The Automobile Industry - Case Study Example

The BMW Group Index Introduction and Background 3 2. Extent of Achievement of Critical Success Factors by BMW 4 3. Generic Strategic Choice of BMW : 6 4. Key Resources and Capabilities in BMW for these Strategic Choices : 7 5. Suitability, Feasibility and Acceptability of BMW Current Strategies : 9 1. Introduction & Background The automobile industry finds itself as on of the leading industrial activities in this modern world. Starting out only as far back as the second half of the nineteenth century, with its roots in the developed world of Europe and the United States of America, the automobile has progressed to be a integral industrial activity in nearly all the regions of the world. In the present world, the consequences of globalization have led to extreme competition in most industrial segments including the automobile industry. BMW operates in this competitive industrial segment along with other major players that include but is not limited to Mercedes Benz, General Motors, Toyota, Honda and Volkswagen (Sturgeon, Biesebroeck and Gereffi, 2008). Bayerische Motoren Werke AG (BMW) is based in Munich and started out as a aero-engine manufacturing company in 1917. Subsequently it transferred its attention to the business activity of manufacturing motorcycles and then into passenger cars. In 1936 BMW brought out its first sports care model and by the middle of the twentieth century established itself in the automobile industry as a manufacturer of elegant, prestigious and superior performance automobiles. In the new millennium, through its restructuring activities BMW has attempted to secure and strengthen its position in the premium segment of automobiles, through its prestigious BMW, Mini and Rolls-Royce brands (ICMR, 2002). In 2009 the number of BMW, MINI and Rolls-Royce cars that were sold totaled 1,286,610 units. This figure represents a slide of 10.4% in the number of cars in all its brands sold by BMW in 2008. A similar slide is also seen in the sales revenue for the two years. In 2009 the total sales volume was euro 47,737 million, which is 10.3% less than the total sales volume of BMW in 2008. The company has attributed the under performance in 2009 to the continuing poor state of the economies in its main markets in the developed world and the economic stimulus attempted in the developed world not really making the desired impact (BMW, 2010). 2. Extent of Achievement of Critical Success Factors by BMW Thierauf 2001, p.206 defines critical success factors (CSF) for any business enterprise as “the limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance”. The wider picture on CSF and the key activities connected to it, besides favorable results in these areas for the achievement of strategic objectives, also means that it indicates where things need to proceed on the right path for the growth of the business enterprise and the areas in which the business enterprise must pay constant and special attention. A business organization can look to five sources to derive its CSF. These are the industry in which it operates; relationship with regard to competition; environmental factors that are beside the control of the business enterprise; barriers, challenges or problems faced by the business organization and the domain of layers of management (Caralli & Wilson, 2004). For a business enterprise in the automobile industry the typical CSF are the appropriate styling; a strong dealer network; cost-effective manufacturing and sales operations and meeting energy consumption standards in terms of mileage per gallon for the automobile products (Thierauf 2001). However, in the case of BMW, which operates in the premium segment of the automobile industry the CSF are branding and positioning; quality and innovation; value creation and good customer service through the dealer networks and (Vuskane, 2004). The BMW lays strong emphasis on its brand image and performance of its automobile offerings in the market with its products positioned in the premium segment. The technical and innovative strengths of BMW are used strongly to project the position of the BMW brand. BMW has brought out a range of models into which are integrated high levels of technical competence and innovation that add value to the products for the customers justifying the positioning of BMW models in the premium segment. Performance is a key ingredient in the BMW models that are again derived from its technical and innovative competence (Edmondson et al, 2003). The simple three letter brand on a blue and white logo are registered with ease in the minds of customers, enabling quick recall.. The packaging of an automobile in essence is its styling and the styling of the BMW has been done with the appropriate