Business Sustainability of BMW Group Company - Case Study Example

Student name] [ID] Automobile industry BMW Group Company Word count 2600 Table of content 1.0 Introduction 2 2.0 Performance evaluation 4 2.1 Sustainable consumption 4 3.0 Conclusion 13 4.0 Recommendation 14 References 16 1.0 Introduction The sustainability performance of any organisation is very essential for the achievement of the organisational goals. Evaluation of how effective the current organisational sustainability performance is will demonstrates the organisation’s commitment in ensuring that the challenges that include environmental and social issues are addressed. Baverische Motoren Werke (BMW) was founded in 1916 and it became BMW AG in 1918. The initial focus of the company was aircraft engines development and production but in 1928 the company developed its ground by being a successful manufacturer of automobile through the purchase of a motor vehicle factory known as Eisenach. The BMW GROUP has three strong brands in namely BMW, Rolls-Royce and MINI that are well known in current automotive industry. The BMW group offers superb product substances in the fields of quality and technology, dynamic performance, aesthetic appeal making the group a leading one in innovation and technology. The BMW goal is the achievement of a growth that is profitable and above average returns with focus on premium segments. The beginning of the strategic realignment of the company began in 2007 with its number one strategy of being a leading provider of premium services and products for mobility of an individual (BMW Group 2011). The company has firmly established corporate sustainability as the guiding principle of its culture and strategy. The group complies with the Global compacts ten principles and the UNEP’s cleaner production declaration. It also adheres to international labour organisation’s agreements, the sustainable development business charter and the OECD’s multinational companies guidelines. The BMW group is also faced by challenges that include environmental issues such as change in climate, issues of human resources, conflict minerals, strengthening of compliance with controls, corruption prevention, adhering to environmental and social standards in supply and meeting the wide range of the information needs of the stakeholders. BMW group sustainability practices includes environmental management systems, social and environmental reporting, green technology and sustainable consumption (Figge & Hahn 2005).. The purpose of this report is evaluation of how effective the current BMW group sustainability performance is. The evaluation will focus sustainable consumption and environmental reporting. 2.0 Performance evaluation 2.1 Sustainable consumption Efficient use of environmental, economic and social resources is of essence in this company. This measurement is achieved through a sustainable value that treats social and environmental assets as resources that are scarce and their consumption requires a process that is creating value. Thus, this problem is solved using a sustainable value approach that compares the car manufacturers on the grounds of the consumption figures (Atkinson 2000). In creation of value, companies do not only use the economic capital but they also incorporate the social and environmental resources. Determination of sustainability performance of a company involves consideration of the entire consumption of resources in a company the sustainability performance in monetary terms is obtained using the sustainable value approach. Calculation of sustainable value involves five steps where each step will provide an answer to a particular question relevant to the sustainable performance of the company. These steps are; 1. How efficiently are the resources used in the company? (At this step, there is evaluation of the company’s consumption of various resources). 2. How efficiently are the resources used by benchmark? (The benchmark is established in this step, and then the resources’ efficiency is assessed). 3. Is the use of resources by the company more efficiently as compared to the benchmark? 4. Which resources does the company use in a way that is value creating and which resources are used in a way that is value destroying? (The step involves determination of various resources’ value contribution). 5. How much does the company create in sustainable value? (This final step assesses whether the company has used the given environmental, economic and social resource largely to create value) (Tobias et al 2009). In the first step, determination of sustainability performance in this case is based on earnings before tax and interest (EBIT) from the ordinary activities of the business. In 2007, the BMW group generated 3394€ of EBIT per ton of emitted emissions of CO2. This means that this value is divided by quantity of resources to obtain the CO2 efficiency (3394/ t CO2). Figure 1: BMW group’s calculation of value contribution for CO2-emissions in 2007 (Tobias et al. 2009) The second step involves calculation of how efficiently are the resources used by the benchmark. In this case, the global automobile industry benchmark is used. This benchmark is the efficiency of the weighted average on the use of resources by various manufacturers of automobile. Average EBIT earned by automobile manufacturers’ ordinary activities per unit resource that is used that is, the efficiency of CO2 in 2007 was 1053 € EBIT/ t of CO2. The third step involves comparison of BMW group efficiency with the benchmark efficiency. The efficiency of BMW group is deducted from the benchmark efficiency. This result that is known as the value spread (2340) gives a description on how much more or less CO2-efficiency BMW produces in comparison to the benchmark efficiency. This comparison shows that BMW group uses its resources in a more efficient manner as compared to the rest of the car manufacturing industry. This is due to a positive value of about 2340 € / t CO2 of EBIT. This means that BMW generates more EBIT of carbon dioxide by 2340 € that the average of the industry value. The fourth step involves determination of contribution of different resources. The amount of the resources used is multiplied by the value spread. For instance, from