Corporate Management Strategy - Bayerische Motoren Werke AG - Case Study Example

Corporate Management Strategy of the Contents Introduction 3 Corporate Management Strategy 3 Issues of Corporate Strategic Management 5 Conclusion 7 References 9 Introduction Globalisation and industrialisation have resulted in the development of corporate sector. Over the years, the competition among the organisations has become fierce. As a result of which they try to implement different corporate strategies that will give them the comparative advantage over the others (Braithwaite & Christopher, 2015). The paper here has selected BMW to investigate its corporate management strategy and to identify its main strategic issues. This necessitates studying the background of the company. Bayerische Motoren Werke AG commonly known as BMW is a motorcycle and engine manufacturing multinational company of Germany. Founded in 1916 by Franz Joseph Popp, Camillo Castiglioni and Karl Rapp, BMW has its headquarters in Munich, Germany. It is involved in the manufacturing of mini cars, automobiles and motorcycles. It is the parent company of Rolls-Royce Motor Cars (BMW Group, 2015). BMW is a member of “German Big 3” luxury automobile manufacturing companies along with Mercedes-Benz and Audi which are considered as the three best-selling luxury vehicle manufacturers in the world. It sponsors Bundesliga club Eintracht Frankfurt. It was also the official sponsor of London 2012 Olympics. A six year sponsorship deal was made in July, 2010 by the company with the United States Olympic Committee (USOC). The company has also been very active in Corporate Social Responsibility (CSR) programmes. BMW is the charter member of the US Environmental Protection Agency’s (EPA) National Environmental Achievement Track, which recognizes companies for their environmental performance and stewardship. It has also accomplished the title of the world’s most sustainable automotive company for the eighth consecutive time in 2012 by the Dow Jones Sustainability Indexes (BMW Group, 2015). Corporate Management Strategy According to Casadesus-Masanell and Ricart (2010), every organisation devises its own set of goals and objectives. In order to achieve its target, the company implements its strategies so that they can be executed according to the plans. Corporate strategic management is the process of building and implementing main goals and initiatives taken by the management. The initiatives are taken by them on the basis of the available resources and after analysing the internal and external environments in which the company competes. Strategic management directs the enterprises and specifies the objectives of the company by structuring plans and policies in order to help the company accomplish its mission. It also allocates resources optimally to execute the planned strategies (Clark, et al., 2014). Before making any strategic decisions, organisations need to analyse the environment in which the companies operate. Environmental analysis comprises of PESTLE analysis, SWOT analysis and Porter’s five forces (Hill, 2008). PESTLE analysis identifies the political, economic, social, technological, legal and environmental scenario for the launch of a new product of the company. SWOT analysis aims at understanding the strengths and weaknesses of the company and recognising the opportunities and threat in the market so that policies can be implemented accordingly. Porter’s Five Forces is useful in giving an extra edge over its competitors by recognising the advantages of the current competitive position and the strengths of a position which the company is considering. It identifies where the power lies in a business situation (Hollensen, 2015). On the basis of the SWOT analysis, BMW’s strengths lie in its brand reputation, high quality products, CSR, eco-friendly vehicles. Its weaknesses lie in high cost of production, few acquisitions and strategic partnerships. Intense competition, growing prices of raw materials and fluctuating exchange rates pose threats to BMW. According to the PESTLE analysis, political factors like government regulations have affected automobile industry. There are also foreign policies and tax imposed on automobiles which play an important role in corporate management strategies (Liu & Tian, 2015). Economic factors include economic downturn that badly affected the business. The company also has to manage with the problems of exchange rate and excess capacity. Social factors are also related to the economic factors since the demand of the consumers highly depend on their income. BMW has always utilised highly updated technology for manufacturing advanced cars that causes less pollution. Environment factors have always been prioritised by the company and accordingly it has adopted the CSR programmes. Legal factors like strict pollution norms and restrictions in the US and European markets have affected automobile industry. Strict implications on Euro norms