CEMEX Case Study 2: The Next Evolution

”Hello everybody and welcome to Think Leaders. I’m joined today by Fernando Gonzalez, CEO
of CEMEX. Fernando thanks so much for joining me….”

It was November 2016 and Gonzalez was spending a week visiting various teams at IBM
discussing digital processes and digital transformation, an area that he passionately believed
would give CEMEX a commercial edge in the years ahead. He was convinced that now was
the time to invest in building a new digital platform – CEMEX Go. He was just starting an
interview with Robert Schwartz, IBM’s Vice President of Digital Marketing, for IBM’s “Think
Leaders” video series.1

CEMEX is a global building materials company headquartered in Monterrey, Mexico that

traces its history back to 1906. By 1990 it had expanded to become the largest cement
manufacturer in Mexico and then, through a series of international acquisitions, to become
the third largest in the world. Acquisitions of Southdown in the US, the RMC group in the UK
and Australia’s Rinker in the 2000s consolidated its global position.

The combination of the 2008 global crash, and the hangover of high debt levels, had made
the years following 2007 more difficult. However, by 2015, as a result of markets recovering
and internal restructuring, the firm had weathered the storm. Further financial
strengthening was nevertheless necessary to regain the investment grade credit rating it had
lost in 20092.

Gonzalez had become CEO in 2014 after the death of his predecessor, Lorenzo Zambrano.
Zambrano, the grandson of CEMEX’s founder, had led the company through its spectacular
rise and then the challenges of the financial crisis. Gonzalez had joined the firm in 1989 and
been its CFO and had led many of its overseas businesses. He had also held positions in
Strategic Planning and Human Capital Management.3

While Gonzalez had continued to give high priority to the strengthening of CEMEX’s finances,
he also shared the deep belief of his predecessor in the potential that existed in greater
integration across CEMEX. Building internal networks that spanned its worldwide
operations to realise this potential was one of the company’s four strategic themes. 4

Gonzalez believed that investment in digital technologies would play a key role in
reinforcing these networks and in providing customers with solutions. He also believed that
CEMEX’s capabilities and more centralised approach gave it a head start over its
competitors.

The Forging of CEMEX

Through most of its early history CEMEX was a locally and later nationally focussed Mexican
cement manufacturer. Given the nature of the cement industry, transportation and logistics
costs make up a significant part of delivered cost and hence demand would usually be met by
a local plant – typically every major city would have its own cement company. Although raw
1
IBM Think Leaders Interview 17th November 2016
2
Reuters (2014)
3
Financial Times 16th May 2014
4
CEMEX 2014 Annual Report
materials are plentiful, the industry is very capital intensive with a significant investment
required to commission a production plant. As a result, geographic expansion was
challenging and focused on the acquisition of existing capacity.

These factors were amplified by the geography of Mexico and the nature of its political
institutions. It is a large country of far-flung, isolated communities with extensive desert and
mountainous areas that separate the central plain from the coasts. 5 As a developing country,
Mexico had institutional and infrastructural gaps and challenges that impacted on both
production and distribution - the country had only really become unified in the 1940s.

Traditionally, family businesses have dominated in Mexico. A weaker regulatory

environment encourages a climate in which family and close friendships are the basis of
business relationships. An often-used phrase in the country is “you trust your blood”. As a
result, a single family-owned firm tended to dominate a particular industrial sector. This
family orientation often extended to employees and influenced the firm’s culture. 6

As in many developing markets, end customers had traditionally been small construction
firms and individuals engaged in self-build projects, with cement bought in bags from local
independent distributors. Bulk purchase tended to be from intermediary ‘ready mix’ firms
who specialised in delivering wet concrete to construction sites. As Mexico developed,
demand for bagged cement remained strong, but the demand for bulk delivery for larger
construction projects increased dramatically. With the emergence of national building
suppliers and DIY chains, CEMEX’s traditional small independent cement distributors were
put under increasing pressure.

