BMW Strategic Management
Business organizations especially those dealing with fast-changing environment must encounter situations where their successes depends on several factors.The situation causes them to face uncertainty as the factors threat the company’s continuity.The factors usually can be elaborated in many details in two large groups: internal and external factors.
Under such circumstances, it is useful to carry out an analysis that takes into account not only the company’s internal factors, but also external factors such as activities of the company’s competitors and current industry situation as well.
Currently, there are many business analysis tools that organizations may use depending forces that influence the companies and the complexity of markets they serve. Automobile industry is one segment in business that exhibit fierce competition due to the large number of providers/ vehicle manufacturers and the variety of customers preferences that spawn many kinds of vehicle type like SUV (Sport Utility Vehicle), MPV (Multi Purpose Vehicle), race cars etcetera.
In addition, the need to understand automobile industry is imperative since the industry experiences fast-changing environment that demands automakers to obtain appropriate strategy to win the market. BMW as an automaker of luxury automobiles realizes the condition and perform appropriate move by developing multi brands to compete with competitors that have various products in several segments at once.
There are several reasons why BMW decides to manufacture and maintain multi brands in their product lines as following:
Customers have diverse behavior that cannot meet with a single product offering
Customer relationship improvements in other industries
Fierce competition in automobile industry throughout the world Concerning the situation, this paper will discuss about markets of automobile industry especially regarding the impact on these markets by using several business analysis tools including strategic group, Porter’s five forces, and PESTLE analyses. In addition, this paper will also discuss about the product market mission of BMW and Ansoff matrix to analyze the growth of BMW’s product portfolio.
Company Background BMW
BMW (www. bmw.com) continue maintaining their strong position as one of world’s leader in premium vehicle market besides Daimler-Chrysler, Lexus, and many others. The company established in March 7, 1916 when Bayerische Flugzeug-Werke (BFW) founded. One year later, BFW was renamed to Bayerische Motoren Werke GmbH (BMW) that focused on producing cars and military aircraft at that time. Within several decades in the 20th century, the company performed several acquisitions on Rover and MINI, to name a few. However, the intense competition in automobile industry that becomes more segmented has driven BMW to focus on few brands.
Under such circumstances, BMW decided to sell Rover Group in 2000 but still retaining MINI brands in the BMW Group. Therefore, BMW group (www.bmwgroup.com) now has three major brands: BMW, MINI, and Rolls-Royce Motor Cars. The three segments are all in premium cars segment, thus lessen the company’s effort in building brand awareness for their products. The Automobile industry is one of the most competitive global industries in the world. This is because automobile companies are generally multinational in nature because they have the need to achieve economies of scale in their production.
The automobile industry represents significant portion of GDP in US and Europe. They are considered of significant importance because their existence enables other industries to work. Most automobile markets bring possess significant influence whether in their domestic as well as global markets. Moreover, there is an indication that commencing the end of the 20th century, most of the markets in modern countries are saturated and the new trend of the industry is to find new and developing markets where they can deploy their products. Similarly, automobile manufacturers are tired of facing the cutthroat competition in their markets.
The situation drives them to expand their services into Asia-Pacific regions, South East Asia and other developing regions. This strategy becomes the latest trend within the global automobile industry. This generates new trends in automobile designs and their tendencies. Cheaper and fuel-efficient cars are the design of this decade. Concerning the many facets of automobile industry, below is several business analysis tools that assess how the market behave, especially relates to the development of premium markets where BMW serves.
Strategic group: BCG Matrix
As mentioned previously, BMW (Bayerische Motoren Werke) maintains three major brands in their portfolio. Each of them has somewhat similar markets, the premium cars, but the company further determines particular markets that each of the product portfolio serve. This strategy is carried out to avoid unnecessary cannibalism among their products. In order to analyze the performance of each product portfolio in BMW group, we can use BCG Matrix. The matrix is named after the founder, Boston Consulting Group, a well-known global business consulting firm.
The basic philosophy of Boston Consulting Group (BCG) Matrix is to assess various Strategic Business Units (SBUs) in a company portfolio. By definition, an SBU is a business unit in a company that has its own missions and objectives. It could be departments, divisions, or subsidiaries. In case of BMW group, the SBUs can be BMW product lines such as BMW 3, 5, 7 series, MINI, and Rolls-Royce Motor Cars. The BCG Growth-Share matrix composes of four quadrants that each describe BMW product lines in relation to market share and market growth rate.
The BCG matrix helps BMW to understand each of their product’s life cycle and position in the market better by charting each product in one of the four quadrants. The upper left quadrants in the matrix are stars. Stars are business units or product lines within BMW Group that undergo high growth or have strong position in the market. In other words, stars are business units that have large market shares in a fast growing industry (‘Boston Consulting Box’, 2005). The characteristics of stars are they generate cash and thus revenue for a company.
However, as the market for the products grows rapidly, they require extensive investment to maintain their lead. If the strategy is successful, a star will soon become a cash cow when its industry matures. In case of BMW, the stars are their USA division since the marker experience fast growth. In 2003 alone, the USA division records a history since it become the Group’s strongest market with 8. 0% growth or represents the sales of 277,037 units in the 2003. In terms of product line, the stars are BMW 7 series as they continue achieving a growing pattern of sales.
In 2003, the sales of BMW 7 series rose 8. 2% compared to previous year. