CEMEX

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CEMEX




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Presentations text content in CEMEX

Slide1

CEMEX

Innovation in Housing for the Poor

Slide2

AGENDA

Solving the big problems

CEMEX: Innovation in housing for the poor

CEMEX discussion as course summary

Slide3

SOLVING THE BIG PROBLEMS

Based on HBR’s list of audacious ideas for solving the world’s problems (

Shiller

et al), what does it take to successfully conceive and implement innovations that solve big messy problems?

Poverty and affordable housing is a big messy problem..

Slide4

IS GLOBALIZATION GOOD FOR THE POOR?

Management expert C. K.

Prahalad

(

Deceased

April 16, 2010)

Slide5

CONDITIONS FOR SERVING THE POOR

Move from focus on high gross margins to Return on Capital Employed (ROCE), achieving capital efficiency

Very low capital needs, focused distribution and technology investments, very large volumes at low margins

Prerequisite = TRUST, MNE’s and BOP Consumers have traditionally not trusted each other.

Innovation Imperative:

BoP

markets are hot-beds of commercial and technological experimentation

Slide6

CEMEX and patrimonio Hoy“Much more than a home”

Innovation in Housing for the Poor

Slide7

HOW DOES CEMEX SERVE THE POOR?(ANDERSON AND BILLOU, PRAHALAD)

Affordability

Credit

Savings and Payment plans

Acceptability

Build trust

Distribute or store

Modularize construction

Availability

Deliver when needed

Community networks

Awareness

promoters

Slide8

Measuring ROInn©

AT CEMEX

Slide9

Does it meet the objectives?Generate business that represents competitive advantagesRepresent an accessible option for poor families looking for a better quality life through households by offering good-quality cement and raw material at reasonable and frozen-pricesOffer access to credit not available to poor otherwisePosition CEMEX as a responsible corporate citizen that is committed to societyBuild social capital

AGAINST OBJECTIVES

Slide10

FINANCIAL METRICS

Does it add value, now and in the future?

New market

Increased revenue

Does it pay for itself?

Positive cash flow

Slide11

NON TANGIBLE BENEFITS

Does it lead to competitive advantage?

New channel for selling cement and materials

Other innovations such as

Construmex

Consumer commitment

Enhanced supplier/distributor relations

Employee pride and commitment

Slide12

CEMEX AS COURSE REVIEW

The Innovation

The Organization

The Market Space

The Environment

Performance

Slide13

The Innovation:Patrimonio Hoy

Patrimonio

Hoy, “savings/property today”, enabling very poor people to pay for services and building materials to upgrade their homes.

Does it fit the definition of innovation?

Action – design, invention, development…

Outcome – product, process, system …

Purpose – customer and company value

Slide14

TYPE OF INNOVATION

Radical or disruptive? Replace existing products, services, or processes.

Incremental? Improvements of an existing product or process design.

Slide15

FORMAL VERSUS INFORMAL

ATTRIBUTES

FORMAL SEGMENT

INFORMAL SEGMENT

Sales

Higher revenue per customer

Low revenue per customer

Payments

Financing generally not required

Financing is important

Demand

Depends on economy

More or less steady

Price sensitivity

Driven by bargaining power

Convenience-driven (credit, delivery, etc)

Brand equity

Recognized and trusted

Should build trust to deliver as promised

Growth

Slow

Very high potential

Customer location

Usually located in places of easy access

Mostly located in remote areas

Relationships

Stops at the distributor level

Requires close ties with end customers

Slide16

WHAT IS INNOVATIVE? Doblin’s Typology

Category

Type

Description of type

Patrimony Hoy Example

Finance

1

Business model

How you make money

Small sales, incremental payments, fee for service, contract based on project not sales order, volume-based discounts

Non-traditional consumers (women and very-poor)

2

Networks

and

alliances

How you join forces with other companies for mutual benefit

Relationships with community, suppliers and distributors

Process

3

Enabling process

How you support the company's core processes and workers

Program design: cells, enrollment, socios, promoters

Credit payment cycle

4

Core processes

How you create and add value to your offerings

Separate organization (Patrimony Hoy), Modularization of materials, materials distribution and delivery (storage option)

Slide17

Offering

5

Product performance

How you design your core offerings

Cement is the same

Offer other raw materials

6

Product system

How you link and/or provide a platform for multiple products.

