McLaren Planned Diversification or Organic Growth - Case Study Example

McLaren Planned Diversification or Organic Growth TABLE OF CONTENTS Executive Summary …………………………………………………………. 2 How has McLaren overcome the market entry barriers that are present in the mass car market? ………………...…………… 2 How would you define the level of diversification shown by the McLaren Group? ……………………………….………. 3 How does the McLaren approach to diversification reflect the historical perspective on corporate diversification as discussed by Goold and Luchs (1993)? ……………………………..…………….. 6 References ……………………………………………………………..……. 8 Executive Summary The interesting thing about business is some of the most successful people wind up in business and are successful as a side effect of what they were doing that they love. In other instances, there are those who enter into business and become successful because that is exactly how they planned it. To the casual observer, one might comment on what does it matter as long as the outcome is positive. The actual answer is it does matter because in one instance success occurred as a side effect of something else, whilst in the second example success was the objective, period. This study of McLaren is an example of the former, success in a business field as a result of one’s love of a sport. The companies that grew from this foundation remained true to Bruce McLaren’s intentions as McLaren is not a sprawling conglomerate, it is a creative and vibrant company that has remained true to its roots, yet became wildly successful! How has McLaren overcome the market entry barriers that are present in the mass car market? Well known in Formula 1 circles as the innovative racing team founded by Bruce McLaren, the company in 2012 announced its long-awaited MP4-12C supercar would go on sale to the public (Madslien, 2012). This new addition to the supercar segment is priced at £800,00 (Madslien, 2012). With a long list of failures littering the automotive landscape, ranging from the Edsel of the established Ford Motor Company in 1957 (Rubenstein, 2001, p. 65) to the Delorean in 1982 (Andrews et al, 2006, p. 379). The launch of the McLaren has different characteristics that distinguish it from these two examples and many others. The MP4-12C is targeted for the supercar segment that consists of specialty models manufactured by Ferrari, Porsche, Lamborghini, and others for a discerning market (Codling, 2011, pp. 23-24). One of the key aspects to enter this market segment is that the manufacturer must have a superior pedigree established by credentials earned in racing, engineering, driving or some other segment reputation (Ambastha, 2008, p. 4). Interestingly, Bruce McLaren had all three! The reason for the need for superior qualifications is cars in this category reach top speeds in excess of 200 miles per hour, with horsepower ratings usually starting at 600 (Mitchel and Collins, 2005, pp. 31-33). The barriers for entry to this market segment differ from the standard production car segment as McLaren is not seeking to produce 1 million vehicles a year. The indicated production run for the MP4-12C is estimated to be just 1,000 vehicles in its first full year (Sanchez, 2012). Cars in this category are not produced and then shipped off to showrooms to await a buyer. As soon as McLaren made the official announcement they were set to produce a supercar, pre-orders poured in sight unseen (Tutu, 2010). This is a result of the reputation of the 8 time Formula 1 company that has a long list of automotive triumphs to its credit. With 2,700 pre-orders for the MP4-12C in house there was never a question if the MP4-12C would sell (Tutu, 2010). How would you define the level of diversification shown by the McLaren Group? The McLaren Technology Centre (2013) is a highly advanced company comprised of six other companies and five more under the McLaren Group. The McLaren Group (2013) is composed of the “… McLaren Applied Technologies, McLaren Electronic Systems, McLaren Marketing, McLaren Racing, Absolute Taste, and the McLaren Automotive division”. The McLaren Group Limited (2013) as it is officially known uses its subsidiary companies (as listed above), design as well as engage in the manufacture of exotic sports cars. The portfolio of subsidiaries is headed by McLaren Automotive that was established in 1989 under the name McLaren Cars (McLaren Group, 2013). Its purpose was to engage in design, technology applications, engineering and organisation geared to result in the production of supercars (McLaren Group, 2013). During its thirteen year operating history the company has used the technological expertise gained from designing and constructing Formula 1 cars that