Competitive Advantage and Business History - Case Study Example

Strategic Management 2 Executive Summary BMW is one of the leading automobile manufacturers of the world. It is one of those brands which receive much adulation from all sections. The core factors that the organisation has always kept in mind is the design, class and technology related with their automobiles. Alike every organisation, critical success factors play a very important role in the growth and accomplishments of BMW. This is evident from the past five year’s analysis of BMW. The critical factors are vital for an organisation to take care of, as these factors generally create the significant difference in the industry between a leading player and the follower. Generic strategies have always benefitted BMW to gain customer attention and be a step ahead of its competitors. Availability and use of resources along with the prudent application of technology has always been a significant factor in BMW’s growth story. BMW has followed a strategy which is in sync with and also suitable to their organisational goals and endevours. BMW has tried to incorporate feasible and acceptable strategies in recent times to overcome obstacles and they have been able to reclaim a niche for themselves in among consumers pertaining to different section and interest groups. Table of Contents Executive Summary 2 Introduction 4 Critical Success Factors - Five Year Analysis of BMW 5 Generic Strategies- BMW 7 Resources and Capabilities – BMW 8 Suitability, Feasibility and Acceptability 9 Conclusion 12 References 13 Bibliography 18 Appendices 20 20 Figure 1 20 Figure 2 21 Figure 3 22 Introduction Strategy plays a significant role in the success of an organisation. It takes into account a long term perspective for defining the organisation’s capabilities. Formation of a strategy is a very hard task because it needs to meet all the key areas and should focus on them. It requires having provision for external exigencies as well as internal conflicts. Again, as the approach is futuristic it is very tough to formulate the desired set of plans and even determine the effectiveness of such plans. Organisations which can correctly understand the problem areas and form their strategic decisions keeping in mind their strengths and weakness and even opportunities and threats from the external environment are the ones which really succeed in the long run (Grant, 2005). BMW is one of the oldest automobile companies operating since 1916. Throughout the years it has seen several ups and downs in its operation but the fact that it is a 94 year old company justifies the significance of strategy in its functions. This research paper focuses on the strategy of BMW, identifying its major success factors, capabilities and resources and assesses the future competition for the organisation (BMW, 2010). Critical Success Factors - Five Year Analysis of BMW There are numerous factors which affect the functioning of the organisation but not all the factors have an equal weight or significance. It is only the critical factors or the key factors which plays a major part in determining success for the organisation. Generally the competitive factors are considered to be key factors in any industry because all organisations are operating under a competitive environment and it is only the competitive factors that can place an organisation ahead of another similar kind of organisation. Automobile industry is one of those industries which face severe competition and therefore competitive strategies are a must for any organisation to survive in the market. Factors such as the design, cost, fuel efficiency, capability of the engine, brand name, demographics and segment are the critical success factors in an automobile industry (Yarger, 2006). BMW has been in this industry from the year 1916 and owns several sub brands. It is the parent company to the famous Rolls Royce. It not only manufactures four wheelers but also motorcycles under the brand name of BMW Motorrad and Husqvarna. The company has its operations throughout the world and constantly keeps on increasing its sales over the years. It has a wide range of models to choose from the 1 series to the 7 series and even other models such as the new series, M series, X series and Z series. This German automobile company has attracted several fans from all over the world for its charismatic designs and its performance (Pasch Consulting Group, 2008). It is one such brand which has a greater brand value than other in the same industry. A critical analysis of the annual review of preceding five years of BMW shows that the revenue collection in the earlier five years has increased by € 6.38 billion i.e. from € 44.3 billion in the year 2004 to € 50.68 billion in the year 2009. Even the sales has increased over the period of five years, the company sold 10, 23583 units in the market in the year 2004 and in the year 2009 sold 10, 68770 units in the market (BMW, 2010). The profits of the company in the year 2009 have been € 204 million which can be implied as an effect of