It was against this backdrop in the 1970s that CEMEX acquired more plants across Mexico to
become the country’s largest cement producer. It also made significant progress in exporting
its cement to overseas markets such as the USA.7 Like other producers, CEMEX’s plants were
run as a set of independent operations with little knowledge of what happened in each
location. Success relied on local demand and on availability of low-cost labour to be
competitive.8 The firm also grew by diversifying into sectors such as hotels, mining and
petrochemicals.

The 1980 brought new significant challenges. In1982 Mexico experienced a debt and
currency crisis and the IMF had to step in with a programme of financial support. Further
programmes followed in 1986 and 1989. Support was subject to a range of market reforms
including reductions in government spending, deregulation, liberalisation of foreign
investment and a lowering of trade barriers.9 Further pressure was applied to the cement
sector as the US imposed anti-dumping penalties on imports in 1989.

With difficult trading conditions and the prospect of well-funded foreign competition
entering the Mexican market, CEMEX was vulnerable if it did not adapt. Zambrano and the
Executive team chose to refocus on cement. They disposed of non-core businesses and
bulked up in Mexico through a number of acquisitions including the second largest Mexican
producer, Cementos Tolteca. With an aim of driving overseas expansion, exports were
5
Lessard (2016) MIT Sloan alumni session
6
Bardsley, D. (2019) Down Mexico Way: Economics, Politics and Family Business, Camden FB, 18 th February
7
Wikipedia: “CEMEX”
8
CEMEX: Transforming a Basic Industry – case study
9
The Mexican 1982 Debt Crisis in Raboresearch – Economic research Sept 19 2013
increased as a way to explore acquisition opportunities in foreign markets. This learning
involved aggressively building and buying shipping terminal facilities in potential target
markets.10

Operational priorities were to “ruthlessly” increase efficiency and to improve quality 11.
Zambrano believed that standardising and integrating operations across Mexico and the use
of the latest information and communications technology could deliver these. Operational
and commercial data was to be made available to be used in monitoring performance and
informing decision-making. He personally championed greater transparency and
accountability throughout the organisation - he would frequently call middle managers and
challenge them on issues or seek to learn how they did things.

Formal organisational processes began to be put in place to ensure data and knowledge
were accumulated, analysed and disseminated. The firm identified technical capabilities and
best practice and push them as standards and procedures to be followed in all plants and
facilities. Formalisation included technological and process standards, plant and equipment
specifications, technical and project management procedures, and HR policies.12

International Expansion

The first major overseas acquisitions came in 1992 when two Spanish cement
manufacturers (Valanciana and Sanso) were acquired and gave CEMEX 28% of the Spanish
market. Shareholders initially questioned the wisdom of this move as Spain had just entered
a recession - its deepest for 30 years. CEMEX, urgently needing to show the value of these
acquisitions, deployed and accelerated the post-merger integration (PMI) approach it had
developed in Mexico - workforces were cut by 25% and the new Spanish subsidiary quickly
brought into line with the standardised approaches CEMEX used in Mexico. The result was a
25% improvement in margins.

However, CEMEX was alert to the potential of learning from the acquired businesses and all
aspects of their operations were reviewed. A particularly valuable discovery was of a
capability to use PET Coke – a cheaply available waste product from oil refining – as a fuel in
cement manufacture. CEMEX promptly secured long-term supply contracts and switched
many of the group’s plants to this alternative fuel. As Spain was part of the European Union,
CEMEX also gained access to debt financing at lower cost than it could in Mexico.

The success of the integration in Spain paved the way for CEMEX to progress its
international ambitions now armed with greater access to capital and a codified PMI
process.

Between 1993 and 1999 there followed a series of acquisitions in Venezuela, Colombia,
Chile, Panama, Dominican Republic, Costa Rica, the Philippines and Egypt, as well as a share
being taken in the state-owned producer in Indonesia. In each case, the increasingly honed

10
Lessard, D. R. and Lucea, R. (2009) Mexican Multinationals: Insights from CEMX, in Ramamurti, R. and Singh.
V.S., Emerging Multinationals from Emerging Markets, Cambridge University Press
11
Steward, T. A. (2015) CEMEX’s Strategic Mix, Strategy + Business April 13th
12
Vargas, A. T. and Villazul, J. J. (2016) Learning and Innovation in Multinational Companies from Emerging
Economies: The Case of CEMEX, in Handbook of Research on Driving Competitive Advantage through
Sustainable, Lean, and Disruptive Innovation (Advances in Business Strategy and Competitive Advantage), ed.
Al-Hakim, L., Wo, X., Koronios, A. and Shou, Y., , Business Science Reference
PMI process was deployed to enhance performance and ensure adoption of CEMEX’s
standard approaches.

