Meeting the Heroes Behind Holcim’s Sustainable Revolution

Sigmoid Strategy in Action: Unveiling Holcim's Path to “Doing Well by Doing Good”.

In my journey as the “Sigmoid Rider”, I decided to meet select companies already executing the strategic imperatives that I argue and support in the S-curve Strategy framework. I wanted to put faces to the cases that I share from the online resources of these companies. I wanted to know and let you know the heroes of these works in action.

Holcim is one of the companies that I follow and admire in this sense and use in my strategy contents as a real-life example in multiple areas and Edelio Bermejo is one of the heroes behind Holcim's success.

I visited the Holcim Innovation Hub in Lyon yesterday (27/02/2024), one day before they published their 2023 annual report (congrats for record results), as the guest of dear Edelio Bermejo (Head of R&D). He was very kind to spend quality time with me, showing the state-of-the-art premises and explaining Holcim's innovation strategy.

Before we go into the specifics of what Holcim is doing. Let me give you some industry landscape information to better understand Holcim’s strategy:

 -       The Holcim Group (formerly known as LafargeHolcim) is a Swiss multinational company that manufactures building materials. It has a presence in around 60 countries, and employs around 63,000 employees. Holcim operates four business segments: cement, aggregates, ready-mix concrete, and other products.

-       Originally, the company was established as LafargeHolcim by the merger on 10 July 2015 of Holcim and Lafarge. In the 2023 Forbes Global 2000, it was ranked as the 268th largest public company in the world.

-       The construction and maintenance of buildings contribute to around 36% of global final energy use and 39% of energy and process-related CO2 emissions.

o   11% is attributed to the manufacturing and processing of building materials like steel, cement, and glass. This is often referred to as embodied carbon.

o   28% comes from the operational emissions associated with the energy used to heat, cool, and power buildings.

-       Concrete represents 74% of the weight, 21% of the CO2 emission and 4.7% of the cost of the structure (very commoditized).

-       By 2050, +2B people (10B) to the world population and +2,5B people to live in cities.

-       Currently, we are building +1 New York City every month.

-       60% of the infrastructure needed is not yet built for 2050.

Given all the above, there is increasing demand for holistic (material production, construction operations, building maintenance) construction sustainability from consumers (individuals and businesses), currently more in developed markets. This means there is also a lot of hidden value to unlock in this very commoditized industry.

Let us look at what Holcim is doing strategically within the S-Curve framework.

Culture by Purpose:

They have an infinite, timeless mission engaging and energizing all their stakeholders towards sustainable and profitable growth.

“At Holcim, we are leading the transition to sustainable building. With our solutions, we want to build circular cities that incorporate nature and are driven by sustainable buildings, smart infrastructure and recycling”

Vision –  Strategy 2025 / Accelerating Green Growth

Holcim’s “Strategy 2025 – Accelerating Green Growth” shows sustainability at the core of its business model. By positioning itself as a first mover on net zero emissions, circularity, and nature-positive goals, Holcim captured above-market growth and improved margins.

Net Sales Growth: 3-5%

Recurring EBIT Growth ≫ Net Sales Growth

Accelerate Growth in (Sustainable) Solutions & Products: 30%

Cash Conversion: 45%

Return on Invested Capital (ROIC): 10%

Leverage Ratio <1.5×

Triple Bottom-Line Goals (2023 Annual Report vs YA and Strategy 2025):

They are clearly not pursuing single-pillar economic goals but have social and environmental goal pillars as well.

-       Net Sales: 27B CHF (organic +6.1% vs. YA) – Overdelivered

-       Recurring EBIT: 4.8B CHF (+15% vs YA)- Overdelivered

-       Cash Conversion: 58% - Overdelivered

-       Return on Invested Capital: 10.6% - Overdelivered

-       Leverage Ratio: 1.2 - Overdelivered

-       CO2 Reduction: -20% CO2/Net sales (3.7 to 2.9)- On track

Positioning (Where to play):

They have identified areas where they can grow sustainably and profitably within their unique competencies in line with the company mission.

-       Grow (Sustainable) Solutions and Products: 21% in 2023 vs. 9% in 2018.

-       Grow Mature Markets: 78% in 2023 vs. 55% in 2018.

Re-purposed differentiation (Winning Activity System):

Innovation / Strategic Alliances

During my visit to Holcim Innovation Hub, I found a product/solutions company approaching innovation from 360 degrees, as I imagined in the S-curve Strategy regarding breath and depth. It is a facility in a 15,000 sqm area housing 210 R&D engineers with 1500 active patents (60% sustainable products/solutions). This is the HQ of their R&D organization, which also has 3 other innovation centers covering other regions (Americas and Asia) and 20 technical centers catering to customers across the globe.

