OBJECTIVES
As a person with knowledge of business strategy, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of this topic and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how business strategy is thought up, formulated and then imparted down into the subsidiaries of the company or organization. The author hopes to have an in-depth understanding as to how the implementation of business strategies enables companies and organizations to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focused upon, i.e. innovation and diversity. Innovation was discussed with regard to business strategies where they were renowned for their developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in its bid to become a leading player in order to better understand the issues being discussed.
EXECUTIVE BRIEF
This essay utilized BMW as the model organization to review its present business strategies and how they dealt with critical situations. From the analysis, key trends in the business strategies of BMW were then identified, how they worked and their effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess these business strategies with regard to their suitability to critical situations, during which the internal capabilities of these business strategies in relation to the strategy being followed by BMW was determined also. An overall analysis of the performance and effectiveness of the business strategies of BMW was also conducted to assess and compare the capabilities of these business strategies with those of others. Gaps in the capabilities and environment were then identified.
Finally, several choices of strategies to improve the business strategies of BMW as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
OVERVIEW OF BMW
BMW aims for sustainable growth as a broad market leader in the automobile industry as well as for segment leadership. In both cases, the automobiles of BMW will play a crucial part. BMW is able to establish its broad leadership usually by acquiring other strong automobile companies and their cars, which are then combined into a new, larger company. Offering training to its employees, improving the company operations, and the introduction of new car technologies then reinforces the positions of the various BMW automobiles. This practically results in economies of scale that is able to create a distribution network for both the local and international BMW automobiles. If a market is already in the control of other automobile companies, BMW devotes its attention towards the development of a premium segment with its various automobiles.
The mission of BMW is to secure the growth of the business in a sustainable manner, while at the same time constantly improving the company’s profitability. The strategy to achieve this involves four elements:
DISCUSSION
1. What is the organization’s strategic position?
BMW’s generic strategy in the automotive market lies on product differentiation. The differentiated automobiles and motorcycles of BMW are able to satisfy the needs of their customers through a sustainable competitive advantage. This allows BMW to desensitize the prices of their automobiles and motorcycles and instead focus on the values that generate not only a comparatively higher price but also a better margin.
BMW is committed on its efforts to continuously develop original automotive technologies that generate a high appeal to the general public due to its quality and cost effectiveness. Over the years, BMW has been able to build a substantial base meant to boost the company’s designing and manufacturing capabilities. This enables the company to bring to markets truly original and more importantly efficient automotives that are reasonably priced. The research and development team of BMW also plays a crucial role in the achievement of this feat. The company also believes that making a positive impact in the society through their quality products is the very essence of being a manufacturer.
BMW has been able to maintain its reputation as one of the world’s leading automotive companies for more than 130 years now. It is able to face the challenges in many of its markets directly. This is made possible by the effective generic strategies aimed to deliver not only profit growth, but also on building down the foundation of BMW’s brands and business.
The generic strategies of BMW are focused mainly on driving the growth of its brands and improving the company’s financial performance. These campaigns have also helped secure significant acquisitions and partnerships. And more importantly, these campaigns have led to the release of the potentials of the company’s employees, thus building a quality performance- based culture.
The generic strategies of BMW’s local automotives are practically reinforced by the local employees themselves. These moves certainly allow the company to improve even more without the costs of introducing new technologies. These efforts have resulted in increased financial gains for the company and have allowed the establishment of distribution networks for both the local and international BMW products.
2. What are the key external drivers of change affecting the organization?
A. PEST Analysis
Political Trends
Germany has experienced electoral and political transitions and crises in the last 12 months. There have been at least four political trends that have emanated from these political events. These are: (a) the cry for democracy and reforms; (b) increased popular and local-level assertiveness; (c) greater public accountability; (d) re-definition of the concepts of power and politics. Also, the forms of political economies have slowly shifted from a bipolar (big government-big business) to a tri-polar structure (authorities – private sector – civil society).
The implementation of the Free Trade Area, or FTA, which laid out a comprehensive program of regional tariff reduction, will be continuously implemented in phases through the year 2008. Over the course of the next several years, the programs in tariff reductions were made broader. Efforts to eliminate non-tariff barriers and develop common product certification standards were initiated. In addition, the Germany also was able to formulate framework agreements for the intra-regional liberalization of trade in services. Industrial complementation schemes meant to encourage intra-regional investment were also approved (1984).
Economic Trends
Despite the adverse economic trends in the first half of the year, Germany as a whole experienced relatively robust economic growth. It is estimated that Germany posted a better-than-expected GDP growth of 4.5% last year, slightly higher than the 4.1% growth that they achieved in 2005.