CEMEX continued to look to develop and exploit its capabilities. Know-how from its
Venezuelan acquisition enhanced its logistics capabilities, while new developments in
Mexico with satellite tracking in distribution and retailing/branding expertise were rolled
out to other countries. In 1996, against the backdrop of further economic challenges, the PMI
process was deployed back on to the group’s domestic operations in Mexico. The process
was completed in just 3 months and identified savings of $85m. 13

By 2000 CEMEX was the World’s third largest cement producer. Tight regional integration of
production plants (e.g. across the Caribbean) and continued investment in distribution
facilities meant that by 2000 CEMEX was also the world’s largest cement trader, facilitating
the import and export of cement from its own plants as well as for third parties.

In the run up to 2000 the firm worked with Boston Consulting Group (BCG) to review its
strategy. This resulted in two significant changes. Firstly, by viewing large countries as
separate regional markets, new opportunities were identified including the Southern USA.
This led to the acquisition of the Texas-based producer Southdown and made CEMEX the
largest North American cement manufacturer.

Secondly, the way CEMEX measured performance shifted. Instead of focusing on margins, it
put a greater emphasis on return on investment. This made concrete and aggregate
production more attractive for acquisition. It resulted in new acquisition targets being
identified, most significantly, RMC, the UK-based global leader in ready-mix concrete. In
March 2005, RMC was acquired for $5.8bn – almost a 40% premium over its market value.

RMC gave CEMEX a much greater presence in developed markets such as the UK and France
and also in Eastern Europe. The Mexican share of the business fell from 36% to 17% and
sales of aggregates and ready-mix concrete doubled to over 40% of the group’s sales. 14 RMC
had been struggling financially and was highly decentralised, with business models,
processes and culture varying across the 18 different countries it operated in. Despite the
obstacles and concerns in financial markets, the PMI process worked well and, by 2007,
CEMEX had delivered over $350m in cost savings.

As in previous acquisitions, CEMEX’s standard practices were introduced in to RMC.

However, expertise and know-how also flowed from RMC. The acquisition significantly
extended CEMEX’s capabilities in concrete, ready-mix delivery (e.g. RMC’s slump meter) and
alternative fuels (RMC’s German operation was using household refuge as a fuel). The move
pushed CEMEX closer to customers - for cement, the focus is on the production part of the
value chain, while, for concrete, it is the logistics of getting wet concrete to customers at the
precise time it is needed. As one CEMEX executive commented “the magic is in the market
[and] how you interact with customers, not in the production”. 15 The combination of
CEMEX’s existing logistics capabilities in developing market experience together with RMC’s
ready-mix concrete know-how significantly advanced the group’s competencies in this area.

13
Lessard, D.R. and Reavis, C. (2009) CEMEX: Globalisation “The CEMEX Way”, available from
www.thecasecentre.org
14
ibid
15
Steward, T. A. (2015) CEMEX’s Strategic Mix, Strategy + Business April 13th
In June 2007, CEMEX paid US$14.2bn to acquire Rinker, an Australian producer with a
strong position in the USA. The deal would significantly enhance CEMEX’s position in
aggregates and ready-mix. The deal was largely financed through short-term debt in the
expectation that this could be reduced by the divestment of up to $5bn of Rinker’s assets. 16
However the timing could not have been worse. The onset of the 2008 financial crisis
severely hit construction in many of CEMEX’s and Rinker’s core markets. In addition,
CEMEX’s PMI team did not find the same lack of standardisation and integration as in
previous acquisitions.17

