Strategic Plan for Growth for Sherwin Williams

Sherwin Williams Company Analysis Overview of the Company Founded in 1866 by Henry Sherwin and Edward Williams, the Sherwin Williams Company has grown to be one of the largest paint producers in the world. Nearly 150 years ago, Sherwin Williams established itself in Cleveland, Ohio, as the first ready-to-use paint store in America (History Timeline, 2015). Sherwin Williams began as a partner in Truman, Dunham & Company, which sold paint ingredients; when Truman Dunham dissolved to pursue the manufacturing of linseed oil, the Sherwin Williams company replaced it: the year was 1870.

Within 40 years with Henry Sherwin as CEO, the company would have over $10 million in sales per year (History Timeline, 2015). Today, the company maintains more than 3000 product and service stores with over 40,000 employees and a net income per employee of $26,178 (SHW-Fundamental Reports, 2016). Shewin Williams manufactures, develops, distributes and sells paint, coatings and related products within the special chemical/basic material sector/industry of the market and ranks in the middle of the Fortune 500 list of companies in operation today.

Sherwin Williams would introduce a number of innovations to the industry, such as the patented resealable tin can, the pigment grinding mill, and the first-ever ready-mixed paint. The company spread to Newark and Boston, Montreal and San Diego. By 1895, Montreal was the first production plant of Sherwin Williams outside the U.S. (History Timeline, 2015). By 1907, the company had expanded across the Atlantic to London, England and by 1919 it had a production plant in Oakland, California.

In 1922 it began selling its automobile lacquer, thus expanding the company's applicability to include the automobile sector. And in 1925, the company began trading publicly on the American Stock Exchange. Four years later its first Latin American store opened its doors in Mexico City. A number of new products followed, such as Kem-Tone and Kem-Glo paint; the company began working with the Cleveland Indians by sponsoring the baseball club and advertising at the club's stadium. And by the 1950s, the company was producing containers for other firms.

A decade later, Sherwin Williams opened doors in Belgium in order to reach the western European market. In 1964, the company received the ticker symbol SHW as it listed on the New York Stock Exchange (NYSE). In 1976, its automotive division opened in Richmond, Kentucky, and by the end of the 1980s, the company had acquired the Western Automotive Finishes company. Throughout the 1990s, Sherwin Williams would continue a strategy of acquisitions, completing 16 of them in just 21 months (History Timeline, 2015).

The company now creates and sells paints/coatings, protective and marine products, original equipment manufacturer finishes and other items (SHW -- Fundamental Reports, 2016). Today, Sherwin Williams is still a publicly traded company on the NYSE. The share price of its stock recently reached all-time highs of $309.65 per share last week. While its P/E ratio is at extremely high 26.96, its 2016 Q1 earnings report showed that revenues had increased 5% to $2.57 billion for the quarter. There are 92,495,113 shares outstanding, and analysts currently rate the company at Outperform.

Mission, Philosophy, Goals and Vision The Mission of Sherwin Williams is to "lead our industry, to manufacture and market innovative products of superior quality, to operate a safe, clean and friendly workplace, to observe the highest ethical standards in business conduct and to reward our investors" (About Sherwin Williams, 2015). The philosophy of Sherwin Williams is based on the corporate social responsibility platform that places community and environment at the fore of its product/service development and sales goals.

By involving itself with the community on a global scale and offering superior products and services to consumers, the Sherwin Williams Company aims to act ethically, responsibly and efficiently for the good of the consumer, the good of the planet, and the good of the stakeholders in the firm. Its goal is to continue to "strengthen the company for the benefit of customers, employees and shareholders" (History Timeline, 2015) and to achieve more than $10 billion in sales in the coming years (History Timeline, 2015).

It is currently exceeding that goal with $11.46 billion in revenue (Market Realist, 2016). Its vision is to be the leader in the industry and a leader in the sector for the foreseeable future, and to this end its expanded operations throughout the world and its strategic acquisitions have placed the company in a unique position to be able to achieve its goals and maintain its vision of leadership, responsibility and efficiency.