figure 1 the emission of CO2 by BMW group is 1,241,137 tons and the value spread from previous calculations in step three is 2340€ more amount of EBIT than the average of the industry. The multiple of the value spread and value spread gives 2.9 billion € as in figure 1. This is the value of contribution of CO2 from BMW as opposed to other manufacturers. Step 5 employs different environmental, economic and social resources to determine value of contribution of each resource. Figure 2 gives an illustration of five steps of calculation of BMW group’s different resources in 2007. The sum of value contribution generates a sustainable value of 2.82 €. This value gives an expression of how much value created from BMW’s use of its resources as opposed to its competitors in the industry in 2007 (Tobias et al. 2009). Figure 2: BMW group sustainable value in 2007 (Tobias et al. 2009) The BMW group sustainable value is on the grounds of the group’s global activities analysis for a period of nine years as from 1999 – 2007. The following figure illustrates the BMW group’s individual resources contributions, sustainable value and the margin of the sustainable value. Figure 3: BMW group value contribution in 2007 (Tobias et al. 2009). From the results in the figure 3, it is can be seen that the BMW group managed in consumption of all resources that are considered in value creation. Over the nine years period, it is seen that the sustainable value almost came to double to 2.8 billion € from 1.5 billion €. This shows that in 2007, additional 2.8 billion € of EBIT was created because BMW group used the resources in question rather than being used by average manufacturer in the industry. This means that BMW group features consistently in top ranking in terms of sustainable value margin. This results to achievement of the highest sustainable value margin of 7.11% as compared to different car manufacturing companies. BMW group’s achievement of highest sustainable value can be evidenced through comparison with different vehicle manufacturing companies that include Toyota, Ford and General Motors. The sustainable value calculation for Toyota is limited partially to production facilities of Japanese company (Wokutch & Vavsandt 2000). Figure 4 illustrates the contribution’s value of resources, sustainable value and margin of Toyota for a period of nine years from 199-2007. Figure 4: contribution values, sustainable value and margin for Toyota (Tobias et al. 2009). The company is near top ranking with a range of sustainable value between 1.33 and 7.44 billion € in 1999 and 2006 respectively. Toyota has produced a positive contribution value for all its resources for the period of nine years except a negative value in terms of capital use in 1999. With comparison to the benchmark of the industry, use of the resources in this company can be said to be extremely efficient. However, ranking in terms of sustainable value margin, Toyota had recorded a margin between 1.97 and 6.61 percent between 1999 and 2006 respectively. But in 2007, there was a drop of its sustainable value margin to 4.29% which ranked it to seconded position as a manufacture after the BMW group. Ford’s calculation of sustainable value is on the grounds of the global activities of the company. The emissions from SOx and NOx were not assessed as the data was not available. In addition, the generation of total wastes in 2007 was not included due to the issues with the quality of data which was published by ford. Figure 5 gives an overview of individual contribution of resources, sustainable value and margin for Ford Company. Figure 5: contribution values, sustainable value and margin for Ford Company (Tobias et al. 2009). The sustainable value for Ford ranges from – 5.4 billion € to 1.34 billion € in 2006 to 200 respectively. The company experienced a heavy drop in sustainable value from 2001 onwards into a zone of negative sustainable value. All the considered resources relate to a significant deterioration from 200 to 2001 in value contributions and this is attributed to the 2001 sharp drop in profits. In the four out of the nine years under review that is 2001, 2002, 2006 and 2007, the company consumes each single resource in a manner that less efficient as compared to average of the industry. The sustainable value margin for Ford Company range between -4.2 and 0.73 in 2006 and 2000 respectively rising then dropping around the bottom in various years. This is a sign of inefficient consumption of resources in the company (FMC 2004). General Motors sustainable value calculation is based on the global activities of the company. Figure 5 shows the individual resources value contributions, sustainable value and margin for General Motors between 1999 and 2007. Figure 6: contribution values, sustainable value and margin for GM (Tobias et al. 2009) The sustainable values for General Motors are very negative in every review period’s single year. GM experience the most negative sustainable value in 2005 within the industry by recording a value of -13.36 billion € which is mainly attributed to dramatic slump of profits in 2005. Between 1999 and 2007, the CO2, SOx and NOx contribution values in addition to generation of wastes were very negative. The sustainable value margin for this company ranges from -1.57 % to -8.64% in 2000 and 2005 respectively. This was due to company’s generation of high turnover using the bundle of the available resources during this review period. A sustainable value margin of -8.64% is the lowest one during the review period which brings the company to the bottom as it was ranked last from 2005 to 2007 in consideration of all manufacturers (Tobias et al. 2009). Figure 8: Car manufacturers’ sustainable value margin (Tobias et al. 2009) 2.2 Environmental reporting The main aim of an organisation engagement in environmental reporting is to demonstrate to the public the organisation’s commitment to its responsibility in environment and provision of information on the organisation’s environmental performance and initiatives. Environmental reporting refers to the release to the general public the information on environmental performance which is opposed to strict submission of reports and data to the government. The environmental