With a heavy debt load and extremely challenging market conditions the group had to battle
through the following years. Acquisitions gave way to cost cutting (it laid off 15% of its
employees in 2008), efficiency improvement and disposals (the Australian business acquired
in the Rinker deal was sold to Holcim in 2009 for US$1.6bn). It also saw its Venezuelan
assets nationalised by the government and anti-trust battles emerge in the USA. However,
many market analysts believed the core of the business was solid. 18

A key priority since 2008 has been the strengthening of its capital structure and reducing
costs, but there is also a continuing focus on developing technical and organisational
capabilities.19 Rather than relying primarily on is own resources CEMEX has actively looked
to outsource non-core capabilities to gain access to world-class expertise and cut costs. For
example, in 2012, CEMEX announced a strategic outsourcing agreement with IBM to
transform IT and back-office processes.

In his last letter to shareholders in the 2013 Annual Report, Zambrano observed that the
group had regained its momentum. He particularly emphasised the need to provide
customers with solutions through the application of knowledge and technology and also to
promote sustainable development.20 This was a view that Gonzalez maintained on his
appointment as CEO following Zambrano’s sudden death in 2014.

With the global cement sector experiencing further consolidation and the emergence of large
Chinese producers within the international arena, CEMEX faced increasing competitive
challenges. The largest two global producers, Lafarge and Holcim combined in 2015, and in
the last few months, Heidelberg and Italcementi had announced that they, too, are merging. 21
While there was a continuing need to strengthen CEMEX’s finances, it was also critical that
the firm continue to differentiate itself from its rivals. So, at every opportunity, Gonzalez and
the Executive emphasized the four strategic themes that they believed would lead to this:

 Securing the health and safety of employees

 Recovering investment grade ratings as soon as possible
 Reinforcing the priority and focus on customers – helping customers to succeed
 Continuing to build Global CEMEX by developing ‘networks’ that span its operations

16
Thomson, A. (2011) CEMEX: Rinker comes home to roost, Financial Times 11th October
17
Lessard, D. R. and Lucea, R. (2009) Mexican Multinationals: Insights from CEMX, in Ramamurti, R. and Singh.
V.S., Emerging Multinationals from Emerging Markets, Cambridge University Press
18
Forbes (2009) Cemex struggles to Lighten Debt Load. 18th June
19
CEMEX 2012 annual report
20
CEMEX 2013 annual report
21
Global Cement Top 100 Report 2017-18
Gonzalez passionately believed that CEMEX needed to be ‘one CEMEX’ and the ‘CEMEX Way’
remained critical to how the company would make this happen. 22

The CEMEX Way

The ‘CEMEX Way’ captures the organisation’s philosophy to operate with standardised
business processes, technology and culture, while granting some operational flexibility to
adjust to local operating environments. The emphasis is on continuous improvement
through learning and innovation and the codifying of that learning in standards and policies
that are rolled out across the group. The CEMEX Way and its underpinning routines have
their origins in the PMI process developed to quickly integrate acquired businesses.

The PMI Process

While initially post-merger integration took an informal approach, in the late 1980s and
particularly following the Spanish acquisitions in 1992 it became increasingly formalised.

As soon as possible after the acquisition transaction was completed, a multinational team
was formed made up of high-performing middle managers and experts from functional areas
(engineering, distribution, planning, finance, IT, HRM). Members would also be drawn from
the acquired business. The team was formed ad hoc for each project and led by a CEMEX vice
president who reported to the CEMEX CEO. Team members were seconded from their
current roles for 6 to 12 months. On returning, team members would advocate any learning
discovered and have the legitimacy to push its adoption. Some in the PMI team might stay on
in the new operation as expatriates and so propagate the CEMEX Way. 23

The PMI team would be briefed and given team building and cultural awareness training.
They would be tasked with three objectives: improvement of the situation at the plant(s)
acquired, the replication of CEMEX’s basic management and operating principles and the
harmonisation of the cultural beliefs to those of CEMEX. Manpower reduction, often
substantial, would be pushed through as quickly as possible so remaining staff could be
quickly brought in to the new philosophy. 24 The team was to ensure that within 18 months
the acquired firm would be 100% compliant with CEMEX practice.

