REDLAND CASE

PART FOUR

POST MORTEM. WHAT CAN BE LEARNED FROM THE REDLAND CASE

First, did Redland really fail?

The company destroyed a vast amount of value in the 1980's and 1990's. An internal analysis, described above, had put this at £2.4 billion pounds.

Redland, therefore did not reward its long-term shareholders. It lagged behind industry leaders in terms of Total Shareholder Return (appreciation in the share price, plus the value of dividends) in the 10 years before the takeover.

Therefore, in this dimension, Redland does not emerge as a success.

And, despite any "City-speak" rhetoric about the takeover being a successful outcome, there is no evidence that the top management of Redland wished to cause the demise of the company. So, in tha t regard, they did not succeed.

So, what were the specific causes of Redland's "failure", and can any significant and more general lessons be learned from it?

We postulate that Redland failed because of a combination of the following reasons:

Problems with Acquisitions.

It chose the route of acquisitions as its major means of growth. It became increasingly ambitious to make larger and larger ones, and most of the larger acquisitions, as we have seen, destroyed value. It never created an organizational infrastructure that was strong enough to rapidly and effectively integrate acquisitions.

Inconsistent Strategy.

It did not have a clear and consistent strategy, apart from growth in financial terms. It also sought to align its tactics with the interests of the financial markets and ended up with little room for financial manoeuvre. Additionally, corporate management tended to regard City expectations as immutable, and sought to flex other items, such as capital expenditure, around them.

The company passed through several phases of diversification and concentration. In the early 1990's, even as the chairman celebrated the virtues of focus on three industries, he announced the company's entry into the plasterboard industry - a brand new business for the company. This venture turned into a competitive,operational and financial disaster and was rapidly offloaded.

It was not until almost the end under Robert Napier's leadership that it was decided to concentrate on two business areas, aggregates and roofing, where the company had real international expertise and market strength. This concentration together with a clear focus on business and organization building, bound together by a commitment to Value Based Management, offered a clear way forward for the company.

Unfortunately, the company was still hamstrung by the fatal legacy of its inability to control the management of Braas, whose weaknesses became evident as the German market declined and competition strengthened.

The Redland management had been strategically vulnerable in another dimension. They tended to have a rather short term, 'event-driven' approach to decision taking and action. This meant, for example, that they were over time out-manoeuvred by the Braas management and shareholders, who pursued a consistent strategy of gaining the maximum amount of independence. Over a period of maybe thirty years, they used every opportunity that offered itself to bolster their legal and psychological independence, and as the Redland management tended to react to each 'event' as it happened, they were gradually steered into a position where their influence was rather limited.

Weak Organization.

Redland did not historically create an organisation that possessed real substance and strength in depth. When the acquisition "music" stopped, there were insufficient organisational "levers" with which to rapidly improve operating returns and not enough time to complete the complex and lengthy task of creating them.

Thus, not having a strong enough organisationa l infrastructure to rapidly integrate and add value from acquisitions compounded the common problem of having overpaid for them in the first place. By the time a new leadership got round to trying to build a strong operating company, it was much too late.

Lack of Operating Experience.

Most of Redland's top management did not have deep industry and operating experience. With a few notable exceptions, they had 'fast tracked' to the top and missed out completely on the first line and middle management experience that is so vital for managing for performance and integrating acquisitions.

Luck.

There were economic factors beyond Redland's control, or "bad luck". Many economies went into recession shortly after the acquisition of Steetley. There was a cessation of growth in the German roofing market. These would have been a difficult call for any management. However, with the glorious benefit of hindsight, it may have been prudent to have left a comfortable margin for such events, rather than adopting, consciously or otherwise, strategies that required everything to go right in order to scrape through.