External Environmental Analysis Porter's Five Forces Model Threat of New Entry, Buyer Power, Threat of Substitution, Supplier Power, and Competitive Rivalry are the five forces that impact the business of Sherwin Williams, according to the Porter model. New Entry threat is comprised of time/cost of entry, specialist knowledge, economies of scale, cost advantages, tech protection and barriers. Substitution Threat consists of substitute performance, cost of change.

Buyer Power equals number of customers, size of orders, differences between competitors, price sensitivity, the ability to substitute, and the cost of changing; Supplier Power equals the number of suppliers, size, uniqueness, sub-ability and changing cost. Competitive rivalry consists of the number of competitors, quality differences, switching costs and customer loyalty. These five forces impact Sherwin Williams in obviously diverse ways, which can be broken down into the following analyses. Existing Rivalry analysis includes Dupont, Benjamin Moore, PPG Industries, Bradero Shaw and Behr Paint.

These companies indicate that while competition exists, Sherwin Williams is among the largest players in the industry. The threat of new entrants for that reason is limited, as new entrants tend to be candidates for acquisition if they ever gain substantial market share, and Sherwin Williams has shown itself to be an aggressive acquirer of other businesses related to the industry.

The bargaining power of buyers is relatively high as a result of a competitive industry; thus Sherwin Williams seeks to provide strong customer service, strong products and strong consumer loyalty. The bargaining power of suppliers is limited as Sherwin Williams manufactures in-house; supplies are limited to basic materials, which are in demand across several sectors; thus prices are kept not dependent upon a single industry/sector.

Strategic Group Map Factor Analysis -- Social, Environmental Factor analysis of Sherwin Williams' social and environmental variables impacting its business indicate that the company's strategic acquisitions and investments are having a positive impact on its growth continuance. It continues to add stores, building upon its environmental expansion efforts.

Corporate social responsibility efforts include, reducing its environmental footprint, helping neighborhood communities where it does business, emphasizing safety in the workplace, and publishing its metrics reports that include total carbon produced, total fuel consumption, non-hazardous solid waste performance, carbon performance, electricity performance, mercury releases, and certified sites (Caring in Full Color, 2015). Other Pertinent Analysis Other pertinent analysis includes financial strength, profitability/growth and financials analysis, all of which indicate the stability and ability of the company to keep delivering on its vision and goals.

The company's operating margin is in excellent condition compared both to its own history and the industry; its net margin is similar. Its P/E is high and its cash to debt ratio low (GuruFocus, 2016). With a market cap of more than $28 billion, the company is expensive for stockholders but analysts view it as outperforming, especially with its recent expected acquisition of competitor Valspar (Valspar Shareholders Approve Buyout by Sherwin-Williams, 2016).

Environmental Forecasting Remote Environment Political changes impacting the remote environment of Sherwin Williams include rules/regulations based on the use of solvent-based products that could release harmful chemicals into the environment. Under the current administration, environmental lobbying has been active, with federal regulations in both Canada and the U.S. impacting initiatives by the company, for example in the Leadership in Energy and Environmental Design, Green Globes, the National Association of Home Builders, and the Canadian Green Building Council.

Canada's Volatile Organic Compounds (VOC) regulations for paints, enacted in 2010, apply to all coatings manufacturers and stipulate that VOC concentration limits for more than 50 architectural coatings meet specific guidelines, which Sherwin-Williams is efficient about maintaining (Green Programs and VOC Regulations, 2015). For this reason, the company is expected to be a leader in the industry regarding environmentally safe products and services Industry Environment The industry environment forecast is that that global green coatings market will grow "at a CAGR of 5.1% from 2015 to 2020" (PRNewswire, 2016).

Drivers for this growth include end-use industry, regulatory measures regarding the environment, and VOC emissions awareness, which Sherwin Williams is already well-positioned to capitalize on given its business in Canada where VOC regulations are already in place. For this reason, the architectural coatings segment of the industry is expected to see an increase in growth over the next five years as laws are implemented. The company's ability to provide products to meet the new demands is evident.

Operating Environment Sherwin Williams' Cover the Earth initiative is focused on "acquiring local operations -- manufacturing, supply chain, sales, customer service, and more -- the world over" in order to establish systems and processes that support and are supported by local economies, which adds to the stability and authenticity of the business the world over (Sandsmark, 2011). Operations are supported by Oracle IT, which maintains the infrastructural needs for the company as it advances its business in the Digital Age, utilizing digital technology, new media, cloud computing, and advanced informations technology.