However, the emphasis was not just on imposing CEMEX approaches, the PMI team was
expected to improve the group practice as a whole. So, rather than just eliminating existing
practices, the team carefully catalogued and benchmarked them against internal and
external best practice. It was expected that if around 20% of the processes in the acquired
target did not “infect” the group’s standards within a year and become part of the CEMEX
way, the integration team would be seen to have failed.25

As the PMI process developed it became a part of the continuous improvement efforts across
CEMEX. Increasingly, the emphasis was on building capabilities and sharing
/exploiting knowledge. 26 Every few years existing operations would be subjected to the
process to ensure new developments were identified, know-how from elsewhere adopted
22
CEMEX 2014 annual report
23
Ghemawat, P. (2004) The Globalization of CEMEX, Harvard Business School available from
www.thecasecentre.org
24
ibid
25
Lessard (2016) MIT Sloan alumni session
26
Steward, T. A. (2015) CEMEX’s Strategic Mix, Strategy + Business April 13th
and the learning was incorporated into the CEMEX Way. Multidisciplinary project teams
with members drawn from specialist functions and middle managers drawn from across the
organisation remains a key feature of CEMEX’s approach to continuous development of its
capabilities and the establishment of its ‘global networks’.

Strategic Approach
Zambrano’s desire for information to inform decision-making meant CEMEX’s approach to
strategy making has been “data driven”. He demanded timely internal operational and
financial data, as well as the ability to externally benchmark CEMEX’s practices. He would
personally and regularly contact managers across the firm to clarify and discuss any issues
he spotted in the data. Driven by this leadership, transparency and availability of data and its
analysis became ingrained within the CEMEX Way.

The data driven approach was evident in the firm’s formalised processes for opportunity
identification and due diligence ahead of acquisitions. The firm developed standard criteria
and tools for assessing potential targets. A top down assessment identified countries for
growth. Prioritisation was based on both quantitative and qualitative factors and rather than
assessing countries as independent markets took a regional view.

A parallel bottom up process considered potential individual target companies. Going

beyond a financial analysis it assessed if an acquisition could be used to restructure the
target market (e.g. reducing the number of producers, consolidation of distribution, closer
working with customers) as well as if the target itself would gain from integration. 27

Once a target was identified a formal due diligence process was triggered. A team of 10
people drawn from across CEMEX would follow a standardised methodology. Often
soundings would be taken with governments, major customers, industry associations and
even potential competitors. The process would take between one and two weeks and at the
end a standard report would be presented to the Executive Vice President of Planning and
Finance. At the height of CEMEX’s acquisitive growth period as many as 20 due diligences
might be performed in a year perhaps resulting in three acquisitions. CEMEX believed its
process was far more systematic than that of its peers and more likely to avoid unwanted
surprises if the acquisition was successful.28

As in many firms, CEMEX’s Strategy function provides senior management with the analysis
and recommendations to aid decision-making and runs the firm’s strategic planning process.
However, in addition, it operates as a liaison between senior management, staff areas and
operations as well as many external stakeholders. The team also has a responsibility to drive
organisational change and facilitate global strategic initiatives. 29

Research and Development and the Technical Division

For much of CEMEX’s history, the Mexican operation had been the de facto ‘strategy lab’
where new ideas were developed and refined then transferred elsewhere. Often these
developments were prompted by the firm’s response to various crises. An economic and
27
Ghemawat, P. (2004) The Globalization of CEMEX, Harvard Business School available from
www.thecasecentre.org
28
ibid
29
cemix.co.uk/whatwedo (accessed April 2020)
peso crisis, that lead to a turndown in the commercial construction, spurred CEMEX to focus
more on the individual construction (DIY) market and so develop branding and retailing
capabilities e.g. branded bags and Construrama (a national membership network of building
materials stores). The early use of GPS tracking to schedule deliveries to within 20 minutes,
even in the chaotic cities of developing economies, was also developed first in Mexico.