They have a collaboration area where they welcome their customers (ie. Amazon , Google for their data center constructions etc.) and explain their innovation strategy and sustainable solutions (check the pictures of the other post). This reminded me of my time as the Geneva Innovation Center (of Procter & Gamble ) project manager 15 years ago, where we were also pioneering a new horizon in strategic customer collaboration. This center was an innovation on its own beyond being an HQ of their R&D organization to make product innovations.   

Holcim has a balanced approach to innovation, from New to Incremental to Disruptive, with a clear understanding of the trends impacting their industry and adjacent industries. They are also aware that disruptive innovation will usually not come from in-house but from Start-up ecosystem and Academia.

They have 4 R&D Innovation Focus Areas in-line with the company aspirations:

-       Green Operations- Decarbonizing Holcim

-       Building better with less- Decarbonizing Construction

-       Circular construction- Building new from old

-       Making buildings sustainable- Decarbonizing cities

Open Innovation Eco-system: They already have 120 start-up partnerships and 500+ in the pipe through Holcim Accelerator, Holcim Venture MAQER and Hackathons.  

They have 40+ Strategic Academic partnerships with universities, including Massachusetts Institute of Technology (MIT) and ETH Zurich. I already captured one of their work with MIT in one of my articles (Collaboration Beyond Partnerships: The Strategic Imperatives of Alliances).  

Communication / Go-to-market

I did not yet have a chance to meet any commercial people from Holcim. I am looking forward to meeting one soon. I can only comment on my impressions and knowledge from their online presence.

I believe Holcim has started a new sigmoid curve as of 2018 with their Strategy 2025 vision and related management changes and quickly started their growth phase, which I believe they are well positioned to continue for the foreseeable future.

The S-curve strategy (and I) argues that the steepest and longest duration growth will come from combining product innovations and communication (branding). They seem to be today more of a product/services company than a marketing company to capitalize more on the communication/branding value on top of the customer/product value they created.

They have created value-added brands like Eco-planet, Eco-pact and Eco-cycle, which is obviously working and growing in terms of sales % yet I think they can do more in branding and communication of their superior performance. I feel like they need to better articulate who their ultimate consumer, who their shopper and who their customer is and create an integrated and coherent communication strategy to all these stakeholders to maximize the value and thus the demand behind their products and solutions.

Obviously, this is not a barrier currently ahead of their product-driven growth and sustainability vision, but it may be a great value-creation opportunity to grow even faster.

Again, this is my impression, and I am open to being proven wrong if/when I can meet a commercial leader in the company.

Cost-to-serve / Capabilities / Capacity / Resource allocation

Given their current positioning and growth phase, I think they are doing very well in all these areas with the examples below. If my assessment about branding/communication is true, it may be the area to grow muscles regarding capability and resource allocation.

-       Investing in low-carbon and circular construction – Holcim allocated over CHF 240 million of capital expenditures to sustainable solutions like its ECOPlanet green cement and ECOPact green concrete. These drove double-digit sales growth.

-       Scaling up recycling – Holcim increased its recycling of construction demolition waste by 24% through new technologies like its ECOCycle platform. This boosted circularity while cutting costs. 

-       Advancing carbon capture – The company is developing 17 carbon capture projects globally, supported by grants from the EU Innovation Fund. This will help deliver 8 million tons of green cement annually by 2030.

Holcim's last 6 years journey offers invaluable insights for businesses aiming to align profit with purpose. As we move forward, Holcim’s trajectory serves as a guiding light, proving that through the right growth strategy and supporting innovation, businesses can indeed do well by doing good. Holcim's strategy is a compelling example of how the "triple bottom-line" and stakeholder focus, supported by a strategically balanced innovation approach, can fuel success. 

My visit to Holcim's Innovation Hub reinforced this model's applicability and highlighted how the company is walking the walk and talking the talk. It was an exploration of the company’s achievements and a glimpse into the future of sustainable business practices. It reinforced the notion that with the right strategic framework and commitment to innovation, achieving profitable growth and sustainability is not only possible but is imperative for long-term success, as evidenced throughout Holcim's 2023 Integrated Annual Report.

I want to thank again to Edelio Bermejo for his valuable time and delicious lunch and congradulate Miljan Gutovic and the entire Holcim team for their record 2023 results. Way to go. Looking forward to meeting more people from Holcim.

May the force (of strategic rigor) be with you.