BMW's Acquisition of The Rover Group - Assignment Example

BMWs Acquisition of The Rover Group Question Using the following resource/competence matrix, identify the competitive advantages gained from the alliances in the case study: The BMW Acquisition of The Rover Group. BMW acquired Rover Group from British Aerospace in 1994. The cost of the above acquisition was estimated to approximately £1.3 billion; however a significant amount of money followed the initial expenses for the acquisition of Rover. However, despite the significant investment made on Rover Group by BMW, the former didn’t manage to recover and improve its position in the market. In this context, it is stated that ‘BMW has invested £2 billion ($3.5 billion) in the ailing Rover group, but has seen Rover sales and productivity plummet in relation to other carmakers’ (World Socialist Web Site, 1999). Since the acquisition of Rover, BMW has tried many times to enforce the competitiveness of the acquired company, but with no particular result. In this context, the gains from the particular acquisition could be strongly doubted. The Resource/ Competence Matrix presented below can help towards the identification of the role of BMW in the development of Rover Group, the gains for the latter and the policies that should be applied by BMW in order to improve the performance of Rover Group not only within its market but internationally. The acquisition of Rover from BMW has been proved a wrong decision: through the years the company’s losses were severe; Rover failed to meet the targets set by the management team of BMW (at least as set in the firm’s acquisition in 1994). In 2000 ‘Rover sold to The Phoenix Consortium and Land Rover sold to Ford; BMW keep MINI brand’ (BMW, official website, 2007) The use of the Resource/ Competence Matrix (as presented below) in order to identify the possible competitive advantages gained from the alliances, can lead to the assumption that there has been no particular benefit for BMW from the acquisition of Rover. On the other hand, Rover has been benefited in terms that it has managed to be ‘alive’ until today. In the Resource/ Competence Matrix below the resources used in the particular acquisition and the competencies involved are being analyzed in order to understand the consequences of the above acquisition for both the firms involved. It should be noticed that in order for the data related with the two firms to be represented appropriately in the Resource/ Competence Matrix, the following issue should be taken into consideration: in the development of HR there are four factors that need to be taken into consideration: ‘culture management, strategic decision-making, fast change, and market driven connectivity – together comprise the HR competency domain of Strategic Contribution’ (Boselie et al., 2005, 11). In this context, the Resource/ Competence Matrix should be formulated as follows: a) Necessary resources would represent the employees of Rover and their skills on existed automobile-related technology. In fact, Rover has not managed to create unique competencies for its employees (no appropriate support was given to them by the firm regarding the development of their skills). As a result, competitors would be sure that they would face no significant competition by Rover itself. On the other hand, the skills of BMW’s employees are well developed. The firm has introduced all necessary techniques related with the improvement and the enforcement of its employees’ skills. In this context, firms within the automobile industry cannot compete with BMW in the particular sector (see the firm’s financial results for the last 5 years in the Appendices section). It is for this reason that in the part ‘unique resources’ mentioned below the appropriate explanation would be: employees’ skills in BMW. Regarding the other part of the Matrix, the ‘Competences’ one, the same ‘distribution’ of roles could take place. Practices and operational strategies applied by Rover (threshold competences) could be an easy target for competitors within the particular industry while the strategic plans of BMW would be regarded as ‘core competences’ (strategic plans in this case would refer to the distribution of roles in the workplace, the HR management, the structure of the production units, the communication with clients and so on). The Resource/Competence Matrix Same as competitors’ or easy to imitate Better than competitors’ and difficult to imitate* RESOURCES Necessary resources Unique resources COMPETENCES Threshold competences Core competences *Provides the basis to outperform competitors or demonstrably provide better value for money Question 2 Discuss how the resources/competences discussed in question 1 can be sustained and developed The resources and the competencies described above could be developed if appropriate management plans were to be implemented. It should be noticed primarily that continuous innovation could help towards the improvement of Rover’s performance and the enforcement of the alliances created by the above acquisition. In other words, the cooperation between Rover and BMW would be expected to be successful if Rover would manage to reach the performance levels set by BMW’s strategic management team. Regarding this issue it is noticed that ‘an organization can remain flexible so that it does not become committed to products, technology, or market approaches that may become outdated’ (Parnell, 2003, 16). In other words, flexibility can help towards the improvement of organizational performance; however additional measures should be taken in order for the firm’s performance to reach the required levels. Industry analysis would be an appropriate strategic management tool towards the achievement of the above target. In this context, it is suggested that ‘industry analysis typically focuses on a companys external dimensions such as its markets, customers, and