Whats Driving Porsche - Case Study Example

What's driving Porsche?

Introduction

If one takes a close look at the contemporary business world, one will be able to see that it is significantly different from its counterpart from the past. Nowadays, it is much more common for companies merge and form larger organisations. However, it must be noted that such changes often have a profound impact on the fundamental elements of each party involved. A careful examination of the history of Porsche reveals that it developed from a small and independent company to an organisation that ultimately took over a carmaker that is one of the top largest carmakers in the world. That is why it would not be logical to treat Porsche as a company that occupies a small niche in the market. This paper will address several aspects of the change that the company in question experiences. First of all, it will present mission and vision statement for Porsche keeping in mind its takeover of Volkswagen. Secondly, it will apply the framework of Porter's five forces to premium automobile industry defining each element and showing how it is manifested. Thirdly, the paper will examine Porsche using VRIO framework that is demonstrating value, rarity, inimitability, and organisation of strategic capabilities, stating that their combination is able to bring Porsche a sustainable competitive advantage if compared to other competitors. Finally, the paper will provide several recommendations that can be given to Porsche after its takeover of Volkswagen, focusing on the source of competitive advantage of it.

Mission and vision statement for Porsche

One would make no mistake that recent events in the history of Porsche call for an update of mission and vision statement. This is how mission statement of the company would look like:

Speaking of the mission of Porsche, one should outline three major elements: quality, engineering, and design. Quality is something that defined our product since the very beginning. The company never tried to sell many cars: it aimed to sell less, but maintain the best quality that it could provide. That is why it may be quite surprising that if compared to the major competitors, Porsche has never been at the top. Nevertheless, we strongly believe that by adhering to the highest standards of quality that we set for ourselves, we were able to provide every customer with a unique experience (Leffingwell, 2013).

The second element of our mission is engineering. We are proud to say that about one fifth of all our staff is engaged in Research and Development facilities. We strongly believe that a modern carmaker should constantly strive to make one’s produce better in every way possible (Deiss, Brümmer & Schloz, 2006). That is why engineering has never been an empty sound for us: only the best innovations were presented to the public. As a result, every generation of our cars has been significantly better and we work hard to maintain the dynamics in the future. After we were able to join forces with Volkswagen, we carried out putting a significant emphasis on engineering; so, this expansion did not have any negative effect, quite the opposite: it provided us with additional opportunities to live up to our expectations.

Finally, the last element of our mission that should be mentioned is design. We take pride in the fact that our cars stand out in the traffic: every person who has even the most superficial knowledge of our brand will be able to identify our cars on the streets of a city. This can be explained by the fact that there is a continuity of design that was not interrupted by time or expansion of the model range. We are proud that we could take the design of a sports car to SUV or sedan platforms without compromising the spirit of the company. We will make sure that we maintain this in the future as well.

The vision statement of Porsche might take the following form:

Many are aware of our close partnership with Volkswagen. We recognize the strengths of the latter and are honoured to make a decision on behalf of this company with outstanding history. However, to all those who are afraid of dilution of our brand we say: "Be not afraid! We are doing everything in our power to retain the spirit of Porsche when it was small and independent". It is obvious that we will managed Porsche, Volkswagen as well as other brands, but we will never merge them in terms of design, spirit, treatment of the customers or mission. That is why the changes in the scale of the company will not affect the quality of its operations negatively.

Moreover, we are determined to carry on our experimentation now that there are so many resources are available to our company. This means that we will eventually deliver even better products that contribute to the satisfaction of our customers. It is obviously than before we devoted a considerable amount of time to experimentation to surprise our customers and exceed their expectations. Now, when our most important strategic partner has become even closer, there is more room for innovation and experimentation which has always played an important role in the development of our company. Therefore, in the future, we expect to put even more effort into this activity.

Five forces analysis of the premium sector of the automotive industry

It may be particularly beneficial to apply the framework of Porter's Five Forces to the premium sector of the automotive industry and determine the attractiveness of the latter. Thus, speaking of supplier's power, one should note that it should be considered to be low. Indeed, suppliers mostly provide the raw materials and are not able to have any significant impact on the product (Warner, 2010). In addition to that, they are mostly fragmented which means that their bargaining power is low as they are not able to make centralised decisions. Another point that should be mentioned is that companies that operate in the premium sector of the automotive industry can easily switch from one supplier to another which reduces their significance.

