BMW Strategic Management
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The purpose of BMW strategic analysis is to gather and evaluate information
concerning SWOT (strengths, threats, opportunities, weaknesses), and give future strategic alternatives. According to Johnson and Scholes (1998): “The aim is to identify the extent to which the current strategy of an organisation and its more specific strengths and weaknesses are relevant to, and capable of dealing with, the changes taking place in the business environment” (Johnson, Scholes, 1998, p.148).
Automotive industry is one of the leading industries in the world. The aim of automotive industry is to maintain the level of service and product quality and develop strategies to improve their product/services. BMW, a European automotive leader, is affected by different factors of environment which have a great influence upon it. This is called the microenvironment (or the competitive environment), because it is within this sphere that BMW competes, both for resource inputs and to sell its product outputs. BMW is owed by Quandts (46% of the group), which turnover was about “UERO 35 bn, with BMW Automotives accountong for about UERO 25bn, achieving over 10 % operating profit” (Lenciani, 2001). As well as any other company, BMW tries to get and keep a customer proposing higher quality at lower price than its competitors. In general, BMW Group is a dynamically evolving entity operating within a dynamically changing environment.
An examination of how strategy is formed gives useful insights into the nature of strategy itself. SWOT is normally associated with more rational approaches to strategy formulation, but perhaps its greatest contribution lies in providing the management strategist a broad framework for analysing the position of a firm at a particular moment in time. It can also be useful in the development of a number of strategic options which attempt to tackle opportunities and threats, build on corporate strengths and avoid weaknesses. An important consideration is that for most management there is a choice of strategy. Strengths and weaknesses of the company are internal factors, while opportunities and threats are considered as external factors (Johnson, Scholes, 1998).
The strengthens of the company are based on strong market position and strong brand image. Today, BMW obtains a very competitive position on the market. The company is ruled by the team who is able to raise the price level and gain more or less strong market position. At the very beginning the strengths included high potential to growth and profitability of the company, and professional management team, customer loyalty and excellent service. “In business terms, strategy of adhesion to BMW’s core values had been vindicated by the bottom line with the 3-series saloons continuing to be especially in demand”( (Lenciani, 2001). BMW has a hard core of loyal supporters. It develops lines of services to satisfy the needs of wide audience, low-cost of the services.
BMW has maintained high-speed growth through continuous optimization of is product mix and constant technological innovation. “BMW had traditionally taken great pride of the quality of its engeneering, higher than was usual in most production vehicles” (Lenciani, 2001). The strength of BMW target is that it is based on innovations and new as any other businesses. They care more about reliable service and confidence than about the lowest price. They don’t want to rely solely on their own expertise, so they choose instead to deal with us with our promise of service and support when needed.
Another strength of BMW is that building customer management experience and a passion to deliver best-of-breed customer solutions, BMW creates products for specific target market. The product positioning is based on personalization strategy. This strategy helps BMW to appeal to the consumers’ minds with offerings. Positioning of the brand can be characterized by establishing trustworthiness, confidence, and competence for customers. This strategy is supported by the buying process and the pricing. Also, the positioning strategy of BMW helps the customers to have product within their minds. To address the target market BMW creates customers’ trust to make them willingly follow the company.
The goal of the company is to provide the opportunity to personalize purchase. Internet and e-commerce creates great opportunities for automotive industry (and customers) to hasten the process of purchase. Internet “shortens the lead time for the production of an automotive, which was 60-100day. Today, “customers could be brought into a Web-driven relationship with an automobile supplier” ordering directly form the supplier (Lenciani, 2001).
The advantages of BMW include new vision of product development based on consumers’ needs and ideals. This approach helps BMW appeal to particular needs of every client. Product differentiation and price competition creates a likely for most automakers.
In BMW group, price competition, backed by improved efficiency, are likely to feature highly as it fights for survival in markets faced with over-capacity. Within rapidly changing environment this kind of development ensures that long-term survivors are those firms who are more competitive and are better able to satisfy consumer needs and adapt to the new competitive environment. Branding, advertising, promotion, and additional services to customers and product innovation strengthen the BMW’s image.
“The BMW brand also acquired a distinctive identity as a symbol for young, affluent European professionals: most drivers perceived high-performance saloon automobiles as synonymous to BMW” (Lenciani, 2001). BMW relies chiefly on an efficient market system and product improvement. The traditional auto market is not in maturity one, and today it offers a limited opportunity for high profits, so it sets about developing products, that are both distinctive and could be sold at a premium price. A specialized product range, necessitated a clear identification of target market. The original mission had made it clear that it was in the relatively unexploited ‘adult’ sector that BMW saw its clearest opportunity for innovation. BMW set out to create a range of high-quality products that were distinctive in shape.
BMW has several options for addressing the problem of price competition. The choices are dictated in part by product and market competition. In Europe, BMW is forced to switch to offshore sourcing of certain components to keep costs and prices competitive. In particular, the Far East and Asia are emerging as attractive markets for BMW. Specification in BMW is determined as a result of an organization’s policy, which in turn resulted from decisions on its market policy, which in turn resulted from its consideration of the market or customer needs, requirements, and the activities of competitors. This is the process of designing quality into the service. Sales strategy is on a one-to-one basis.