built its reputation as an innovative automotive engineering and design operation. A long series of successful projects that culminated in the invitation to design the famous SLR McLaren for Mercedes (McLaren Group, 2013). This vehicle made revolutionary use of new materials, and aerodynamic design to produce a visually stunning car that sells for around 500,000 euros (McLaren Group, 2013). These prior developments and innovations paved the way for the launch of the MP4-12C by this division (McLaren Group, 2013). As indicated in this study, the company will produce approximately 1,000 vehicles annually with its operation generating positions for in excess of 800 people that will be direct employees augmented by an additional 1,500 through vendors and various suppliers (McLaren Group, 2013). When a person steps back from the initial complexity of the five companies, the overall vision of the McLaren Group (2013) starts to clarify. Whilst the discussion started with the McLaren Automotive, that company has benefited from the decades of racing expertise gathered by the operations of McLaren Racing (McLaren Group, 2013). This aspect of the Group’s operations is the one that has gained the most public exposure through its design and running of the McLaren Formula 1 cars that have won eight world championships (McLaren Group, 2013). As can be deduced, the demands of the world’s premier racing series have resulted in the Racing Division pioneering, innovating as well as re-engineering hundreds of thousands of components over decades (McLaren Group, 2013). Areas such as fabrication, metallurgy, electronic systems, fluids, hydraulics, software, monitoring systems, modelling, aerodynamics, wind tunnel development and use and hundreds of allied areas were and are present areas of involvement, In fact, McLaren Electronics, and McLaren Applied Technologies are examples of the cohesiveness of the company portfolio that has evolved into specific operations. An example of the experience gained from the racing operations was the foundation that spawned McLaren Electronics (2013). This division, in addition to serving the needs of McLaren Automotive and McLaren Racing, also has its own external profit contracts with the Formula 1, NASCAR and IZOD IndyCar Series (McLaren Electronics, 2013). The list of products this division generates is impressive. McLaren Electronics (2013) has four major categories (electronics, electrical, sensors, and software) that contain 30 products. McLaren Applied Technologies (2013) operates in much the same manner as McLaren Electronics. The former is a complex operation offering a broad array of service to the McLaren Group as well as to client companies. Some examples include vehicle design, design/engineering along with data management/telemetry systems (McLaren Applied Technologies, 2013). The broad range of products and services means the McLaren Group needs its own in-house marketing arm to coordinate product launches (McLaren Marketing, 2013). This company also develops advertising and print campaigns, sales promotion, customer marketing, and marketing planning. With so many high profile companies and products, having a dedicated in house marketing arm is a value and cost-saving measure that provides the McLaren Group with valuable services and allows it to operate in total confidentiality. The wisdom and business sense that has gone into the evolution of the McLaren Group rivals that of any multinational. Looking at the above companies as an example of diversification is one way of explaining what the McLaren Group has done, but this would be misleading. The company has grown into new divisions and operations as a result of mastery the field it is in as opposed to seeking market share. The difference is dramatic! The organised organic growth and specialisation that has Seen McLaren grow, emanated from specific competencies into companies to heighten innovation. The evolution of the McLaren Group is an outgrowth of the success of the core company along with the products developed and refined that has come from this unique creative environment. The operations of the McLaren Group offers an interesting dynamic as it's subsidiary companies were and still are areas that have and are contributing to the development of exceptional vehicles through the design of superior components. As an outsider, it seems the consistent success achieved in the core operation spurred added research, development, and attention to the hundreds of details that comprise a winning race car. The more details are honed in on, the more McLaren has been in control of its own destiny. As one aspect feeds the other, the operation grew to accommodate the complexity as a result of successful outcomes.   