Internal Environmental Analysis SWOT Analysis Strengths -- Trademark services are a major strength of the company, as they help to develop brand loyalty and easy identification among consumers. Knowledgeable employees are another strength as they can provide information to consumers who do not know what products to use for particular activities. Sales support and customer service is another strength of the company along with free delivery which saves consumers costs.

Product development is also a strength as a number of patented container technologies make the company a leader in the industry in providing storage products for consumers. Weaknesses -- One of the main weaknesses of the company is the perception that its prices are high among competitors. This puts the company at a disadvantage among cost-conscious consumers who seek to save money.

The company's online ordering is also not as comprehensive as consumers in the digital age might like, as the company's web resources are not streamlined and do not make for easy shopping experiences. Opportunities -- An opportunity exists in the property management market share, as there is a chance that the company could expand its property line and manage more assets across the globe. An increase in brand awareness could also be pursued so as to drive more sales and maintain the company's goal of over $10 billion in annual sales.

Utilizing existing programs to maximize revenue is also an opportunity that can be pursued, especially in the light of recent environment legislation around the world that could allow the company to implement on a wider scale its VOC guidelines and environmentally friendly programs. Threats -- Large retailers continue to be a threat in the industry, as they are able to meet a particular kind of consumer demand in the retail space.

Low pricing done by competitors is also a threat as it makes the company look like its products are expensive in comparison and thus reduces its market share by pushing it out of the market. The fact that price perception plays a part in the purchasing of products rather than an emphasis on quality is also a threat, and one that the company can counter by emphasizing quality in its advertising.

Local retail providers setting their own prices is also a threat that causes the company to lose out in local markets. The product line of competitors is another threat that reduces the uniqueness of the company in the industry. A weakening of the economy in the U.S. and around the world may also adversely affect the company's ability to sustain revenues (Sherwin Williams 10-K, 2015, p. 5). Situation Analysis The company's 2600 paint stores make up "two-thirds of total company sales" (Evans, 2015, p. 116).

The company uses dual marketing as a means of distributing products that it manufactures. Therefore its company owned stores are able to sell directly to customers without needing a middle man, which cuts into costs. The company's HR is pro-active in engaging workers on what incentives will help to drive stable working environments and reduce turnover. Because the company employs so many people, mitigating the risk of turnover and reducing the associated costs of training new employees can be addressed through responsive HR incentivizing programs and workplace culture promotion.

Key Success Factor Analysis The key success factors of Sherwin Williams of late have been its strategic acquisitions of companies like Valspar, which allows the company to expand its market share and eliminate competition. Aside from recent acquisitions, drivers of the company's success have focused on customer service, product development and dual marketing. Its rapid expansion throughout the early half of the 20th century and its patented technology and innovative products allowed it to rise quickly to the top of the industry.

Today it is able to retain market share through brand loyalty, brand recognition, global expansion, customer service, the utilization of local economies, labor, products and services, and its commitment to corporate social responsibility. Formulating Long-Term Objectives and Grand Strategy Long-term objectives of the company include continuing to expand its product line, conform to regulatory standards of governments around the world with regard to environmental safety, and to grow its revenues and sustain its goal of pursuing more than $10 billion in annual sales.

The long-term objectives are to provide environmentally safe coatings and services that demonstrate strong corporate social responsibility, to grow its brand recognition and loyalty into the 21st century, tap into emerging markets around the world, and continue to make strategic acquisitions so as to keep a strong hold on market share and growth potential. The grand strategy of Sherwin Williams is to drive growth through close working with governments committed to environmental safety by developing programs with them such as the Green Programs in Canada, the U.S. and overseas.

These programs are highly influential in allowing the company to visibly demonstrate its commitment to environmental safety issues that impact communities and to raise awareness about how chemicals and producers can make a difference in the world. A second part of the grand strategy is to focus on, identify and acquire companies that can propel Sherwin Williams forward through the coming century to maintain its market and allow it to grow to meet the demands of a changing world.