As for the bargaining power of buyers, one should note that it should be recognised as rather high. It is obvious that those customers who are determined to buy automobiles of the premium class are not sensitive to price: they could have bought two less expensive car for what they are about to pay (Hamilton & Webster, 2012). That is why, since they are not price sensitive, they pay a lot of attention to other aspects, such as brand, quality, and treatment. What is more important is that they can easily substitute one brand with another in case they have an unpleasant experience with a certain car. So, selling a product to these people is a moment of truth for the companies.

If one considers the threat of entry of new players, one will have to note that that it is relatively low for a number of reasons. First of all, it is rather obvious that starting a new premium automobile company will take a lot of capital and labour (Cole, 2003). This makes it rather unlikely that the range of brands will change in the future. In addition to that, there are certain barriers to entry like rules and regulations that are designed by the government to make sure that a new company is able to comply with the standards of the industry which appear to be rather strict. Consider the regulation of carbon emission and strict the government is about it.

Speaking of substitution product, one should point out that this threat is medium. On the one hand, those people who are accustomed to driving premium cars are not likely to use public transportation or even cars that belong to a lower class (Arnold, 2003). That is why one might suggest that there are no substituted for premium automobiles. On the other hand, there is a growing trend of appreciation of electric cars and the success of Tesla Motors shows that it is highly possible to create a high-end car that will also be electric. Keeping in mind that the environmental concerns will prevail in the society in the future, it is would not be a mistake to suggest that electric car will become the elite of automobile industry because of their environmental qualities.

Finally, there is a rather intense competitive rivalry in the industry. The latter is saturated and the majority of the market is controlled by a handful of brands (Duhaime, Stimpert & Chesley, 2011). All this leads to the understanding that premium automobile industry may not very attractive since the bargaining power of the buyers is quite high as well as the threat of substitution. In addition to that, the rivalry between the major players encourages them to perform mergers which saturated the market even more. This means that under these conditions it would be rather difficult to remain independent or refrain from following general trends. So, it would not be an exaggeration to suggest that the most successful companies are hostages of the situation since they have to follow the market in order to stay successful and are not likely to take any major changes.

Porsche’s strategic capabilities according to VRIO

VRIO framework suggests that the sustainable competitive advantage of a company can be explained by a combination of certain elements. The first of them is value. One would make no mistake suggesting that research and developing as well as the ability to produce cars that have superior qualities and are able to exceed expectations of the customers should be regarded extremely valuable in the premium automobile industry (Knecht, 2014). Indeed, Porsche enjoys a considerable amount of experience in constructing cars that have a fabulous quality. As a result, this ability to produce distinctive cars is something that is truly valuable.

The next element of the framework that is often mentioned by the scholars is rarity. It is rather obvious that a Porsche stands out in the traffic very easily. Moreover, the company was able to extend the design of sports cars to other platforms which greatly contributes to the continuity of the aesthetics (Kumra, 2012). In other words, the design of the cars is truly rare and this cannot be found in any automaker. While indeed some companies, like BMW, may have a recurring image (consider its famous radiator), there is no one unified style. On the other hand, in the case of Porsche, there is always one style which is changed from generation to generation yet stays the same.

All this leads to the next important element of VRIO – inimitability (Amason, 2011). From a technical point of view, it may be rather difficult to imitate Porsche car because the company primarily relies on rear engine design which is not popular among the automakers. Indeed, many people may not know, while the wide majority of cars has the engine up front, Porsche is dedicated to its original design when the engine was placed at the back of the car. Another point that should be mentioned is that the design of cars of this company cannot be imitated without bringing up associations with the original. Indeed, the characteristics features of Porsche design are so closely connected to the general image of a car, that it is virtually impossible to copy one without copying others, ultimately making the copy look like the original in many ways.

Finally, one should consider the last element of the framework in question which is organisation. As it has already been mentioned Porsche used to be small as well as an independent company; however, as the years went by, it gradually increased its share in Volkswagen and ultimately performed a takeover (Grimm, Lee & Smith, 2006). That is why it is highly unlikely that another company will be able to boast such an extensive structure in that sense that Porsche controls Volkswagen which controls a number of other brands. Secondly, one should not forget about Porsche Engineering Group which is often described as its secret weapon. Indeed, few companies are able to devote so many resources to research and development and set up an influencing facility that would outsource engineering services and later use the experience if permissible.