the financial crisis that affected the whole world but still the company managed to earn moderate profits in that period too (The Financial Express, 2010). In comparison to Daimler, which is another big German automobile manufacturer and is famous for its Mercedes and Maybach in the world market has neck to neck competition with BMW. The revenue of Daimler in the year 2009 was € 78.92 billion and the profits resulted to € 264 million. Thus it can be seen that there were no significant differences in the financial figures between the both. Compared to other key market players it has done considerably well considering the fact that numerous numbers of automobile manufacturers are playing in the market and the economic situation. But it can be stated that the design, performance of the engines and most importantly the brand name helped BMW achieve success over the years and in the last five year period (Vuskane, 2010). Generic Strategies- BMW Generic strategies are those strategies which help an organisation to gain advantage over others as stated by Porter. Porter found out that the most important generic strategies could be cost, leadership, focus and differentiation. In the cost leadership strategy Porter pointed out that cost is an important factor in the competitive environment. An organisation needs to curtail its cost in an effective way and also check that the prices offered by the organisation are competitive. In the case of BMW the prices are often on the higher region but the brand name associated with the products compensate for the prices (Ankli, 1992). Even the value derived from the products match the prices of the product. But to gain an added advantage over the competitors the organisation could severely benefit if it could reduce its cost expenditures or bring down its profit margin. It may result in the increased sales of the automobiles which will also increase profitability. The differentiation strategy suggests that products and services should be unique with different and innovative designs and those products should be targeted towards the customer who are intending to buy low priced goods. And lastly, the focus strategies aim at providing the customers better products at the minimal cost. These three strategies have the similar orientation and that is to increase the competiveness of the product with increased sales and lower prices (Kotha & Vadlamani, 1995). The BMW automobiles have always focussed on design as an important aspect in securing their position in the market. Thus the designs are innovative and have a certain appeal to it. It has convertibles, hatchbacks and other segments in its product line which gives the customers a wide range of choice. BMW 1 series, 3 series and the 7 series have done well in the market along with the BMW X3 SUV. The focus has regularly been on providing the best to the customers at the nominal price. The organisation has taken various steps of cost reduction so that it can bring down the cost but in order to cut down its cost it does not want to compromise with the quality of its products. The procurement strategies, the operational strategies and the distribution strategies are constantly evaluated to check whether any cost reductions can be made. These strategies can actually help the organisation in catering to a broader market with larger and varied customer base (Vuskane, 2010). Resources and Capabilities – BMW The resources and the capabilities are the key aspects that can help an organisation achieve desired results. It is to be understood that the resources are limited in the hands of any organisation and the organisation need to optimally use such resources. The organisation even needs to comprehend the internal capabilities with the intention that it can take each and every opportunity which crosses their way and be aware of future threats that may rise in their path. It is only through proper strategic planning that an organisation can convert its opportunities to profits and avoid the threats (Kor & Et. Al., 2005). BMW is one of the top manufacturers of automobiles and therefore it is quite evident that the organisation needs numerous numbers of resources for developing the end product. By far the organisation has done exceedingly well in applying its resources to the extent whether it is technology or the human resources but the important point which needs to be focussed is that the company always strives for the optimum utilisation of its resources to bring down the cost (University of Washington, n.d.). At times resources turn scarce but stability is an important factor in the market and therefore the organisation needs to take strong steps for maintaining their authority or performance in the market. There are several capabilities of the organisation which are identified by them and among them the most important capability of BMW is to manufacture world class cars and bikes with exquisite designs which make them stand apart from the competitors. Therefore it is the designing section which can be termed as the competitive advantage. BMW is a brand to