The Companys Strategies of BMW - Case Study Example

?Analysis of BMW BMW stands for Bavarian Motor Works. This German automobile company was started in 1917 in Munich, Bavaria. BMW cars are best known for their innovative designs with a touch of conventionality. After the Second World War, BMW was literally in ruins as large part of their income came from producing aero engines during the war. BMW faced bankruptcy in 1959. But, they managed to lure in Herbert Quandt as its major shareholder. They reengineered their production and distribution strategies completely. They identified a market for very sophisticated saloon cars which will serve as a status symbol for its owners. BMW's turning point came when they started to cater this market. They started producing motorbikes and expensive luxury cars branded the best in the world. Acquisition of Rover group in 1994 and the Rolls-Royce in 2003 were the other major milestones in their history. Today their annual revenue crosses 50 billion Euro's and they employ over 96,230 employees in 23 plants spread over 13 countries. They have 12 R&D centres in 5 countries. They sell over 1,341,048 cars worldwide. 78% of their sales comprise of their conventional BMW cars. BMW MINI series cars capture 16% of their sales while their stupendous sports motorcycles capture 6% of their sales (Illing, 2010). They sell over 2000 Rolls Royce cars per year too. BMW adopted various strategies to reach this position in such as short period. The company’s strategies are worth examining as they will help any company manage its competition quite effectively. PEST Analysis PEST stands for political, economical, social and technological. This method is used to analyse the macro-environment of an organization. Such an analysis is done when high level of doubt prevails over the way the external environment responds to changes. It is necessary to determine whether the organizational policies are compatible and sufficient to meet the external environment. Political Factors affecting BMW are versatile. The various new schemes introduced in the Europe about the manufacture of high mileage cars led to massive increase in automobile sales (Hill & Jones, 2007). Laws and regulations related to environment norms and government policies related to taxes affect the company and industry in general. BMW takes care to comply with all the policies to avoid getting in trouble with the government. Economical Factors affect the automobile industry and BMW in general. The exchange rates and the economic growth of the countries like India and China make them emerge as worthy competitors in the market. Stagnancy of stock due to overproduction and economic slowdown is also a major issue. It might occur due to global economic slowdown or decrease in the exchange rate of Euro at any time. Social Factors: The recession, changing customer buying behaviour and increased eco awareness had made people look at cars as an important and useful commodity rather than a status symbol. They want their cars to give more mileage and be environmental friendly rather than just luxurious. Technological factors prevalent in the industry affect the BMW the most. They should keep upgrading themselves regarding the new technology in production as well as marketing. Everything from the latest Bluetooth facility to modern GPS systems should be incorporated in the cars to make it attractive while they still have to stick with the original design. The Key Drivers of Change From the analysis we can conclude that the major factors that contributed to change in BMW are 1. The need to advance technologically 2. Environmental regulations 3. Deployment of hi-tech infrastructure as well as qualified manpower Adaptability or changing its strategies according to the external environment is called consonance (Rumlet, 1980). It is the most important factor driving successful change in the industry. Porter’s five forces Analysis (Porter, 1985) Porter's Five Forces Analysis Threat from Substitutes: Medium BMW is associated with engineering excellence and ultimate luxury. So, the threat for substitute is low. However, the government encourages people to use public transport instead of luxury cars concerning the environmental issues. Substitutes might also come from other leading car and bike companies like Toyota. The brand loyalty of the customers is a great strength for the company. Rivalry Among competitors: High Low market growth and efficient competitors make the automobile field very competitive. Ducati, Toyota's PRIUS, Yamaha, Audi, Mercedes- Benz- there are several huge names equipped with the same capacity as that of BMW, posing fierce rivalry with each another. Threat from New Entrants: Low Very high initial investments are a block for new entrants in the field. The close relations the existing companies maintain with their customers like lifelong service contracts are also a great barrier. Bargaining power of Suppliers: High BMW's profit directly influences its supplier’s profit. They are very important for supplying raw materials to the company, supplying spare parts and offering quality services. Their co-operation is very important for BMW to maintain its brand image and quality of their products in general. Bargaining power of Buyers: Medium Switching to another company is very simple. But, the cost of all branded luxury cars is more or less the same. They have lots of options to evaluate even the minute