Recognizing that the consumer base will alter with generational progression is a key step in facilitating growth through strategic acquisitions. Companies that provide gateways/pathways to a specific key consumer group that Sherwin Williams is targeting will be focused on for possible acquisition. The overall grand strategy is thus guided by the company's efforts to maintain sustainability through expansion/growth and product development (Strategy and Analysis, 2015).

Strategic Implementation Expansion and Growth Acquisitions are the main driver for this strategy, as the acquisition of Comex in 2012 and Valspar in 2016 will have indicated. By absorbing these companies' stores already in place in specific regions, Sherwin Williams is able to increase expansion with minimal construction costs and boost growth, revenues and sales in regions where it previously had little footprint (Thurston, 2012). Acquisitions allow Sherwin Williams to gain exclusive rights to thousands of new stores in various regions.

Through absorption, the company gains new products which it can re-brand under the Sherwin Williams logo in order to maintain brand consistency and loyalty and increase recognition. Its acquisition of Valspar will present the latest need for re-branding, and the company's distribution network will need to be utilized in order to replace product lines rebranded to meet the company's needs. The goal of the acquisition of Valspar is to increase the company's penetration of international markets through Valspar's network. This should be completed within two years of the acquisition.

At the end of this period, the acquired company's products that are similar to already existing Sherwin Williams products should be discontinued so as not to waste costs producing items that are already available in the Sherwin Williams catalogue. A shift should be enacted among consumers used to purchasing the Valspar products by promoting the similar Sherwin Williams products instead in retail shops and commercial ventures.

Identifying markets in which growth is also expected, such as China, and how to strategically penetrate them will also be key to expansion and growth. The strategy in China will be to gain access through government investment programs that allow foreign companies to introduce themselves into the market. Strategic acquisitions in China will be more difficult and the country's government does not typically promote this. However, inroads can be made through strategic alliances made with government officials tasked with growing the economy.

Merging and aligning interests will be a key strategy for growth in developing markets such as this one. Product Development Product development will also be a key strategy and the company must maintain its research and development team (consisting of more than 300 engineers/scientists in the Breen Technology Center), which serves as the company's main research facility.

The company already puts more than 1% of all sales revenue back into the company through research and development studies, and a main strategy for increasing product development will be to put 1.5% of revenues into development and to increase holds on patented technologies (Shingler, 2010). This will allow the company to continue to be innovative as it always has been and in order to meet the needs of growing specialty/niche markets, such as the marine market, the company will have to invest in research as to what these niche consumers require.

The goal for this strategy will be to identify 20 new needs of the market's niche consumer sectors and measure the opportunity/cost ratios to determine which needs will positively benefit the company in terms of strategic growth. Strategic Control Strategic control depends upon establishing objectives that can be reached within a relatively short amount of time and then measuring to see how well the objectives were met. For this strategic plan, the goals are clear. Identifying 20 needs of the industry's niche consumers and measuring the opportunity/cost ratios for feasibility.

This should be accomplished on a quarterly basis and thus for each quarter, 5 niche consumer needs should be identified with practical measures noted. Monitoring this goal can be accomplished by management within the research and development departments and rewards can be given for teams that identify more than their quota as well as for teams who identify needs that are cost effective for the company to pursue.

For acquisitions, the goal will be for the company to identify dozen competitors in strategic regions throughout the world that would make the most sense to acquire. The cost of potential acquisition should be worked out, the similarity of products, the uniqueness of their brand, whether their consumers would be likely to cross over to become Sherwin Williams consumers, etc. This goal should be measured quarterly as well, with three potential acquisitions being researched by the research and development team per quarter.

The same incentives should be given for teams who go above and beyond the specified target as well as for teams that propose a logistically acceptable acquisition target. Forecasting Issues Issues that can be forecasted as a potential problem for the company are ensuring that cash burn does not become an issue and that growth does not solely depend upon constant acquisition of competitors in the market. This could escalate into a problem if acquisitions begin to be too costly for the company.

Share buyback programs could also become an issue as the market continues to rally to all-time highs. While all-time highs are good for the stock and for shareholders, they make the company shares expensive to purchase. Buybacks should be reserved for extended dips in the market or for bear market corrections. The research and development teams will be tasked with the most important aspect of the strategic plan, given.