UK operating income increased
• €410 million was achieved as cost savings. by 7% due to the stoppage of the depreciation
• The group’s EBITDA and operating income of the company’s assets in March 2011 in order
increased by 7% and 12% respectively. Out of to set the formation of its joint-venture with
the total EBITDA received, 75% was from Tarmac UK.
outside Europe, and €80 million was generated • Despite of the decrease in carbon credit sales
by the innovation plan. in Western Europe (€73 million versus €164
• The group net debt reduced by €0.9 billion. million in 2011), the cost-cutting
accomplishments and lower cost inflation
alleviated the impact of this decrease.
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4. The Organisation’s Strategic Position
In order to analyse Lafarge’s strategic position in the UK and highlight its available opportunities, and appraise
the challenges facing it, tools like SWOT analysis, PESTEL framework, Porter’s five forces model and BCG
matrix were used.
SWOT analysis (see Appendix A):
According to Hitt, Black, and Porter (2012, p. 114), SWOT analysis is conducted by a firm to identify and
evaluate its strengths and weaknesses, in order to compare them with the organisation’s external environment’s
threats and opportunities to understand how the firm’s capabilities and resources can be managed successfully.
Lafarge’s Core Strengths:
• Lafarge nowadays is a major player in the UK construction industry and it holds around 40% of the cement
market share (Lafarge in the UK: Innovative, Sustainable Construction Materials, 2012, p. 8). This indicates
that the organisation is performing well in its market sector.
• It has the first-mover advantage in innovation. It was the first in its sector to establish a centre for
developing innovative building solutions (R&D at a Glance, 2012).
Lafarge’s Weaknesses:
• Since 2008, Lafarge has suffered from the recession that hit the UK market. Although the market is
recovering, the economic slowdown has reduced Lafarge contracting and material sales so far (Business
Environment Facing Lafarge Cement of UK, n.d.). It can be noticed in Table 1 that Lafarge is still facing a
decline in sales volumes due to the slowdown in construction activities, which caused by the recent decrease
in public sector funding for constructions (Lafarge Group Financial Report, 2012, p. 7).
In order to identify the external environment’s threats and opportunities facing Lafarge UK, a PESTLE
framework was undertaken to understand the environment in which Lafarge works (see Appendix B). This
analysis into the business environment has outlined the following:
Lafarge’s Opportunities:
• Innovation and research:
1. Due to increasing the demand for sustainable building materials, companies nowadays focus on
research and innovation to meet the future’s requirements (Business Environment Facing Lafarge
Cement of UK, n.d.). Therefore, Lafarge could provide building solutions through using its innovative
and sustainable products such as, developing a reliable, economic and environmentally-friendly
concrete which could be the future of sustainable construction. Furthermore, Lafarge UK could take the
advantage of its available resources in innovation and development to play a big role in urbanisation.
2. Developing and producing more value-added products that could reduce the construction costs for
customers. Furthermore, the Lafarge Tarmac joint venture’s facilities and resources would provide the
opportunity to introduce more of these value-added products across a wider geographic area.
• Taking the advantage of a probable long-term growth in infrastructure and house building sectors: The UK
government is nowadays aiming for a long-term growth of infrastructure projects, and also planning to
support the house building sector (Maer, 2012) because the demand for single occupancy housing is
increasing due to the growing tendency for people to live alone and marry later (Business Environment
Facing Lafarge Cement of UK, n.d.). These social and political changes would procure more work
opportunities in infrastructure and house building sectors in the foreseeable future (See PESTLE-Political
and Social in Appendix B). Therefore, Lafarge UK could benefit from its nationwide coverage to increase its
profitability through contracting and selling products to these sectors.
• Standards establishment: Demonstrating the efficiency of products and helping to raise general standards
across the construction industry. As a key player in innovation and development, Lafarge could use its
sustainable construction solutions to establish standards of building materials’ characteristics and properties
for efficient and sustainable building.
• Products and services expansion: Setting further expansion into niche areas around the UK through forming
its joint venture with Tarmac. According to the Global Cement Staff (2013), this combination would create
savings of €74 million through improved operational, logistical and purchasing efficiencies, and it would
also widen the products’ geographic coverage of Lafarge.
Lafarge’s Challenges/Threats:
• Reduction in plasterboard production: Due to the acquisition of Lafarge Plasterboard UK by Etex in 2011
and changing its name to Siniat, a reduction in Lafarge’s plasterboard production is possible. The challenge
is about losing a business line.
