Strategic Analysis of BMW AG Essay
Strategic Analysis of BMW AG
Strong Brand Reputation can be considered as the main strengths of BMW. Through many years marketing executive has been grown the brand image, so now BMW is perceived as the third most expensive brand in automotive market and is valued at $29 billion. Trained and highly skilled workforce is the asset in which BMW invests heavily. For, assembly of quality cars demands for quality materials and extremely skilled workforce. Therefore, BMW cars are manufactured only in the areas where the most skilled car manufacturers work like Germany and USA.
High quality product is the strength for which people valued BMW. The level of recalled cars produced by BMW much more less comparing to its rivals. CSR activities of BMW are really impressive. The care manufacturing company provides large investments in various CRS programs, like sustainability requirements for its suppliers, health management of employees, balanced work life and zero waste at its plants. Contribution to the environmentis one of the main goals of the company, for, about 20 car models assembled by BMW emit carbon dioxide as low as 140g/km. Moreover, BMW engineers create new kinds of fuels, for instance, hydrogen (Jurevicius, 2013).
High cost policy is the reflection of the cost associated with production and employees retention. Therefore, the oust structure of BMW cars is much higher comparing to Toyota, GM, and Volkswagen. Inefficient brand portfolio might probably have negative implication on the future growth prospects. The portfolio of BMW is limited to BMW, MINI and Rollce-Royce.Besides, these three brand demotions perform well in their segments, bul inefficient portfolio may increase the level of business vulnerability to possible economic crises.
High product prices driven by BMW targeted segment. As company produces luxury cars it spends a lot on the materials, expert workforce and on the brand image to Consequently, these expenditures increase automobile prices which are extremely high in comparison with competitors. Inefficient level of acquisition and strategic partnerships may result in delayed growth, for only 10% of the BMW growth is associated with accusation the rest 90% are organic one. Therefore, if automobile concern wants to grow, then there must be more acquisitions and strategic partnerships (Dudovskiy, 2014).
Analysis of uncontrollable factors
“Green Vehicles” demand may grow in the future. The preferences of people have been shifted to more environmentally friendly products; therefore, consumers will be more likely to acquire hydrogen fueled or hybrid cars as they emit less pollution. Growing fuel prices will force customers te look for cheaper ваЬвёШе&, it creates a new market of hybrid and hydrogen fueled cars assembled by BMW Enrichment of business portfolio is the next strategic step for BMW. Thus, company will get opportunity to introduce more models Regulations concerning level of emission could positively influence on the BMW’s position in the industry. For, other car manufacturers will have to invest in R&D programs while BMW will get chance to entice new customers (Jurevicius, 2013).
Severe competition is the constant in automotive industry, thus high level of competition force BMS compete on the price not on differentiation. Also, the saturation in developed economies intensifies competition. Increasing raw materials prices will influence on the cost of car assembly, thus result in decreased profits. Dropping fuel prices due to risen extraction of shale gas. This will drop interest of hydrogen fueled, hybrid and electric cars. Increasing exchange rate of Euromav negatively effect on the profits, for the main transactions BMW makes outside the euro zone (Dudovskiy, 2014).
1.2 Evaluation of External forces
In the case when there is high level of uncertainty due to rapid changes the scenario analysis is done for the estimation of future macro-environment. Tool that is used for key drives identification is PEST (political, economic, social, technical) analysis.
The major political factor for BMW is the new environmental laws, precisely, regulations of C02 emission and legislations regarding the end-of-life recycling. Also, additional political factor is the stability in developing markets like China, Russia and Brazil, for instance, unstable political environment can negatively impact on the pattern of customer spending.
Recent fluctuations of GDP in EU countries have had direct reflection of the customer spending. Moreover, the grow of Renminbi (RMB) is influencing the revenues of BMW along with exchange rates of Euro and constantly changing crude oil price.
Social factors that require consideration of BMW are following:
– Aging European population
– Rising standards of living in developing countries
– Altering family patterns ( single parents, same sex marriage)
Technological factors that influence BMW are mainly concentrated around the growingdemand for “green” technologies, alternative fuels. Additionally, implementation of the unusual idea such asdriverless car has been influence on the automotive industry(Dudovskiy, 2014).