All this leads to the understanding that strategic capabilities of Porsche are valuable, rare, impossible to imitate and possess unique organisation. One would make no mistake that such combination of factors results in the fact that the company in question is able to enjoy sustainable competitive advantage since the fundamental elements of its strategic capabilities can hardly be copied by others. Therefore, one should point out that Porsche has secured its competitive advantage and will be able to use it in the future to dominate the niche and expand further, as the recent history showed.

Suggestions to Porsche’s Senior Management team

There are several suggestions that might be given to Porsche's Senior Management team. The first of them deals with the outcome of Volkswagen takeover. It is essential for Porsche to keep the spirit of the small and independent company since many are afraid that close cooperation with mass automaker will dilute the spirit and worse the quality of the products (Hooley, Piercy & Nicoulaud, 2004). Keeping in mind that the competitive advantage of Porsche rests on its ability to be unique and on the outstanding quality of the products, it is vital that nothing of this changes as Porsche gains access to resources of Volkswagen. In other words, the expansion that the company experienced has influenced significantly its development, but it is important to make sure that it does not affect strategic capabilities in a negative way.

The next set of recommendations will deal with adaptability. It must be noted that automobile industry constantly changes and it may not be logical to expect a company to be successful selling one product only (Foust, 2010). What is more important is that the recent history of Porsche shows that it was able to transgress the boundaries of its niche and move into the areas where it was never represented. Consider the success of Cayenne and Panamera. Two decades ago one would never predict that Porsche could create an SUV or a four-door sedan; however, today they are the products that are sold very well. This shows that the company was able to adapt to the new conditions of the market when the demand for sports cars is declining.

Another point that should be mentioned is that the company should also adapt in terms of engagement of new technologies. As it has already been mentioned, the awareness of the environmental impact of carbon emission has become an important topic in the public discourse which makes the potential buyers thin about the pollution that they will cause while driving (Schwartz, 2009). That is why it would not be a mistake to suggest that Porsche might improve its position, but making more effort to reduce pollution from its cars. Moreover, the trend for appreciation of electric cars is growing more and more; that is why it is quite possible that Porsche might enter this market in the future.

The last category of recommendations will deal with the relationship between Porsche and Volkswagen. To begin with, it may be particularly important to keep all the companies that Porsche has influence over separate. For example, while Porsche Cayenne, Volkswagen Touareg, and Audi Q7 share a considerable number of details, it is essential to make sure that the customers perceive them as three separate cars (Irawati, 2012). In other words, it is in the best interest of Porsche to explain that even though it performed a takeover Volkswagen, there is no need to look for traces of Porsche's influence in every brand that it manages. This means that this organisational change will not have any influence on the quality of the product or the spirit of the company.

Furthermore, it may be quite beneficial to develop Porsche Engineering Group since it is responsible for the driving force of the company. Indeed, if it had not been for research and development that was carried out by it, the company in question would have never reached the level that it enjoys now. Moreover, the evidence shows that subdivision of Porsche Engineering Group could be sold and produce a lot of money. In any case, it is beneficial for the company in question to make sure that its research and development facility is not diluted by the interaction with other companies. Of course, knowledge can be shared across divisions, but it is important to state that they should all be implemented separately.

Conclusion

Having examined all the points which were mentioned in the paragraphs above, one is able to come to the following conclusion: the takeover which was performed by Porsche should be regarded as an important milestone in its development. This should be reflected in the mission and vision statement showing that despite all the changes, the company stays faithful to its fundamental ideas of quality, engineering, and design. In addition to that, Porsche will make sure that despite the large scale of its operations, it will retain the spirit that guided it before. The five forces analysis which was performed one of the sections reveals that the bargaining power of suppliers is low while the bargaining power of buyers is high; the threat of new entrants is low and the threat of substitutes is medium while the competitive rivalry is high. All this does not make the industry particularly attractive for companies. According to VRIO framework, Porsche features all the elements which means that it will enjoy a sustainable competitive advantage in the future since it has valuable strategic capabilities that are rare and inimitable. Moreover, its organisation is not likely to be copied by the competitors. Speaking of the recommendations that might be given, they are divided into three categories. The first deals with the distinct brand that Porsche enjoys. The second one focuses on adaptability through introducing new products or engaging new technologies. Finally, there are recommendations the deal with the relationship of Porsche and Volkswagen, urging the former to maintain its strategic capabilities.