competitors’Pritsker (1997, 32). On the other hand, Parnell (2003, 16) noticed that ‘in many respects, the evidence for the existence of a strategy can permeate an organization; its customers appreciate knowing what a company is attempting to accomplish and prospective investors tend to hesitate when they do not have a clear grasp of the firms position and future priorities’. In other words, the existence of an effective operational strategy is necessary in order for a firm to survive within the modern market. In the case of BMW and Rover Group, the acquisition of the latter by the former has led to a series of severe consequences mostly from the first part of the above agreement (BMW). However, not all ‘branches’ of the Rover Group firm have been problematic as of their performance. In fact, it seems that the cooperation of BMW with Land Rover has been successful (appropriate administration of the resources and competencies described above could be assumed in this case). Regarding this issue it is noticed that ‘while BMW and Land Rover have never been in better shape, the Rover brand of passenger cars (which are not sold in the United States) has been a continuous drain on the overall health of BMW A.G.; in Germany these days, Rover is known as “The English Patient”’ ((The New York Times, October 20, 1999). Through the years, Land Rover was sold to Ford while BMW ‘retained Mini, which has been a huge sales hit for BMW worldwide as the Munich-based automaker remade the Mini Cooper runabout and brand with German know-how’ (Spiegel Online International, May 30, 2007). From another point of view, it is noticed that ‘BMW went through its own rough patch in the 1990s after the disastrous acquisition of Britains Rover Group, but its fortunes have changed markedly since it ditched Rover in 2000; production has increased steadily, and profits are buoyant; pretax earnings last year rose 25%, to $5.5 billion, despite the soaring cost of raw materials and the strong euro’ (Time CNN, July 5, 2007). All the above facts are mentioned in order to justify the decisions taken by BMW regarding the administration of Rover and the final solution of its gradual disposal (as described above). Regarding the above, it could be stated that the cooperation with Rover could be successful only if the following strategies had been followed - regarding the administration of the resources and competencies described in the Resources/ Competencies Matrix presented above: a) appropriate restructuring of HR strategies applied in Rover (the HR patterns followed in BMW could be used as a sample of the HR strategy that should be applied in Rover); b) constant monitoring of employees’ performance (referring to employees of Rover); c) appropriate re-distribution of roles within Rover; d) re-evaluation of strategic targets of Rover and application of policies that would help towards their realization. However, as it is proved by the facts presented above, there was not appropriate emphasis given in the HR strategies followed by Rover. Of course, significant investments were made to Rover; however there is no reference to the restructuring of HR strategies of Rover by BMW (if ever such a restructuring had taken place). In this context, it could be noticed that ‘acquisitions frequently destroy rather than add to value, especially where they are not managed well strategically; the value from acquisitions can be segmented according to the purpose of the acquisition to arrive at a value profile’ (Grundy, 1996, 181). In the case of BMW, the acquisition of Rover could be characterized as not appropriately managed. In fact, many issues related with the administration of the whole procedure could be raised. It seems that no appropriate preparation took place by BMW before the realization of the relevant strategic decision; issues that appear as of significant importance in theory (see Figure 1 and 2 in Appendices section) were not taken into consideration by BMW’s strategic management team. Even after the completion of the procedure, none of the proposals presented above was found to be realized; acquisition of Rover has been actually a poorly prepared strategic plan which was recalled after a significant delay with no effective interventions during its application towards the improvement of Rover’s performance and the limitation of losses for BMW; even the funds invested towards the support of Rover by BMW were not appropriately administered (an assumption that can be based on the absence of particular benefits by the above investment). References Grundy, T. (1996) Strategy, acquisitions and value. European Management Journal, 14(2): 181-188 Parnell, J.A. (2003). Five Critical Challenges in Strategy Making. SAM Advanced Management Journal, 68(2): 15-25 Porter, M. (1998) On Competition. Harvard Business School Press Pritsker, K.D. (1997). Strategic Reengineering: An Internal Industry Analysis Framework. SAM Advanced Management Journal, 62(4): 32-43 Spiegel Online International (May 30, 2007) [online], available at http://www.spiegel.de/international/business/0,1518,485642,00.html The New York Times, October 20, 1999, [online], available at http://query.nytimes.com/gst/fullpage.html?res=9B05E4D81E31F933A15753C1A96F958260 Time CNN, July 5, 2007, [online], available at http://www.time.com/time/magazine/article/0,9171,1640398,00.html Websites http://www.bmwgroup.com/e/nav/index.html?../0_0_www_bmwgroup_com/home/home.html&source=overview Appendices A. Porter’s Five Forces Figure 1 - Industry Competition, five forces (Porter, 1998, 22) B. Wiseman’s Grid What is the strategic target? Supplier Customer Competitor What is the strategic thrust? Differentiation Cost Innovation Growth Alliance What is the mode? Offensive Defensive What is the direction? Use Provide Figure 5 - Strategic Option Generator (Wiseman, C., 1985, ‘Strategy and Computers’, Dow Jones – Ivwin) C. BMW – Key Financial Results Read More