feature of various cars before they choose a brand. But, all the top players provide nearly the same quality products. The key forces within the industry are the bargaining power of the suppliers and the fierce competition between various existing automobile doyens. They exert a definite control over the suppliers and keep the market closely guarded from substitutes and new entrants. Their brand image enables them to lure in customers easily in any country they open their branch. Key Forces Driving Success in the Industry 1. Usage of design as the main asset 2. Promotional campaigns showcasing the brand image instead of highlighting the product features Marketing is considered as a concept which provides people with services or products that work effectively and are offered at fair price (Blythe, 2006). BMW strives to provide products which not only work perfectly during the time of selling but forever. Their strategy is to give something new and of high quality to the customers with less administrative costs, but high selling price. When the competitor offers similar products at a low price, the customers will be naturally attracted to switch towards them putting back their customer loyalty (Buell et al, 2011). Porter’s Generic Strategy BMW's executive strategies did not follow any well defined master plan. Its branding strategies, promotional campaigns as well as dealings with suppliers and distributors everything was quite flexible and changed in accordance with time. Analysis of Porter's Generic Strategy The generic strategy is used to study the focus differentiation techniques a company follows to create a unique value for its products (Porter, 2008). The cost leadership strategy of BMW aims in earning more by controlling the expenses without sacrificing the quality of the product. They still appoint German labours when most of the automobile companies use automated system. This helps them control the cost and ensure each product is checked manually to confirm its quality. The differentiation policy aims in giving the best engines and the most prominent interior luxury like the best leather seats, most spacious interiors tec. Their segmented market or target customers consist only of the elite who are ready to pay limitless for good quality. Their MINI series was aimed at the new wave of IT millionaires who are not as rich as the traditional oil magnets, but still have a fair amount of money to spend. Competitive Strategies BMW's competitive advantage lies in its efficient usage of technology combined with manpower and being flexible to constant changes. They target both the premium market as well as the luxury car market. Its closest rival equivalent to it in terms of technology is Toyota. BMW aims in introducing new range of cars to tackle the core competition effectively. Strategies destined for failure It means working towards a gaol but failing to achieve the same. BMW purchased the Rover, an English brand with the sole aim of increasing its production. However, the automobile industry in Europe stagnated without selling 80% of its products in 2003. After this BMW reconsidered its decision and sold the company to Ford. Such actions are a proof for BMW’s consonance. Value Chain Analysis Barney (1991) suggests the companies which gain competitive advantage over others follow strategies that exploit their internal strengths to neutralise external threats. It also gives importance to avoiding internal weakness. They make their products un-imitable, valuable and eliminate all threats from the substitutes. BMW follows this same strategy when it comes to value chain management. They make sure they purchase the best quality resources from their suppliers and use advanced technology to assemble it making each of their products inimitable. Their value chain process is linked to the life cycle of their motorcycles and cars till their final stage. Their value chain starts from procuring the best resources, extends to assembling them in the most perfect way using the best technology and monitoring the value of the finished products manually (human resource) through stringent checks. Their supply chain management is spread throughout the world and is linked closely with all the factories situated around the world. The value of products sold in every part of the world is just the same. This can be made possible only through the uniform firm infrastructure and well communicated organizational mission states Kotler (2008). Resource and Capability Analysis Every firm has some sort of special resources using which it thrives globally. BMW strives against all odds using its strategic capability to re-engineer its structure whenever necessary. Kotler (1995) suggests the changes in organization should happen gradually in several phases. BMW was very efficient in implementing the same. There are different kinds of resources like tangible resources which point to the physical assets like industries, factories and manpower. Intangible resources refer to brand image, reputation etc. (Johnson et al, 2008) Company strategy Complex marketing strategies, good manufacturing technologies and effective customer service should be combined together to study the pulse of the customers (Levitt, 1981) and doing the same is important to gain competitive edge over others. BMW strategy is to strive constantly to improve and create unique value to its products even though it has established itself as the