in developing nations also influence BMW’s corporate management strategy (Toften & Hammervoll, 2009). From the Porter Five Force analysis, it has been observed that threat of substitutes is high for BMW. In case of BMW, buyers have high bargaining power. The company has effective supply chain management and share a good relationship with the suppliers. Wilson and Gilligan (2012) argued that in this case also, the bargaining power of the suppliers was higher. The automobile industry has a number of competitors with the US and European markets, facing rigid competition from the Asian markets. After an elaborate analysis conducted, it has been concluded that there has been massive development of manpower and infrastructure in automobile industry. Consumer preferences for high brand value products have increased. Automobile manufacturers have given high importance to environmental issues. The above mentioned analysis comes under the category of environmental analysis. The next steps are strategy formulation, strategy implementation and strategy evaluation (Wong, Tseng & Tan, 2014). Issues of Corporate Strategic Management When companies involve in structuring its strategies, they encounter many hurdles that need to be overcome efficiently. BMW also has a number of issues that it plans to solve with the aim of achieving its objectives. As a multinational company, the company faces the problem of using sustainability management in order to discover the right solution under very diverse local conditions. Recently, the company had to incur huge loss when it has lost shares to new market players of Japan (Braithwaite & Christopher, 2015). There is a tendency of the competitors to copy the creative marketing ideas of BMW which implies that the company has failed to take any steps towards it. It also faces the problem of market penetration into a foreign nation because of its premium prices. The company also suffer from ineffective advertising campaigns. This is also the reason why it faces problems when entering foreign market. This also implies that it is unable to increase its consumer base. Without proper campaigning, the company will fail to create its impact on the consumers in the long run when its competitors will take over the market (Casadesus-Masanell & Ricart, 2010). Clark et al. (2014) emphasised that high production cost has also adversely affected the revenue earnings of the company. The companies need to adopt cost efficient production techniques. Manufacturing high quality vehicles need skilled labours. Huge investment is also required to develop the Research and Development wing of the company so that it can continue upgrading its features. The cost structure of BMW is higher than that of its competitors. Recently, the company is facing huge challenge of proper integration of environmental standards crafted for the European and US markets. This is also responsible for making the task of penetration into Europe and US difficult. The EU has formulated stringent CO2 rules of 130 grams per kilometre. Similar policies have also been implemented by the US. The Corporate Average Fuel Economy (CAFE) in the US incorporates such rules on foreign companies. BMW finds it difficult in convincing customers in the US to buy diesel run vehicles (Liu & Tian, 2015). BMW has faced considerable challenges due to the US economic slowdown (BMW Group, 2015). The US market is one of the favourite markets of BMW. This economic downturn has created a huge impact on its production. The corporate management could not implement any strategy properly to help the company overcome this problem. The energy prices also hit record levels. The company was also not efficient enough to handle this situation. The rising prices of fuel also affected its sale. The production line of BMW Group is also very limited. It manufactures and sells only 3 brands Rolls Royce, Mini and BMW. This gives very less scope to the company to generate scope of revenue earning. Compared to other competitors, the price of BMW is considered to be expensive because of high production cost. This also enables other companies to capture larger consumer base. The company should produce such vehicles which are comparatively less expensive and this can be achieved if it enhances its production line (Toften & Hammervoll, 2009). The failure of market expansion strategy is also posing a threat to the company. The companies adopt the policy of progressive growth in order to achieve its long term objectives. So, generally in such situations, companies enter into venture or adopt the policy of acquisitions to expand (Wong, Tseng & Tan, 2014). However, BMW has not implemented such policies of acquisitions. Very few strategic partnerships and acquisitions have taken place in the company. The growth of BMW is 90% organic while 10% growth is obtained from acquisitions. Even with the availability of exclusive engineering potentials, the firm struggles to develop. This is because; it