reckon with and is quite popular among the executive sections of the society. Even the cars and bikes are quite popular in the defence and police forces of various nations. Thus it can be seen that the resources and the capabilities have been well utilised by the organisation in the light of the external opportunities and threats (Wasserman & Et. Al., n.d.). Suitability, Feasibility and Acceptability Strategies are many but not all strategies can provide the desired results. Therefore an organisation needs to be very careful in selecting a strategy and implementing it. The variable which are the indicators of a successful strategy are suitability, feasibility and acceptability. Suitability refers to “its adaptability to mission of the organization; feasibility is considered with the resources and capabilities of the organization for the present and future and acceptability is concerned with relative risk and anticipated stakeholder reactions”(StockMarketsReview, 2010). The strategy adopted by BMW in the last five years had been simple in approach. The main concern has been given to the reduction of cost and product betterment with special focus on the design (Jeffs, 2008). The suitability of the strategy adopted by BMW can be checked with the performance of the organisation. The mission of BMW is in sync with the cost reduction strategies and even the development strategies. Hence, it can be witnessed that the sales are gradually increasing and the various brands under the organisation are gaining greater acceptance. Even it is becoming a challenge for the organisation to present something innovative to its customers in any form. The suitability of the organisation greatly depends upon the strategies (Serrat, 2006). It is widely known that BMW is one of the largest automobile companies. Therefore, it is quite evident that it has huge resources at its disposal whether it is capital, human resources or technology. It has factories all over the world, employee strength of nearly ninety seven thousand and annual revenue of € 50.68 billion. At times strategies do not pass the feasibility test due to lack of funds or sufficient technology but BMW being a global leader in automotive industry possess all essential components to make a strategy work. The increased number of sales is the result of the feasibility (Box & Watts, n.d.). Acceptability is one of the most essential determining factors for the success of an organisation. Checking the performance of the last five years of BMW, it can be analysed that there has been gradual increase in the sales but the sales were hit hard in the year 2009 where the number of units sold dipped by 1,33.469 units than the previous year. The sales in the first quarter of year 2010 show positive signs of recovery. The signs of recovery have given a sigh of relief to the shareholders. Basic strategies of cost reduction, product differentiation and product redesigning have been adopted by BMW to minimise the risk and increase their sales. Even the organisation has taken up various measures to keep up to the brand name and the recognition they widely receive. Such factors have increased the acceptability of BMW and its strategies among all the sections or the interest groups (McGraw- Hill/ Irwin, 2010). Conclusion The strategies play a vital part in the success of an organisation. The strategies adopted by BMW have helped them in capturing a major portion of the world automobile market. But after the economic slowdown things have been different and therefore it is time for the organisation to redefine its strategies and work accordingly. It has huge resources at its disposal which needs to be optimally utilised and through which the major objectives of the organisation can be fulfilled. The organisation has to produce various strategies in near future to avoid fierce competition from various other market players. Therefore in order to receive the maximum benefit, BMW needs to think ahead of others in the industry (Vuskane, 2010). References Ankli, R., 1992. Michael Porters Competitive Advantage and Business History. University of Guelph. [Online] Available at: http://www2.h-net.msu.edu/~business/bhcweb/publications/BEHprint/v021/p0228-p0236.pdf [Accessed October 30, 2010]. BMW Group, 2010. Company Portrait. Company. [Online] Available at: http://www.bmwgroup.com/bmwgroup_prod/e/nav/index.html?http://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_bmwgroup_com/home/home.html [Accessed October 30, 2010]. BMW Group, 2010. Sustainability Strategy. Responsibility. [Online] Available at: http://www.bmwgroup.com/bmwgroup_prod/e/nav/index.html?http://www.bmwgroup.com/bmwgroup_prod/e/0_0_www_bmwgroup_com/home/home.html [Accessed October 30, 2010]. BMW Group, 2010. 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[Online] Available at: http://www.unu.edu/unupress/unupbooks/80815e/80815E0t.htm [Accessed October 30, 2010]. Appendices Figure 1 The BMW X1 vs. Mercedes GLK vs. Volvo XC60 Compare (Car Advice USA, n.d.). Figure 2 (The Wall Street Journal, 2007). Figure 3 (The Inflationist, 2010). Read More