Lafarge Strategy

Lafarge is a leader in cement and aggregates & concrete. The group was created in the XIXth century. Since this period, the firm has not stopped growing. It multiplied acquisitions and mergers in order to reach lots of markets. Since 2006, Bruno Lafont has been CEO of the Group and has implemented a new strategy: “Performance and Innovation”, based on R&D, decrease of costs, improvements of cash-flows… But is this strategy dealing with the real issues of Lafarge and what can we recommend to improve the situation?

In order to answer this question, first, we are going to study the environment of the firm. Lafarge has two different segments: cement and concrete & aggregates. The synergies between both segments seem to be used very wisely; therefore we can consider that the macro-environment of these two segments is similar and both segments are located all around the World.

We can study the external environment with a PESTEL analysis:

• Political: Since Lafarge works essentially in developed countries, political aspects are

not very changing and are almost always steady. But politicians can interfere in the delivery of building permits.

• Economic: The 2008 financial crisis had a large impact on the building sector. After a small increase of demand few years after it, they now have to face a strong inflation of their production costs.

• Sociological: The global population is still growing, particularly in emerging countries. There is therefore an important increase of the demand of strong houses which can bare meteorological events for instance.

• Technological: A lot of new materials appear. As well as new technics of extraction. The research on this sector is very dynamic and innovations are common.

• Environmental: Nowadays, the society is more and more concerned about the environment and pollution linked with the product they buy.

• Legal: The building sector is responsible for 40% of CO2. Thanks to Kyoto protocol, the EU has implemented regulations about carbon emissions. Indeed, the firms have quotas of carbon emissions and they cannot go over it without paying taxes.

With this analyse we can see that Lafarge has to deal with an environment which is not so adverse.

In order to better understand the external environment we can also have a look to the Porter analysis:

• Competitive rivalry: Since the 80’s, the building sector is a very concentrated

market. Lots of companies merge with others, or are acquired by others. Lafarge have lots of competitors like Holcim. That’s why we can say that there is a fierce competition in this sector.

• Bargaining power of customers: They have more and more precise needs. And in

this sector, clients requirements are usually about big projects like roads, or entire buildings. Therefore, their bargaining power is pretty strong.

• Bargaining power of suppliers: Lafarge had set vertical integration, they are in

charge of the extraction of their raw material. Therefore there are only few and little suppliers.

• Substitutes: Few substitutes exist, like wood or glass, but even if they can be more

eco-friendly or cheaper, their properties are not exactly the same. Therefore, there is no real substitute to cement and concrete.

• New entrants: The competition is strong and the main entry barrier is the capital

needed to start this activity. Therefore the new entrants are really rare.

Thanks to this analysis, we can observe that this sector is not very attractive. Indeed, even if there is no real substitute, and the suppliers have almost no power, the competition is strong, and customers have strong power Lafarge has to fit an adverse environment.

Now that we have studied the external environment, we are going to analyse the internal environment by studying Lafarge’s value chain.

With this value chain representation, we can observe that the R&D, the logistics and the operations are the most important part in the operating of the group.

When Bruno Lafont arrived in 2006, he implemented a new strategy. Indeed, the “Performance and Innovation” strategy has many impacts on Lafarge’s activities.

First of all, he decided to change the organization of the Group. It has always been divided in activities, but he decided to change it, so that it can be organized per country. Each country is in charge of the two activities.

Besides, he decided to reduce costs, and debts. To reach these objectives, the internal development costs have decreased, as well as the investments in R&D, with a decrease of 24% from 2006 to 2011. In same line, he has also cut a large number of jobs in France, despite the fact that the group is very involved in the protection of its employees, and their living conditions. Besides these large cuts off, the new CEO has also decided to lead a very strong innovation strategy. The group has always been a leader in this area, it created the world’s first laboratory specialized in cement in 1887, and the CEO wants to keep this innovator image. Lafarge has been accused of being only a follower and not a precursor anymore. Therefore the group wants to improve the R&D to have this image again. Thanks to that strategy, the number of patents has more than doubled

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