The weakness of the company is that automotive market is not very fragmented, and includes such giants as GM and VW, Fiat, Peugeot. The majority of businesses offer services to a big geographical area. Also, the weaknesses of BMW are high competition among world leaders. Globally, BMW has many competitors, and only a new direct-marketing strategy help the company to compete. Automotive market is characterized by high fixed costs is always under pressure to keep production at full capacity to cover the fixed costs.
The weakness of the company is closely connected with legislation and government regulations. Recent years, there is a tendency towards environmentally safe “green car” which forces company to find alternative solutions: hydrids or hydrogen fuel cell vehicles.
and Kyoto Protocol on global warming, which requires ecologically safe solutions.
Another tendency, influenced BMW Group and automotive industry, is “mergers and acquisition activity with emphasis moving from automobile manufacturers, already highly concentrated to parts suppliers” (Lenciani, 2001).
The threat of substitution is possible for BMW as substitution occurs where a consumer is able to replace a product with a different type of product performing the same service or satisfying similar needs. The situation suggested that Asian competitors (Toyota and Nissan) increase competition which can cause the decrease in prices. Competitive rivalry among European and American competitors is strong which, on the one hand create barriers to entry, but on the other hand, create fierce competition in the industry. BMW faced strong competition form Daimler-Clrysler’s C-class and from Audi’s new A-class, launched late in 2000” (case study). In general, the outlook of the industry does not present BMW with attractive perspectives for profitability. The fall of Euro against other major currencies becomes a great threat for BMW. Financial data of Rover and Toyota showed profit decline.
In spite these facts, economic analysis shows that BMW is one of the most successful automakers today. “Its brand’s popularity is still rising, with eager buyers joining long waiting lists (Lenciani, 2001).
A strategic alternative for BMW can include a rationalization of the distribution structure which will substantially reduce the total markups required to achieve distribution in international markets. Rationalization may include selecting new intermediaries, assigning new responsibilities to old intermediaries, or establishing direct marketing operations.
Strategic moves can be made towards new technology achievements and safety. Overall business strategy, potential and capability to support high performance environments are the key elements for the next years. The policy of safety adopted by BMW is the main strategic criteria. Technological forces generate problem-solving inventions. BMW target is on average as dependent on reliable innovations and technology as any other businesses.
In general, BMW is well-positioned to take on this important global leadership role. It has the global resources and certainly has the technological capability. Clearly, some companies in the same industry are more successful than others, lending support to the view that competitive advantage is largely internally developed. Equally, however, there is a danger of ignoring the environment, as customers and their needs, competitors, changes in technology, etc., can play an important role in determining competitive success.
The strategy towards a “green car” should be the main priority of the company today in order to compete in future. Conceptually new Car is the future of the industry. For BMW, consolidation in its present products presents adequate opportunities, and requires a search for alternatives which build upon the company’s present knowledge and skills. In the case of product development BMW will maintain the security of its present markets while changing products or developing new ones.
There may be many reasons why BMW should have a preference for product development. Auto-makers follow the changing needs of their customers by a policy of continually introducing new products; and local authorities need to shift their pattern of services as local needs change. Product development is preferred because BMW is particularly good at R & D, and because it has structured itself around product divisions. When product life cycles are short (or consumers demands are changed) product development becomes an essential requirement of company strategy.
New product development will open new markets for BMW and allows attract new target audience. BMW will become more market focused than less successful firms in selecting opportunities for product development, and in creating products to market
needs. It will also concentrate on developing the products which build on core competences and skills. Today, BMW are good at communicating the desirability and requirements of product development internally so as to avoid the disruptions that new developments can bring. So, a new conceptually new car is the market need and BMW can be the first company which starts it’s manufacturing.
Another strategy concerns existing products. In the case of Asian market development BMW will maintain the security of its present products while venturing into new market areas. Asian market development can include entering Indian and South Korean, China markets exploiting new uses for the product or spreading into new geographical areas. Of course, market development and product development may go hand in hand, since the move into a new market segment may require developments of variants to the existing product range.
Recent years, Chinese market (as a part of a global market) shows the highest rate of economic growth around the world. The opportunities of BMW include: high potential to growth and profitability of the company; promotion to other divisions; increased revenue from success in Chinese market, continue a global expansion and penetration into Asianmarkets; development of retailing activities around the world.
To conclude it is possible to say that business processes will help to satisfy requirements of different clients. It will help to meet the needs of a particular customer and provide specific personal service for every supplier and customer of BMW. In the infrastructure of BMW goods quality is the major question. It is evident that global strategy should include the determination of the basic long-term goals concerns the conceptualization of coherent and attainable strategic objectives. Because the market has moved on, there can be a gap between the skills required to compete in the market and those possessed by the firms. In these situation BMW will be faced with four distinct options: to build up the resources required to compete in the market by closing the gap between the firm’s competencies and the assets required to compete. Without changes and successful strategic planning BMW will not be capable to achieve the overall objectives.
- Lenciani, V. BMW Automobiles. 2001.
- Johnson, G., Scholes, K. Exploring Corporate Strategy. Hemel Hempstead:
Prentice Hall, 1998.