Many German cities have also seen the risk-weighted capital adequacy ratios of their banking systems improve due to government-sponsored bank recapitalization programs, continued progress in financial restructuring, and improvements in financial risk management ( 1999). The capital adequacy ratio of commercial banks in Germany is now far higher than the 8% Basle norm. It ranges from about 14% in Berlin to about 20% in Dortmund, with commercial banks reporting an average capital adequacy ratio of about 18%.
Social/Cultural Trends
With the rise in the middle to upper-middle class households in certain cities within Germany, there exists a strategy mismatch for not considering the potential for consumer market.
There have also been social and cultural trends that have been evident over the last 12 months. These include: (a) the irreversible rise of civil society among German cities; (b) the rise of civil society blends perfectly with a tri-polar structure of political economy; (c) the increase in the roles of intellectuals; and (d) the beginning of a period of introspection.
Technological Trends
It is a common knowledge that the automotive industry in Germany is still a relatively new industry and is still in its early stages of development. However, it has shown signs of rapid growth and it is being estimated that there will be more than a million automobiles that will be shipped within the year. And it is further being expected that within the next years the tremendous growth and technological advancements will continue in the automobile world. Therefore, the continued growth and development will also make it imperative for localization to occur in the automotive industry in the years to come (1998).
B. Five Forces Analysis
A. Intensity of Industry Rivalry
BMW is one of the world’s leading manufacturers of automobiles and motorcycles. Around eighty (80) percent of automotives in Germany operate on a BMW engine system. Mercedes-Benz is the only major competitor with a share of sixteen (16) percent. Of the major competitors, Acura and Jaguar are both using BMW’s engine system, and hold about 7% and 14% market shares respectively. Other competitors, such as Volvo and Audi, use BMW’s engine system, but both companies have below 10% market share. BMW has had so much success in the consumer market, but the future goals include selling more products to corporations.
B. Threat of New Entrants
New entrants in the automotive industry will have to deal with high costs of entry for their latest technologies. Most of BMW’s major competitors have yet to establish strong distribution channels. This will severely hamper their plans to retaliate with their technological developments as without distribution channels, their products would never be seriously considered in the automotive market by customers. BMW must worry though about certain government laws in countries that might weaken its competitive position.
C. Bargaining Power of Suppliers
Suppliers of automotive products other than BMW have relatively lower bargaining power because their products have yet to establish consistency in the market. This is in contrary to BMW brands where these products have been able to secure the confidence of its customers worldwide.
D. Bargaining Power of Buyers
A majority of BMW customers are professionals who rely on automobiles and expect no less than the best riding experience every time they use them. For instance, a customer phones in a service request from the New York airport while boarding a plane bound to Paris the same day. The technical people of BMW in New York will immediately work on the car service request of the client. And when that client arrives in Paris, he / she would be able to call the BMW New York service center and pick up exactly where he / she left off. The bargaining power of buyers in the automotive industry is relatively high because aside from BMW, there are only few, large players in their industry.
E. Threat of Substitutes
There are very little threats that could emerge from possible substitutes. This is because product-for-product substitution could not possibly happen especially with BMW products. Other automobile products cannot simply replace the ingenuity of the established BMW products in the market. Also, the millions of users of BMW products surely would find it too uncomfortable using other automobile products other than BMW automobiles.
3. How does the organization add value?
The product differentiation strategy of BMW will definitely be advantageous on any part of the value chain analysis. For instance, BMW’s efforts to gather primary information that are unique and unavailable to most of its competitors have successfully initiated differentiation. The product differentiation strategy of BMW comes from its uniqueness. The differentiation advantage of BMW is achieved either by changing their individual value chain activities in order to increase the level of uniqueness of the final BMW product or by reconfiguring the value chain.
BMW bases its pricing strategies on several key trends that continuously shape the global marketplace of automotives. One particular trend is labeled as “premium-tization” (1981). This phenomenon causes the polarization of different markets. This would then trigger the consumers to demand and pay much higher prices for perceived quality. However, discounting in prices is also simultaneously taking place, therefore squeezing out the middle range. More often than not, automotive companies undergo internationalization which leads to a tighter squeeze for shelf space. This will in turn leave BMW as a winner. It is for this reason why BMW values the “premise sector” so much because this would allow consumers can to try their brands at low risk and price.
In terms of market segments, luxury and specialty automotives of BMW with higher engine powers have a disproportionate share of volume growth at an estimated 4-5% per year, as against the 2-3% overall growth rate. These rates come up as a result of both the rise in GDP among developing markets and consumer demands for higher value propositions, which is obviously dominated by international brands. Therefore, BMW has to increase its portfolio and operate globally to overcome the home market. BMW practically operates on a relatively fragmented market, with the top four automotive companies accounting for 22% of global automobile manufacturing five years ago and only about 28% today.
Credit:ivythesis.typepad.com
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