Consultants

Networks

Supplier sell to Cemex

Distributors exclusive contract

7

Service

How you provide value to customers and consumers beyond and around your products

Credit access, technical advice, architect visits, storage, customer service

Slide18

Delivery

8

Channel

How you get your offerings to market

Community outreach

Distributors and storage options

9

Brand

How you communicate your offerings

Word of mouth

Promoters

Socios

10

Customer experience

How your customers feel when they interact with your company and its offerings

Pride of ownership

Build social capital

Build Trust

Slide19

THE ORGANIZATION

Innovation Strategy?

Complete solutions provider at low cost

Creating competitive advantage through

Continued innovation

High level of commitment to customer service and satisfaction

Proven

post merger

integration expertise

Digital evolution: efficient production, distribution, and delivery processes through sophisticated information systems

Ability to identify high-growth market opportunities in developing economies

Slide20

Innovation Value Chain (Hansen & Birkinshaw):

Idea generation:

Market research conducted by management and consulting team

Tested in Guadalajara

3 month study raised challenges of financing, lack of expertise and storage

Conversion

Design Patrimony Hoy

Develop credit system

Design and negotiate supply and distribution systems

Diffusion

Teams in selected communities

Slide21

Is there a culture of innovation? (Price)

Awareness

Heavy investment in IT to boost productivity and efficiency

Strategic focus on innovation

Intense Motivation

Skills and Competence

Supportive Infrastructure

Resources contributed to market testing

Leadership committed through strategy

Formal processes implemented

Slide22

THE MARKET SPACE

Innovation Logic (Kim &

Mauborgne

):

Conventional Logic:

Industry conditions given, aim is to beat the competition, focus on current customer base through segmentation and customization, leverage existing assets and capabilities, maximize value within current industry boundaries.

Value Innovation Logic:

Shape industry conditions, aim is to dominate market through quantum leap in value, focus on customer values, develop new capabilities, maximize consumer value regardless of traditional boundaries.

Which is Patrimony Hoy?

Slide23

VALUE ANALYSISRED OR BLUE OCEAN STRATEGY?

Promoters: build social capital, earn money

Socios

and Partners: access to credit, good quality product, shorter construction time, technical support, skilled labor, excellent service, storage space, accelerated payment options, reduce construction cost, training options, build social capital

Suppliers: steady demand, consistent revenue stream, zero-risk debt collection

Distributors: steady demand

Slide24

THE ENVIRONMENT

Culture: Why does this work in Mexico?

Patriarchy, relationship oriented, pre-existing saving behavior through

tandas

, role of women in entrepreneurship and saving, poor housing

What are the values & beliefs that support

Patrimonio

Hoy?

Slide25

ECONOMIC CONDITIONS

Economic volatility, distrust

1990’s move to open market

Increased competition

Slide26

INDUSTRY CONDITIONS

Not a lot of innovation or change in concrete

Drop in formal market sales

Informal market potential of do-it-

yourself’ers

Slide27

Creating Return on Innovation

Innovation FacilitatorsLeadershipInnovation StrategyVisionChampionTolerance for failureStrategic AssetsInput, Process, Channel, Customer and Market Knowledge AssetsPeople Innovation ChampionsSkills & CompetenciesIntrapreneursOrganization CultureValues NormsCommitmentResources CompensationIntellectual CapitalFinancialTimeSpace

Innovation PerformanceNew or altered products, services, processes, systems, organizational structures, or business models.

Return on InnovationBusiness ResultsGrowthProfitsIncreased MarginsMarket ResultsMarket capitalizationMarket growth

Innovation BehaviorsManagement PracticesFormal Innovation ProcessesUnstructured Innovation ProcessesCollaborative Innovation ProcessesKnowledge ProcessesCapture of existing internal and external knowledgeCreation of new knowledgeDissemination and sharing of knowledge

Innovative BarriersMindsetNot-invented-hereNothing-is-invented-hereShortage of resourcesOrganizational bureaucracyLack of motivation

SOCIETAL FACTORS

Society / CultureHistorical ContextREGULATORY FACTORSGovernment & Social policiesECONOMIC FACTORSTechnologyIntellectual ResourcesStrategic Partners

National Context


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