How does the McLaren approach to diversification reflect the historical perspective on corporate diversification as discussed by Goold and Luchs (1993)? The exploration into the operations of McLaren uncovered a company whose long line of successes spawned growth as a result of that success. This is seemingly at odds with the opening statement of Goold and Luchs (1993, p. 1) who state “…There have been relatively few influential ideas about what constitutes a successful strategy for a diversified company”. The reason for taking an opposing position is that McLaren did not start out to become a diversified company. A key understanding is knowing what a diversified company is. Morris (1996, pp. 103-115) states it is a concerted effort on the part of a company to engage in similar or dissimilar business that offers revenue streams from different industries. The purpose it to have the company’s income so spread out, a business downturn in any segment would barely impact overall operations (Morris, 1996, pp. 103-115). This is highly interesting because McLaren is not a diversified company. In their approach to an examination of the approach to a diversified company, Goold and Luchs (1993, pp. 7-25) looked at situations, plans, rationales, market or competitive factors as well as situations behind a diversified company. In following the evolution of McLaren it does not adhere to the paths explored by Goold and Luchs (1993, pp. 7-25). For want of a better analogy, the approach of Goold and Luchs (1993, pp. 7-25) seems to look at the process from the perspective of building a child by pieces for a specific or set of end purposes. In following the evolution of McLaren the path to growth seems to follow child by nature. This means the initial birth of the company was a result of the passion of its founder who was very successful at driving, designing, and engineering vehicles. The company grew as a passionate series of actions as opposed to a mental process of seeing business opportunities and then seeking ways to capitalise. Under the Goold and Luchs (1993, pp. 7-25) approach, diversification is an outgrowth of a number of possible reasons, opportunities or occurrences. The operation of McLaren is more scholarly, scientific and considered. These are engineers, specialists and technical individuals who are craftsmen who devise something better or improve on what exists. If their efforts result in advancing the process, then that outcome leads to either another step or the process repeating itself. Under the Goold and Luchs (1993, pp. 7-25) vision, the objective is to seek opportunities and ignore other things. A scientific operation ignores nothing as it understands improvement can come from any quarter but that gain cannot be found unless it is explored. The above harkens back to the child by design and the one by nature. Under the McLaren path to growth was organic there was no advance planning as to if the path was for a boy or girl, just what would be, what worked and what evolved, the evolution of the process represented the path to successive steps. References Ambastha, L. (2008) Role of intellectual property in the auto industry. Patentwire. November. p. 4 Andrews, D., Nieuwenhuis, P., Ewing, P. (2006) Black and Beyond – Colour and the Mass-produced Motor Car, Optics and Laser Technology. Optics and Technology. 38(4) p. 379) Codling, S. (2011) Form follows function: The art of the supercar. London: Motorbooks Publishing. pp. 23-24 Madslien, J. (2012) McLaren unveils P1 supercar. (online) Available at (Accessed on 12 March 2013) McLaren Applied Technologies (2013) Home Page (online) Available at (Accessed on 12 March 2013) McLaren Electronics (2013) Home Page. (online) Available at (Accessed on 12 March 2013) McLaren Group (2013) McLaren: A technology Company. (online) Available at (Accessed on 12 March 2013) McLaren Group Limited (2013) Company Overview of McLaren Group Limited. (online) Available at (Accessed on 12 March 2013) McLaren Marketing (2013) Our Company (online) Available at (Accessed on 12 March 2013) Mitchel, D., Collins, T. (2005) Supercars Field Guide. New York: kp Books. pp. 31-33) Morris, R. (1998) Developing a mission for a diversified company. Long Range Planning. 29(1) pp. 103-114 Rubenstein, J. (2001) Making and Selling Cars. Balitmore: The Johns Hopkins University Press. p. 65 Sanchez, E. (2012) Sanchez, E. (2012) en 12C GT Can-Am To See Limited Production Run. (online) Available at (Accessed on 12 March 2013) Production Run. (online) Available at (Accessed on 12 March 2013) Tutu, A. (2010) McLaren MP4-12C Gathers 2,700 Pre-Orders. (online) Available at (Accessed on 12 March 2013) Read More