has not undertaken acquisitions strategies effectively. Thus, it is advisable that for long run growth, the company needs to acquire more brands and enter into more strategic partnerships (Hollensen, 2015). Hill (2008) believed that the automobile industry was characterised by intense competition. BMW faces stiff competition directly from its rivals. They undergo price competition. In price competition, two identical products which are homogenous in nature are judged by the customers on the basis of the price that they offer. The customer favours the product which is comparatively cheap. As a result, BMW vehicles do not get customer attention as it loses in the price competition. There has been an increase in the prices of raw materials. This is also the reason behind increasing cost of production. Though it has healthy relationship with the suppliers but still it cannot bargain to decrease the prices of its raw materials. Growing Euro exchange rate is also a concern for the management of BMW. They are unable to handle the outcomes that are related to the growing euro exchange. Euro has become a volatile currency and it poses threat to the company. As a result of which BMW tries to earn its maximum profit outside Europe (Wilson & Gilligan, 2012). Conclusion To overcome the issues related to corporate management strategy, serious steps need to be taken by the company. Although, management participate in annual strategic planning process and long plans are made, it has still not proved effective as highlighted by the issues above. The company should improve its sustainability risk management system so that the company becomes familiar with the respective nation, product risks, industry and to ensure compliance with the sustainability principles. Since the creative marketing ideas are often copied by other manufacturing companies, BMW should focus on implementing measures that will protect the marketing plans before it is executed successfully. This is considered as a loss of goodwill. Marketing is a very important part of business operations. The company already is backdated in implementing proper advertising campaigns. So, if the copying of the strategies is not eliminated then this will create huge loss to the company. The company should use advanced system of marketing taking the help of social networking sites, electronic hoardings, etc. The company is recommended to invest in Research and Development to develop cost efficient method of production. The reason behind its expensive cars is its increased production costs. It should also focus on introducing those vehicles that meet the regulations implemented by EU and CAFE. The management should be efficient enough to handle the fluctuating economic environment. It is not possible to control economy. However, efficient forecasting technique must be implemented so that proper steps can be taken at the correct time to minimise the effect of economic downturn. For this procedure, the company needs to employ high skilled personnel. The BMW Group needs to introduce different new products to enhance the production lines. It will also increase its profit. Since it has high brand value, new products would not find it difficult to capture customer’s attention and will soon gain popularity. The company should try to follow the acquisition strategy to expand in the developing countries. If the policy becomes successful, it will then boost the profit level of the company. References Braithwaite, A. & Christopher, M. (2015). Business Operations Models: Becoming a Disruptive Competitor. London: Kogan Page Publishers. BMW Group. (2015). BMW Group. Retrieved from http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/home/home.html Casadesus-Masanell, R. & Ricart, J. E. (2010). From Strategy to Business Models and Onto Tactics. Long Range Planning, 43(2), 195-215. Clark, T., Key, T. M., Hodis, M. & Rajaratnam, D. (2014). The Intellectual Ecology of Mainstream Marketing Research: An Inquiry into the Place of Marketing in the Family of Business Disciplines. Journal of the Academy Of Marketing Science, 42(3), 223-241. Hill, C. (2008). International Business: Competing in the Global Market Place. Strategic Direction, 24(9), 35-45. Hollensen, S., 2015. Marketing Management: A Relationship Approach. New York: Pearson Education Liu, S. S. & Tian, Y. (2015). Integrating Sales Force into Marketing Strategic Planning. In Revolution in Marketing: Market Driving Changes. New York: Springer International Publishing. Toften, K. & Hammervoll, T. (2009). Niche Firms and Marketing Strategy: An Exploratory Study of Internationally Oriented Niche Firms. European Journal of Marketing, 43(11), 1378-1391. Wilson, R. M. & Gilligan, C. (2012). Strategic Marketing Management. London: Routledge. Wong, W. P., Tseng, M. L. & Tan, K. H. (2014). A Business Process Management Capabilities Perspective on Organisation Performance. Total Quality Management & Business Excellence, 25(6), 602-617. Read More