reporting principles include accuracy, clarity, transparency, timeliness, completeness and inclusiveness neutrality, audit ability and verifiability (Global Reporting Initiative 2000). The BMW environmental measures include energy, emissions to air, management, material usage, products, recycling, water and wastes. Management involves notices on environmental violation, expenses and investments on environment and environmental fines. Emissions to air include volatile organic compounds and carbon, particulate matter such as dust, logistic emissions and greenhouse gases. The usage of materials includes non-returnable packaging while the products include product emissions, performance, fuel efficiency and recyclability. Recycling involves solid waste, wastewater and packaging materials recycling. The energy involves total and renewable energy used, products and logistics (Roberts environmental centre 2011). The amount of water used by BMW group per vehicle has been reduced by 25 % within a period of three years. The letter grades are used in classifying the company where the companies with highest scores get A+, A and A-. The scores on environmental performance are on the grounds of whether the firm’s performance has improved or not and also whether the performance quality of the company is better than its peers or competitors. From figure 7, BMW group has been ranked the highest in discussing its energy sources, emissions and consumption, material use, remediation and recommendations, environmental violations and incidents, water used and waste produced. The high rankings of the BMW group also include use of analysis of life cycle, environmental stewardship and performance of products and environmental performance of contractors and suppliers. From the figure BMW group scored 51.03 % which was ranked A+. This is the only company the achieved a score on environmental reporting which more that 50%. Its main competitors in sustainable value achievement are usually Toyota who scored about 36% on environmental reporting which was ranked as B+. In addition, BMW group also achieved very high score in social reporting (BMW 2005). Figure 7: environmental reporting scores for various car manufacturers. 3.0 Conclusion Sustainable value approach is the best way to provide a comprehensive and a meaningful assessment of sustainability of credentials of a company. This approach has advantageous as it creates a link between the sustainability of the corporate and an approach that is value based. A sustainable value approach based analysis on BMW group analysis demonstrates the environmental, social and economic resources that the company is using in a way that is value creating. BMW group created a sustainable value that is positive as it led in earning of higher returns as compared to other car manufacturers with its available social, environmental and economic resources. Over the entire period of review (1999- 2007), BMW had created a sustainable value that is extremely positive. This was also accompanied by use of its entire environmental, social and economic resources in a way that is value creating. This company has been leading in consumption of these resources in a more efficient manner as compared to their industry peers. BMW group achieved the best result in 2001 with a sustainable value margin of 7.1 % followed by Toyota that recorded a value of 6.6 % in 2006. Other competitors such as Ford and General Motors displayed a weaker performance in different years. There was a sharp deterioration in the performance of Ford Company during the period of review while General Motors maintained a very negative territory. GM also recorded a sustainable value with the worst negative and always finished around the bottom in most of the years. From the results it is clear that BMW group the best company that was using its resources more efficiently as it is the only company that consistently managed to achieve a sustainable value that is positive. In addition, the ranking on environmental reporting also proved that BMW group was the highest ranked company-scoring grade A+ as compared to its competitors. 4.0 Recommendation The biggest challenge in sustainable approach application to the whole industry is the difference in the quality and availability of data between different companies. This is more complex especially in terms of social and environmental data that is provided. This leads to making approximations and estimates. In future there is a need for more harmonisation and standardisation of social and environmental reporting in automobile industry. The crucial aspects to consider include standardisation of definitions of data and greater transparency and consistency in the data scope in order to ensure that the global activities of the companies are covered comprehensively. References Atkinson, G (2000) Measuring corporate sustainability, Journal of environmental planning and management, vol. 43, no. 2 pp. 235-252. BMW 2005, BMW Group launches first UK Environmental Report. Alternative-energy.co.uk BMW Group (2011) Sustainable Value Report. Bayerische Motoren Werke, Aktiengesellschaft, Munich, Germany. Calvert Investments (2011) Sustainability Performance Review Automotive Industry. Pp 1-9. FMC 2004, ‘corporate citizenship report. Our principles, progress and performance.’ Ford Motor Company. Dearborn, Michigan Figge & Hahn (2005) The cost sustainability capital and the creation of sustainable value by companies, Journal of industrial ecology, vol. 9, no. 4, pp. 47-58. Global Reporting Initiative (2000) GRI Guidelines, viewed on 6 April 2012 from, www.globalreporting.org/GRIGuidelines/index.htm Roberts environmental centre (2011) 2011 sustainability reporting of the world’s largest consumer durables and motor vehicle companies, Claremont Mckenna College Tobias, Figge, Barkemeyer & Liesen (2009) Sustainable value in automobile manufacturing: analysis of the sustainability performance of automobile manufacturers worldwide, viewed on 6 April 2012 from http://www.greenbiz.com/sites/default/files/sustainablevalueinautomobilemanufacturing.pdf Wokutch & Vavsandt (2000) National styles of worker protection in US and Japan, Case of automotive industry, Law & policy, vol. 22, no. 3-4, pp. 369-384. Read More