Nick Bloom, 149, 2015 The Modern Firm in Theory and Practice Nick Bloom Lecture 7: Culture and Globalization 1

Nick Bloom, 149, 2015

The Modern Firm in Theory and PracticeNick Bloom

Lecture 7: Culture and Globalization

1

Nick Bloom, 149, 2015 2

Lincoln Venturing Abroad

Targets management practices

Cemex


Case introduction

https://www.youtube.com/watch?v=EftYWQOs_cU

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What made Lincoln so unusual in the US context?

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What challenges did Lincoln face in trying to take its system abroad?

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Is Lincoln’s system a good approach for other US (manufacturing) firms to follow

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Nick Bloom, 149, 2015 7



Cemex


Score (1): Goals are based purely on accounting figures (with no clear connection to shareholder value).

(3): Corporate goals are based on shareholder value but are not clearly communicated down to individuals

(5): Corporate goals focus on shareholder value. They increase in specificity as they cascade through business units ultimately defining individual performance expectations.

(9) Target interconnection


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1 2 3 4 5Target interconnection

Target interconnection (9):all countries, manufacturing

9All countries, manufacturing firms (100 to 5000 employees), 9813 observations

Average 3.01


Score (1): Top management's main focus is on short term targets .

(3): There are short and long-term goals for all levels of the organization. As they are set independently, they are not necessarily linked to each other

(5): Long term goals are translated into specific short term targets so that short term targets become a "staircase" to reach long term goals

(10) Target time horizon


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1 2 3 4 5Target time horizon

Target time horizon (10):all countries, manufacturing


Average 2.99


Score (1): Goals are either too easy or impossible to achieve; managers provide low estimates to ensure easy goals

(3): In most areas, top management pushes for aggressive goals based on solid economic rationale. There are a few "sacred cows" that are not held to the same rigorous standard

(5): Goals are genuinely demanding for all divisions. They are grounded in solid, solid economic rationale

(11) Targets are stretching


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1 2 3 4 5Targets are stretching

Targets are stretching (11):all countries, manufacturing


Average 3.00


Score (1): Performance measures are complex and not clearly understood. Individual performance is not made public

(3): Performance measures are well defined and communicated; performance is public in all levels but comparisons are discouraged

(5): Performance measures are well defined, strongly communicated and reinforced at all reviews; performance and rankings are made public to induce competition

(12) Performance clarity


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1 2 3 4 5Performance clarity

Performance clarity (12):all countries, manufacturing


Average 2.67

Nick Bloom, 149, 2015 16



Cemex


Some typical cement plants – capital intensive

Suwanee, Georgia

Sumterville, Florida


Another cement plant (RMC’s Rugby plant)

As an example, he pointed to RMC’s Rugby plant in England. This facility had become notorious for its inefficiency and was importing sizable quantities of cement from competitors to keep pace with its ready-mix demand prior to the CEMEX deal. Within just three months, CEMEX was able to improve operational efficiency (as measured by kiln utilization) from 74 to 90 percent and reduced significantly the plant’s need to import cement.


Cemex stock has done OK, but not great

Nick starts teaching case in Econ 149

Lafarge

S&P

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Cemex top 4 outside China (in 2011)


China dominates global cement production


“No other industrial workers in the country can point to contracts that impinge on and restrict the rights of management as much as cement contracts do.”

President of the Cement, Lime and Gypsum Workers Union, in 1978 from VOICE (the monthly union magazine)

Cement (in the US) also a history of labor issues

Nick Bloom, 149, 2015 24

Q1) Why are global companies emerging in the cement business? What is the advantage of being global in this business?

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Q2) How does the theory of the firm help us understand the Cemex case? How does this case call the theory into question?

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Q3) After gaining scale in Mexico, Cemex enters Spain. Why did many doubt Cemex’s ability to add value to the Spanish acquisitions? What did Cemex find out about itself in this process?

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Q4) What do you make of Cemex’s acquisitions?

Should it enter China and India?


Concrete rider (from New Zealand)

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Wrap up

1) Managing international expansions is hard: need experience

2) Challenges around variations in• Regulations• Unions and working norms• Culture and language

3) Successful example from Cemex focused around starting locally (culturally near – e.g. Spanish speaking) and expanding

4) Lincoln initially struggled with a too rapid expansion

Documents

Nick Bloom, 149, 2015 The Modern Firm in Theory and Practice Nick Bloom Lecture 7: Culture and Globalization 1