efficiency that customers admire and recognize it as a premium brand (Maguire, 2004). The extent of its success in achieving its CSF can be seen in the expert opinions in the automobile that the BMW brand is what people who can afford a luxury car would like to own and this position has been achieved the BMW brand occupying a leading position in the performance space in the automobile market (Edmondson et al, 2003). This is further reinforced by the results of studies conducted on customers of the automobile market. The BMW brand is considered a status symbol among current users and potential customers that are derived from image, quality, engineering and style of the automobile products. These qualities perceived in the BMW automobile products have caused current users and potential customers to look upon the BMW brand in nearly equal proportions as a luxury product or a performance product (Maguire, 2004). 3. Generic Strategic Choice of BMW According to Porter’s Generic Strategies as put forth by Michael Porter, there are three business level strategies that can be followed by a business enterprise, which are a differentiation strategy, overall cost leadership strategy and focus strategy. In the differentiation strategy a business enterprises attempts to set itself apart from its competitors on the basis of the quality of its products. In the overall cost leadership strategy a business enterprise attempts to secure a competitive edge over its competitors by making its business processes less costly than its competitors, so that it can offer its products at a lower cost than its competitors. In the focus strategy a business enterprise makes a geographical regional market, or a specialty product line or a specific group of buyers the focus of its business activities (Griffin, 2008). Evaluation of BMW’s business strategy suggests that it has chosen to use the differentiation and the focus business level strategy and not the cost leadership business level strategy. BMW The key factors involved in the success of BMW lies in its technological competence, innovative skills and focus on quality. In essence these are the drivers for its differentiation strategy. BMW has successfully has used these inherent strengths to bring out a range of acclaimed models in its brands. Furthermore, BMW uses its technical and innovative strengths to create value in its products that is not easy for competitors to follow and through that derives a competitive edge in the premium and luxury passenger car segment that it competes in (ICMR, 2002). Since innovation, technical superiority and quality are the key factors used by BMW to derive its competitive edge in the premium and luxury passenger car segment, BMW does not use a cost leadership strategy to gain a competitive edge. The premium and luxury segment of passenger cars is made up of the most expensive passenger cars in the automobile market. This means that not all car owners or aspiring car owners will attempt to buy a BMW. It is the small economically sound segment of any population that can afford a luxury passenger car and therefore BMW follows a focus strategy on this specific segment of the population. As a result, BMW focused on the market of the developed world and only in recent times has entered the markets of the emerging countries like China (Maguire, 2007). 4. Key Resources and Capabilities in BMW for these Strategic Choices A BMW passenger car is not a mere transportation product. In fact it is bought more for the speed, performance, mobility and the sheer joy that owning it and driving it brings. To meet these dynamic market-driven attributes that a BMW customer looks for, there is focus on technological innovation in the changes brought out in the existing models and the new models that BMW churns out frequently. According to Rainey 2008, p.29, “technology-focused new products attempt to stay ahead of the dynamics of the business environment through more radical solutions for meeting the needs of customers and stakeholders”. Meeting these needs in technology competition towards innovation was recognized by BMW a long time back. Efforts to create these resources as far as possible within the business enterprise can be traced back to 1981, when BMW opened a Technology Office in Tokyo to act as a matchmaker between Japanese technology expertise, which was storming the automobile world and its own technology competency requirements. In 1995 BMW started its Designworks in Los Angeles, where more than 70 employees scout for current and future trends in new car designs and work towards development of these designs for incorporation in BMW products. To augment this activity BMW started its Technology Office at Palo Alto concentrating the efforts there towards easier