The Modern Firm in Theory and
Practice
Nick Bloom
Lecture 7: Culture and Globalization
Nick Bloom, 149, 2015
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Lincoln Venturing Abroad
Targets management practices
Cemex
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Case introduction
https://www.youtube.com/watch?v=EftYWQOs_cU
Nick Bloom, 149, 2015
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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
Nick Bloom, 149, 2015
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Lincoln Venturing Abroad
Targets management practices
Cemex
Nick Bloom, 149, 2015
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(9) Target interconnection
Score (1): Goals are
based purely
on accounting
figures (with
no clear
connection to
shareholder
value).
Nick Bloom, 149, 2015
(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.
Target interconnection (9):
all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 3.01
1
2
3
Target interconnection
4
5
All countries, manufacturing firms (100 to 5000 employees),
9
9813 observations
Nick Bloom, 149, 2015
(10) Target time horizon
Score (1): Top
management's
main focus is
on short term
targets .
Nick Bloom, 149, 2015
(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
Target time horizon (10):
all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 2.99
1
2
3
Target time horizon
4
5
All countries, manufacturing firms (100 to 5000 employees),
11
9814 observations
Nick Bloom, 149, 2015
(11) Targets are stretching
Score (1): Goals are
either too easy
or impossible
to achieve;
managers
provide low
estimates to
ensure easy
goals
Nick Bloom, 149, 2015
(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
Targets are stretching (11):
all countries, manufacturing
.2
.1
0
Density
.3
.4
Average 3.00
1
2
3
Targets are stretching
4
5
All countries, manufacturing firms (100 to 5000 employees),
13
9819 observations
Nick Bloom, 149, 2015
(12) Performance clarity
Score (1): Performance
measures are
complex and not
clearly
understood.
Individual
performance is
not made public
Nick Bloom, 149, 2015
(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
Performance clarity (12):
all countries, manufacturing
.2
.1
0
Density
.3
.4
Average 2.67
1
2
3
Performance clarity
4
5
All countries, manufacturing firms (100 to 5000 employees),
15
9821 observations
Nick Bloom, 149, 2015
Lincoln Venturing Abroad
Targets management practices
Cemex
Nick Bloom, 149, 2015
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Some typical cement plants – capital intensive
Suwanee, Georgia
Nick Bloom, 149, 2015
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.
Nick Bloom, 149, 2015
Cemex stock has done OK, but not great
Nick starts teaching
case in Econ 149
S&P
Lafarge
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Cemex top 4 outside China (in 2011)
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China dominates global cement production
Nick Bloom, 149, 2015
Cement (in the US) also a history of labor issues
“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)
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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?
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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
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