R&D became even more systematic as a result of the creation of the Technical Division. This
corporate function has two responsibilities: to enhance the ability of the firm to assimilate
and exploit internal and external knowledge and to generate innovations. 30 The function has
a unit in each country that works closely with operational areas and production plants.
These R&D units work as a network, with collaboration and the sharing of knowledge
facilitated by a dedicated technical support system.

In 2001, the company formed the CEMEX Research Group (CRG) and based it in Switzerland.
The role of this group is to lead the development and deployment of R&D across the firm and
to formally manage intellectual property. The group also promotes connections and
partnerships with leading universities and specialist institutions. The group typically obtains
around 5 patents each year, a third of which are for new processes and the remaining two-
thirds for products.31

Management and Organisation

In contrast to many of its rivals, CEMEX operates with a more centralised management
structure. The structure is described as a matrix that is held together by mechanisms that
facilitate the routine sharing of knowledge (market, production and technical).

The CEMEX culture promotes transparency and sharing of expertise across the group. Even
financial performance data is shared sideways to aid learning rather than just flowing up to
senior management.32 In 2009 CEMEX launched an internal social network called Shift. This
allows people at all levels in the firm to see detailed information about operations around
the world and to learn about and discuss best practice. Internally, it is felt that “shift allows
the company to feel small”.33 The emphasis is not just on developing best practice - one of the
five core values of the firm is working as “one CEMEX” which stresses that people who
replicate best practice are valued just as much as those who create it. 34

There is a strong emphasis on middle-level managers in the diffusion of best practice - in

identifying resources and capabilities and adapting them to improve operations. CEMEX
reinforces this with functional ‘global networks’ tasked with creating value through
collaboration across borders in specific priority areas. Created in 2014, each of these virtual
communities is led by a member of the CEMEX Executive Committee and includes experts
and managers from across the group.35 There are currently networks focused on areas such

30
Vargas, A. T. and Villazul, J. J. (2016)
31
ibid
32
ibid
33
Vargas, A. T. and Villazul, J. J. (2016)
34
CEMEX 2014 annual report
35
Aasi, P., Rusu, L., Leidner, D., Perjons, E. and Estrada, M.C. (2018) How Does the Organizational Culture of
Collaborative Networks Influence IT Governance Performance in a Large Organization, Proceedings of the 51 st
Hawaii International Conference on Systems Science, pp4941-4951
as customer centricity, sustainability, supply chain and ready-mix. 36 The networks
themselves have formal structures, regular forums and a central support function. 37

In enabling employees to adopt consistent approaches and adopt best practice, CEMEX
believes training plays a key role. To this end they have established four CEMEX academies:
Commercial Academy, Health & Safety Academy, Supply Chain Academy and Culture &
Values Academy. Employees are expected to enrol on courses that are often set as annual
personal objectives, to be delivered and tracked online. In 2016 the academies delivered 70
training sessions reaching 2500 employees.38 It is planned to further integrate these
academies under the umbrella of CEMEX University and forge closer links with CEMEX’s
Global Networks to better develop and leverage the firm’s strategic capabilities.

CEMEX Go

In the IBM interview, Gonzalez was focusing on work that was developing in the customer
centricity ‘global network’ towards transforming the firm’s relationship with its customers.
This had led Gonzalez, supported by the CEMEX board, to strongly believe that digital
technology could play a major role in the firm’s development. However, he realised that the
challenge was not the technology itself but to understand how its application would
transform CEMEX. Adapting an organisation quickly and managing the changes was a major
undertaking. It was this challenge that had led to the week of meetings Gonzalez had been
having with IBM’s digital and digital transformation teams.

While recognising there were other digital opportunities internally, CEMEX’s main focus was
on how it could transform its relationship with the market. Gonzalez believed that by
building on the firm’s technical and organisational capabilities it could create a proposition
superior to its competitors. Called CEMEX Go, the firm had been piloting the approach in a
few locations and was finding it was leading to deeper and broader customer relationships. 39
The question was now whether this could be successfully rolled out globally with the same
success and how CEMEX’s competitors would respond.

36
CEMEX 2016 annual report
37
Aasi et al (2018)
38
CEMEX 2016 annual report
39
IBM Think Leaders Interview 17th November 2016