CEMEX:
Culture and Service
Reinvention to Reposition a Commodity Business as a Service Business
Donald Sull, Harvard Business School Professor, on CEMEX's work with a consulting team which is now part of VISION:
"CEMEX has a distinct approach to innovation: it strategically exploits an
intimate knowledge of its customers' mindsets, it innovates around (rather
than through) technology, and it scours the globe for good ideas. These
strategies are as important for managers in developing countries as they are
for executives in the developing world."
Strategic Situation
By 1995, the consolidation in the cement industry
was moving very quickly. CEMEX had
already risen from tenth in the world to
third - behind Holderbank and Lafarge with
$2.6 billion in sales. By 2004, its combined revenues would be $6.5 billion, and it
would operate in more than 30 countries and
have customers in more than 60 nations. To
fund its growth, CEMEX already had cut costs
by automating extensively, instituting worldwide,
24-hour monitoring of its processes, and
studiously finding new ways to share risk and
gain best prices from suppliers. Because
Lorenzo Zambrano, CEMEX's CEO, needed higher margins to fund his acquisition
strategy, cost cutting was always a strategic
initiative. But Zambrano was not interested in
growth for its own sake. He had a distinctive
vision of the industry. For him the cement
industry was really a culture industry,
not a cyclical commodity industry as most
other leaders and analysts thought. The
industry's growth was not limited by a
country's development but by a country's
monumental desires and the cement industry's
ability to stimulate them. Therefore, he
sought every opportunity to develop highly
differentiated offers that would stimulate
more monumental building.
Ready-mix cement afforded such an opportunity,
particularly in Mexico, where inclement
weather, unpredictable traffic, labor disruptions,
and arbitrary government inspections
caused 50% of the delivery orders to
be changed at the last minute. Such changes meant that huge amounts of cement spoiled
- either at the site or during delivery and that
put a huge surcharge on monumental building.
Senior Management's Strategic Declaration
CEMEX's senior managers declared that they
would acheive a significant competitive advantage
in ready-mix cement by the end of
1995.
Engagement Strategy:
The challenge was complex and the consultants needed to find a successful blend of team, listening, inter-industry skill appropriation, and Commitment-based Management.
This engagement would draw on most of the consultants’ competencies. It would require redefining a market through new offer development, motivating a successful organisation to change its own structure and culture, drawing from other, unlikely, industries, and managing the change with low stress so as not to upset the cash flow required for the ongoing international acquisitions.
The consultants established a joint team that included external innovation and management-process experts along with CEMEX's management and ready-mix cement experts. They applied VISION's customer listening techniques, cross-industry skill appropriation techniques, and commitment-based design techniques to reshape the offer of ready-mix cement.
Intervention
The first part of the engagement used VISION's
articulative listening and Value-Conflict Resolution methodologies to get to
both large and medium-sized building contractors
in Mexico liked to think of themselves
as engineers who could both design buildings
and the building projects in great detail for
maximum orderliness. But with labor and
weather problems, success in building came
from the quick-thinking ability of contractors
to manage the disorder. Success depended on
honouring the value of opportunistic ingenuity,
always making the best of circumstances to
keep the maximum number of productive operations
going. The joint team
learned to see the ready-mix customers as
more like emergency-room doctors than engineers.
CEMEX too had an engineering culture.
Ready-mix managers at first sought to respond
to senior management's strategic directive by
drawing on high-speed computational power
and chaos theory to map more efficient truck
routes and set up schedules. They relied heavily
on demand forecasts to determine the next
day's loads. But due to last minute cancellations,
they still lost a lot of cement. The joint team appealed to them to begin
looking at their customers as involved in emergency
situations and to look at how teams
worked in such high stress situations. Visits
were made to military assault teams, overnight
mail delivery teams, and an Italian company
that retooled the immense drills overnight to
cut different types of Channel tunnel rock the next
morning, and finally, the Houston 911 service.
In the end, the 911 service produced the shift
in vision. The idea emerged of sending the
emergency vehicles (ready-mix cement trucks)
into the areas where the greatest activity (on
the basis of pre-orders) was expected. Then as
customers confirmed orders and times, dispatchers would send the nearest truck whose
cement was closest to spoiling. The idea was
to appeal to order with the initial scheduling
and the emergency ingenuity with the confirmation.
Thus the value conflict was resolved.
The management processes of the ready-mix business were redesigned in imitation of those of the 911 emergency workers. The core conditions for providing customer satisfaction changed from meeting schedules to taking care of the contractors' "emergencies." Appropriate kinds of commitments among drivers, dispatchers, loaders, and others were mapped, designed, and rolled out.
Results
The jooint team implemented its
version of the famed "Domino's Pizza" promise.
Either CEMEX delivers concrete within 20
minutes of the scheduled time or the contractor
gets a 5% reduction in price. The response
was enormous. In one region where a pilot
study was done, the return on investment was
700%. And there was no interruption of cash
flow from the ready-mix business.
CEMEX is now seen as the most reliable provider
of ready-mix cement. Order changes
and same day delivery are standard services
that customers have come to expect. Daily
deliveries per truck increased from an average
of four to ten. Reliability also improved dramatically:
97.63% of deliveries are now delivered
within ten minutes of the promised hour,
as compared with a previous rate of 34.4%.
CEMEX dominates this market with a noncommodity
offer.
While it is hard to determine if this offer alone
has made Mexico more monumental, it has
certainly changed the market dynamics, leaving
CEMEX at clear advantage: it is
now regarded a growth company by financial
analysts.
Client satisfaction
This case has been celebrated by many, both inside and outside CEMEX. Our competitors have even written about it. We have offered our version. Here are some of the comments this project has generated.
I've seen a lot of companies undergoing change, but nothing so dramatic as the operating turnaround at CEMEX.
Thomas Petzinger Jr, The Wall Street Journal
In its Venezuelan operation, which is described as low-tech, CEMEX achieved an ontime delivery rate of just over 33% in the first half of March 1996 (nearly 60% were delivered "ahead" of time). The Guadalajara operation achieved a 98% on-time delivery rate, as Wired magazine reported in July 1997. In essence, CEMEX treats its trucks like taxicabs by dispatching the closest vehicle to the most immediate need
Best Practices, Building Your Business with Customer-focused Solutions, Robert Hiebeler, Thomas B. Kelly, and Charles Ketteman of Arthur Andersen. Book is published by Simon & Schuster.