market leader in the industry. Their constant strive to excellence is the best strategy which helps them gain competitive advantage over other companies. Suitability, Feasibility and Acceptability The successes of corporate strategies are measured using three key criteria Suitability, Feasibility and Acceptability suggested by Johnson, Scholes and Whittington (2008). Suitability: The Suitability checks certain questions like whether the strategy will be economically feasible, would it be environmentally compatible and how far it will help in achieving the organizations goal of maximizing profits and minimizing expenses. Be it implementing retaining the labour force in their factories or deciding upon the design of a new car, suitability check is given ample importance in all stages of its management. All the four key drivers of change were implemented only after checking whether they were feasible, sustainable and acceptable. Monopolistic market has several drivers each covering a small part of the market (Akrani, 2010). A similar situation prevails in the automobile industry too. SWOT is a great way to do Suitability analysis and determine whether the company’s strategies are suitable for the environment. Acceptability: The strategies used by BMW are put before the stakeholders and analyzed thoroughly for their risks and returns before they are presented before the stakeholders. Be it an important decision like purchasing an organization or selling it back as it happened in the Rover acquisition case, careful analysis is done before taking any steps. However, the company does not hesitate to change its policy completely if they feel there had been an error. Life Cycle of the Company During the start-up years, BMW was in the development stage. It was much interested in the differentiation strategies during the 1960's as it was necessary to create a unique value for its product. It was followed by the growth stage where the customers bargaining power dropped due to very less competition and the specialty of the product. This was followed by the Shake-out stage were several competitors arose in the market. The company sustained through efficient managerial activities. This was followed by the maturity stage where the growth is stagnant, high competition prevalent in the market and the market share for its products also quite high. This stage will be followed by the declining stage. BMW is in Maturity stage now. Peters (2001) suggests a steady stream of new products and businesses marketing them are necessary for any field to exist. Though its profits are stagnant or stable, its innovative products like 1,3,5,7 series cars have huge demand in the market and the brand image it is greatest strength. Feasibility: The three important tools used to measure feasibility are resource development analysis, breakeven analysis and cash flow analysis. The resource analysis done on the company strategies show us the strategies are quite feasible and acceptable by all means. Conclusion BMW or Bayerische Motoren Werke in German started its journey producing engines for vehicles during the First World War. Today it is a part of the "German Big 3" group famous for producing the world's most luxurious cars. BMW's propeller badge with blue and white checks has become a distinct symbol associated with luxury. The enormous growth of the company can be attributed to close monitoring of the market driver, easy adaptability to change and flexible management ready to revoke any major strategy if they see it doesn’t produce required result. Any company which wishes to succeed in their industry can learn a lot by observing these key BMW strategies closely. References 1. Akrani, G., 2010, 'Monopolistic Competition - Meaning , Features In Economics', Retrieved 13 April, 2013, http://kalyan-city.blogspot.in/2010/11/monopolistic-competition-meaning.html 2. Barney, J 1991, ‘Firm Resources and Sustained Competitive Advantage’, Journal of Management, 17, 99-120. 3. Blythe, J., 2006, ‘Principles & Practice of Marketing’, Thomson Learning, London, Retrieved 13 April, 2013 http://books.google.co.in/books?id=KN6PqQMnFBAC&printsec=frontcover&dq=kotler+marketing+management&hl=en&sa=X&ei=xfH2ULf2BYOQrgewlYHwAw&ved=0CDMQ6AEwAA#v=onepage&q=marketing%20mix&f=false 4. Buell, R, Campbell, D & Frei, F. 2011, How do incumbents fare in the face of increased service competition? 5. Hill, Charles and Jones, Gareth, 2007, 'Strategic Management An Integrated Appraoch', Cengage learning. 6. Illing, Lorenz, 2010, 'BMW Market Analysis', Retrieved 13 April, 2013 from http://www.slideshare.net/lorenzilling/bmw-market-analysis-5879711 7. Johnson, G, Scholes, K & Whittington, R, 2011, ‘Exploring Corporate Strategy’, Prentice Hall Higher Education. 8. Kotler J. P., 1995, Leading Change: Why Transformation Attempts Fail, Harvard Business Review. 9. Kotler (2008), ‘Principles of Marketing’, New Delhi: Prentice Hall 10. Levitt, T 1981, Marketing Intangible Products. Harvard Business School Reprint: USA. 11. Porter, M.E., 1985, ‘Competitive Strategy’, Simon and Schuster, New York 12. Porter, M.E., 2008, 'The Five Competitive Forces That Shape Strategy', Harvard Business Review, Retrieved November 2004 from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 13. Peters T., 2001, True Confessions, Fast Company. 14. Rumelt, R., 1980, "The Evaluation of Business Strategy’, Business Policy and Strategic Management, McGraw-Hill, New York. Read More