• Reduction in cement production: Selling off one of its largest cement plants in the UK to meet the
conditions of the Lafarge Tarmac joint venture could cause a possible reduction in Lafarge’s cement
production (Global Cement staff, 2012).
• Reduction in cement sales: According to industry forecasts, the cement market is not going to recover its
2007 demand levels (pre-recession levels) until 2020. This would negatively affect Lafarge’s sales volumes
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(Lafarge Aggregates Limited and Lafarge Cement UK Limited, 2012). See PESTLE-Economic in Appendix
B
• Anti-Monopoly and market dominance: The Office of Fair Trading (OFT) investigates the misuse of
monopoly power in the UK. The government might decide to break up a company, if it has become too
powerful (Regulation of Monopoly, n.d.). Therefore, the anti-monopoly policy of the UK government would
deny any attempt for Lafarge to dominate the cement market.
• Environmental challenge: Global climate changes and pollution implications have resulted in an intense
competition in terms of sustainability, carbon emissions reduction and energy efficiency between companies
within the industry. Companies like Lafarge now are doing their best to keep the CO2 levels of their
buildings and products as low as possible to meet the government restricted environmental regulations (see
PESTLE-Environmental in Appendix B). Though Lafarge has reduced its CO2 emissions by 24% over the
past three years through developing and selling products with lower emissions, and using sustainable
production mechanisms; it is still facing a big challenge in improving its sustainability image to meet the
UK government’s environmental targets.
• Technological challenges: It is forecasted that the use of ICT (Information and Communication Technology)
for manufacturing, delivery, construction, etc. is going to be greater in the foreseeable future. In addition, the
developmental pace of applications is projected to be faster (2020 Vision – The Future of the UK
Construction, 2008, p. 22). Therefore, companies are racing to cope with this technological development.
• Workforce and skills shortage: As the demand for construction increases, the shortage of skills in the
industry becomes a big challenge facing companies (Skills Shortages in the UK Construction Industry,
2008). This would make companies like Lafarge recruit young people and spend time and money on staff
training (Business Environment Facing Lafarge Cement of UK, n.d.).
• Rivalry and competition: The UK building materials sector is taken over by five large rivals: Lafarge,
Holcim, Heidelberg, Cemex and Tarmac. These competitors cover around 90 % of the cement market, 75 %
of aggregates sales and 68 % of ready-mix production (Ed, & Wembridge, 2011). See Figures 6 and 7.
Figure 6: Shares of Building Materials Suppliers in the UK in 2009
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Figure 7: Estimated Cement Market Shares in the UK in 2010
Although Lafarge UK holds the biggest cement market share, it does not hold big RMX, asphalt and
aggregates market shares in comparison to its rivals. These shares are expected to be increased through forming
Lafarge Tarmac joint venture (Propose Joint Venture between Anglo American PLC and Lafarge S.A, 2011). In
spite of having these high levels of shares, Lafarge cannot dominate the market, because the government
supports competition and it would deny any anti-competitive actions to protect consumers (Preventing and
Reducing Anti-competitive Activities, 2013). Therefore, despite being a major player in the industry, Lafarge UK
seems to face a challenge in terms of competition. (For more information on competition in the UK building
materials sector, see Appendix C).
5. The Organisation’s Potential Strategic Options
According to Barney, and Hestelry (2006, p. 28), the external and internal analyses of the environmental
opportunities and challenges, and the organisational strengths and weaknesses of a firm could support it to
engage in a strategic choice. Therefore, the above analyses of Lafarge’s internal and external environment have
highlighted the following strategic alternatives:
5.1 Further Investments in Research and Development (R&D):
As a global key player in urbanisation, Lafarge was the first in its sector to establish a centre focused on
developing innovative construction solutions. This gave it the first-mover advantage in innovation and research.
Lafarge spends yearly around €120 million on R&D to improve its industrial performance. This is considerably
higher than the investment of other players in the industry (R&D at a Glance, 2012). This successful strategic
direction could be further enhanced by investing more in R&D to contribute Lafarge’s objectives in terms of
innovation and sustainability (see Table 1) and meet the increased market’s demand for innovative and
developed products. Daems (1992, p. 133) has mentioned that "over the long haul the larger internal market will
make it possible to increase the efficiency of product development process and will speed up product innovation".