vehicle handling technologies; integrating sensor actuator technology and electronics; information, communication and entertainment features; drives assistance using telematics and materials and production technologies. In 2002, BMW set up its Car IT office in Munich with the purpose of developing technological competence in the development and integration of software systems into BMW automobile products (Boutellier, Gassmann & Von Zedtwitz, 2008). BMW does not solely depend on its in house technology strengths, but also uses what may be termed as development partnerships with outside partners, who can provide the technological edge towards its innovation needs. The example of this can be seen in the horizontal cooperation between BMW and PSA in the development of the BMW 4-cylinder motor (Parry & Graves, 2008). 5. Suitability, Feasibility and Acceptability of BMW Current Strategies The current BMW strategies have proven to be suitable in late twentieth century and in the early part of the new millennium, when it has succeeded in reaching a leadership position in the luxury and passenger car segment. There are however signs that these strategies are under threat and may not be suitable and feasible in the long run. These threats essentially emerge from the environment of the automobile industry in which BMW functions. BMW business performance in 2009 was approximately 10% below its business performance in 2008, in terms of sales and sales revenue. The company itself attributes this poor performance to the impact of the economic recession of 2008 (BMW, 2010). The demand for expensive luxury passenger cars in the future is likely to drop, as people may not be able to afford it and the experiences of 2008 may cause customers to restrain their spending on their transportation vehicles. On the political environment more governments are hiking taxes on luxury passenger cars to reduce the consumption of fossil fuels and the pollution consequences. This provides encouragement to the small car segment of the automobile industry. Social concerns on global warming towards which automobile exhausts of the remnant products of combustion of fossil fuels is a major causative factor, will result in social consciousness placing less onus on luxury, style and image towards automobiles that consume less petrol and pollute the atmosphere to a lesser extent. Finally, technology advances have seen the development of hybrid automobiles or automobiles running on electric power. Political support in terms of subsidies on these products and social support for less pollution has seen sales in this segment of the automobile products growing. Thus, BMW may in the future have to realign its business strategies towards being more cost effective and vehicles that reduce petrol consumption or run on alternative sources of power (Vuskane, 2010). Literary References BMW. 2010. ‘Annual Report 2009: BMW Group’, [Online] Available at: http://www.bmweducation.co.uk/downloads/online-resources/BMW-Group_Annual-Report-2009.pdf (Accessed November 16, 2010). Boutellier, R., Gassmann, O. & Von Zedtwitz, M. 2008, Managing Global Innovation: Uncovering the Secrets of Future Competitiveness, Springer-Verlag, Heidelberg. Caralli, R. A. & Wilson, R. W. 2004, ‘Applying Critical Success Factors to Information Security Planning’, Carnegie Mellon Software Engineering Institute [Online] Available at: www.cert.org/archive/pdf/secureit_csf.pdf (Accessed November 16, 2010). Edmondson, G., Palmeri, C., Grow, B. & Tierney, C. 2003, ‘BMW’, Business Week, June 9, 2003, pp.19-24. Griffin, R. W. 2008, Management, Ninth Edition, Cengage Learning, Mason, Ohio. ICMR. 2002, ‘BMW’s Innovation Strategies’, [Online] Available at: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy1/BMW%20Innovation%20Strategies.htm (Accessed November 16, 2010). Maguire, M. 2004, BMW Brand Audit: Scientific Study, GRIN Verlag, Norderstedt, Germany. Maguire, M. 2004, A Case Analysis: Exploring Customer Attitudes on BMW, GRIN Verlag, Norderstedt, Germany. Maguire, M. Managing Organizational Change for BMW in the Emerging Chinese Market, GRIN Verlag, Norderstedt, Germany. Parry, G. & Graves, A. 2008, Build to Order: The Road to the 5-Day Car, Springer-Verlag London Ltd., London. Rainey, D. L. 2008, Product Innovation: Leading Change Through Integrated Product Development, Cambridge University Press, Cambridge. Sturgeon, T., Biesebroeck, J. V. & Gereffi, G. 2008, ‘Value Chains, Networks and Clusters: Reframing the Global Automotive Industry’, Journal of Economic Geography, vol.8, no.1, pp. 297 – 321. Thierauf, R. J. 2001, Effective Business Intelligence Systems, Greenwood Publishing Group, Inc., Westport, CT. Vuskane, L. 2010, BMW Business Strategy: An Overview, GRIN Verlag, Norderstedt, Germany. Read More