1.3 Correlation of competitive advantage and Value Chain System
Value chain system is the set of internal practices that transform inputs into outputs. Through the analysis of value chain a company could identify its primary and support activities, further reduce costs and increase differentiation. The analysis of value chain helps to identity the most valuable activity – the one that creates competitive advantage. Depending on what competitive advantage company wants to create, cost or differentiation advantage, the value chain analysis would indicate the path(Jurevicius, 2013).
I It is applied when company wants to compete on costs, thus it must understand cost what factors drives advantage and disadvantage costs. Companies use differentiation approach when they want to create superior products or services. Stepl. Primary and support activities
Step 2. Understand the relative importance of
Step 3. Realize costs of each activity.
Step 4. Find linkage between activities.
Step 5. Identify ways of the cost reduction
Step 1. Customer value-creating activities
Step 2. Analyze differentiation strategies for
the improvement of customer value
Step 3. Realize the best sustainable differentiation
The BMW has perfectly used the value chain analysis to identify its sustainable competitive differentiation advantage. Thus, it helped automotive company to enhance its service through “smart” manufacturing. Now customers can customize cars by choosing motor size, transmission type, feature of interior and exterior, as well as the color of the car body. This improves the competence of BMW and places pressure on rivals to outperform (Ahmed, 2014).
1.4 Analysis of the automotive industry
Apart from the competitiveness and the position in the industry we also must critically asses the conditions in automotive industry to realize intensity of competition and the market attractiveness. The Porter’s Five Forces analysis will perfectly reveal overall situation of the luxury cars industry (see Appendix 1.1). Threat of new entrants – low
Entry into luxury automotive marker requires substantial investments for R&D andpurchase of production licenses. However, already existing non-luxury car assemblers can enter the market by the development of new division. Threat of substitution- low
BMW is a powerful company that has strong brand name. BMW cars considered as to be more than just transportation. Therefore, alternatives such as busses, trains, bicycles cannot be relevant(Colditz, 2012). Bargaining power of suppliers -low-medium
BMW has been operated in large-scale production network around the world, with car manufacture and spare parts. Luckily, the automotive market are full of suppliers specializing on the production of spare parts and materials needed for car manufacturing, this facts proves that market operates under almost perfect competition. Therefore, the switching cost form one supplier to another is relatively low. However, customer loyalty is also a part of the industry with gives to suppliers a little power to influence on the prices. Bargaining power of customers – low-medium
Customers in the premium cars segment constantly look for products and services that much more than ordinary. This puts a lot of pressure on luxury cars makers, for they need to meet high customer expectations. Therefore, BMW has strong customer relationship management (CRM). The CRM of BMW perfectly works for the company strong brand loyalty. BMW produces unique products which create superior customer satisfaction. The technologically advanced BMW cars can hardly be substituted. Level of competition-medium-high
As BMW is a producer of luxury cars the main competitors for the company are Mercedes-Benz and Audi. These companies are targeted onto the same segment of the market; also they are offering relatively the same product. Moreover, the development of the Asian car manufactures represents a serious threat. For instance, Lexus is also delivering innovative, advanced and high-quality cars(Ramsh0J Ploen & Kronborg Olesen,2010).
I. Evaluation of BMW’s strategy formulation
2.1 BMW’s Business-level Strategy
The survival for companies is difficult in modem complex environment where boundaries are almost vanished, competition is tough and external environment is constantly changing. Thus, if a company does not update products and does not have sustainable strategy it will be out of the industry soon. Therefore, in order to say competitive and have strong sustainable competitive advantage Michael Porter suggests three strategies (cost leadership, differentiation, and focused strategy (focused strategy is also subdivided into cost focused and differentiation focused strategies)) (Manktelow, n.d.).
Throughout the analysis of BMW’s business practices we can assume that the company employs focused differentiation strategy. Keeping the goal of being the leader provider of premium products and services in the industry, company is planning to set a strong competitive threat (BMW, 2012). Precisely, BMW is focusing on the middle-upper and upper classes, thus defining the borders of the segmentation, in other words, focusing on a specific group of people. Also, as the expensive brand BMW is offering unique, technically advanced products and services that are extensively differ from the rivals(Kasi, 2009).