Furthermore, creating and retaining customers would lead to commercial success. This success cannot be
achieved without meeting customers’ needs in a way which is better in quality than competitors (Adcock, 2000,
p. 157). Therefore, Lafarge UK could pay more attention for R&D to meet market demands and achieve
commercial success.
5.2 Setting Further Expansion in Emerging Markets through Making Acquisitions and Forming Joint Ventures:
Lafarge has become a major player in the UK construction industry since its acquisition of Redland in 1997 and
Blue Circle in 2001. This successful strategy is likely to be repeated in the foreseeable future for potential
development of the organisation. The acquisition of Orascom Cement (The biggest cement producer in the
Mediterranean Basin) by Lafarge group in 2007 (Financial Press Releases, 2007) clarifies the group’s strategic
direction towards emerging in profitable markets through acquiring other companies.
Acquiring a company successfully would lead to a further geographic expansion of products and services in
emerging markets, and a reduction in costs and tax liabilities (Blank, n.d.). Furthermore, the current financial
climate might raise the chance of finding companies that need to be acquired, which could further improve the
competitive advantage of such a company with global coverage like Lafarge.
In terms of forming joint ventures, its combination with Tarmac makes it possible to provide the
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opportunity for Lafarge to expand further into niche markets and strengthen its leadership of the UK cement
industry. This successful experience could push Lafarge to think of forming more joint ventures with other rivals
such as, Hanson or Cemex to enhance its RMX, asphalt and aggregates market shares. Furthermore, these two
competitors might be looking for enhancing their business through merging to the market-leader in cement
manufacturer.
5.3 Taking Further Steps in Sustainability:
As a part of the group’s plan for sustainable development, Lafarge is looking at reducing CO2, reducing waste
and sourcing responsibly (2012: Lafarge Cement, sustainable consumption - Case Study, 2013). It has succeeded
in cutting more than 24% of its carbon emissions throughout 3 years. This made it ranked in the top 10 UK green
organisations (Lafarge Ranks 7th in First UK ‘Green’ League Table, 2011). This has also helped Lafarge to
increase its profit through selling carbon credits. This successful strategy could be further enhanced by
improving Lafarge’s sustainability achievements in every possible area to benefit customers and the environment.
First, it could move further towards sustainable construction through investing more in R&D to produce more
materials which preserve the environment. Second, it could further improve its production processes using
recyclable and renewable materials to reduce pollution and preserve its sustainability image. These steps would
build and sustain Lafarge’s competitive advantage over its rivals. According to Pitts, and Lei (1996, p. 68), "a
firm builds competitive advantage when it applies its strengths in ways to perform some value-adding activity
that other firms cannot do as well". Gamble, and Thompson, Jr. (2011, p. 4) have also written that "A company
achieves sustainable competitive advantage when an attractively large number of buyers develop a long-lasting
preference for its product or services over the offerings of competitors"
6. Summary and Recommendations
6.1 Summary
The following points summarise the current strategic position of Lafarge UK:
• Although its sales decreased in 2012 due to a slowdown in construction activities, Lafarge UK seems to be
performing well in its market sector.
• More opportunities in terms of innovation, standards establishment, product and service expansion and long-
term growth in public and private construction sectors would be available for Lafarge UK.
• Though the combination with Tarmac could reduce Lafarge’s cement production (see page 7), it would
provide numerous opportunities in terms of cost reduction and geographic expansion.
• Environmental, technological, legal, skills shortage, sales reduction and competition challenges are facing
the company.
• Strategic options of further investments in R&D, further expansion and further steps in sustainability are
possible to be taken by Lafarge UK for potential development.
6.2 Recommended Strategic Option
It is recommended that Lafarge UK should invest more in R&D to provide more innovative construction
solutions and meet the future’s demand, to take further steps in sustainability, to play a big role in urbanisation
and efficient building, to build high technological entry barriers and improve its competitive advantage over
rivals, and finally to secure the organisation’s position as a major player in the UK construction industry. In other
words, if Lafarge UK wants a profitable growth, it should focus more on R&D.
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Appendix A
SWOT Analysis – Lafarge Group
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Appendix B
PESTLE Framework – Lafarge Group
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Appendix C
Porter’s Five Forces Model– Lafarge UK
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Appendix D
BCG Matrix – Lafarge UK
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Appendix D
BCG Matrix – Lafarge UK
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