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
"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
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
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
The challenge was complex and the consultants needed to find a
successful blend of team, listening, inter-industry skill
appropriation, and Commitment-based Management (CbM).
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
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.
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, who
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 learnt 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.
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 a clear advantage: it is now regarded as a
growth company by financial analysts.
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
"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 by Robert Hiebeler, Thomas B. Kelly, and Charles Ketteman
of Arthur Andersen. Published by Simon & Schuster, 1998.