2.2 Rationale of the strategy and Stages of the Industry Life Cycle To control growth and predict the possible future outcomes such concept as life-cycle is applied. Irrelevantly to where it applies either organization, product or a whole industry the life-cycle is always has four stages – introduction, growth, maturity, and decline. Obviously, life-cycle of the industry has longer stages. The luxury car industry exists more than 100 years, it successfully passed the introduction phase, and it does not demonstrate any sight of the decline.
Contrarily, through the evaluation of the industry we can assume that it is on the middle point between growth and maturity, for in 2013 there where a noticeable growth in the demand for luxury cars. Additionally, constant development of the technologies would support anti-declining tendency. (Henley, n.d.) The phase of the industry has an direct impact on the performance of the business and establishment of the strategy. Align business strategy of BMW and the current phase of the industry focused differentiation strategy seems to be appropriate. Thus, in order to compete with other products on the market BMW differentiates its products and offers them to a particular group of people (Kasi, 2009).
2.3 Corporate Strategy, Ansoff’s growth matrix and International Growth Strategy Ansoff e growth matrix is a strategic management tool which is used to choose growth strategy. It proposes four ways of business expansion like maket penetration, product development, market development and diversification (see Appendix 1 2)(Manktelow, n.d.). As was mentioned earlier, the corporate strategy of BMW is to capture a leadership position in the market while providing premium products and services. The company is aiming to grow through the investment in development of innovations, enhancing vehicle concept and drive systems. Moreover, in order to expand globally company is employing diversification strategy. Though, it is a risky strategy, however, BMW is hoping that application of diversification will:
• Minimize risk of money generation from few sources
• Increase growth rate
• Enhance competitiveness
Thus, BMW’s horizontal diversification is expanding a product line and enriching strategic acquisitions (Range Rover). While corporate diversification is targeting on new motors development, though it might have substantial costs, but it won’t damage core specialty of BMW (Marion, 2013)
2.4 BCG for BMW
BCG matrix is strategic management tool applied for the evaluation of the business strategic. It divides business portfolio into four categories (see Appendix 1.3), each is based on attractiveness and competitiveness of the industry. These two factorsidentify efficiency of the business portfolio. BCG matrix is used for the decision upon which brands the company should support further, and which brands must be eliminated. Basing on the BCG Matrix of BMW automobile segment we can assume that it is a stat player. For, the company has large share of the premium market and indicates high growth rate for its models. While, the motorcycle and financial dimensions of the company are considered as cash cows, for both of them have high share of the premium market, but the growth rate of the financial services and motorcycle is steady and has not been change for the past five years.
The corporate level strateg of BMW is subdivideed into three single business units (see Appendix 1.4). These are Automobile, Morotcycle and Financial Services. However, the main source of revenue for the company is the automobile devision. All of these three BMW’s business unitis are verticaly integrated. Thus, BMW puts an emphasis on the internal growth rather than growth through mergers and acquisitions. The portfolio BMW mainly composes form stars and cash cows business units, revealing that the company is concentrating on introducing profitable businesses to market and furtherdevelop its maximum potential(Brandes et al., 2005).
The brand image of BMW is really strong; people value these cars for reliability and comfort. As Managing Director I would recommend to develop and enhance brand image. However, in order to expand on the market and improve competence I would strongly recommend company to focus more on the enrichment of the portfolio. For, in spite of the fact that BMW is leader in the luxury car market, but it captures only 2% of overall car market. Therefore, the new strategy should be formulate and address to the portfolio enrichment through the strategic acquisitions.
For the most effective implementation of strategic acquisitionBMW must follow to the three important strategic implementation factors like system and change management, strategic leadership, and corporate governance. To minimize employees’ resistance to new strategy the reasons of adopting a new one must be clearly communicated. Further, there must be a strong support from the top management and executives regarding the strategic acquisition program. Additionally, corporate governance must balance profitability and sustainability of the strategy, as well as to monitor proper execution.
List of references:
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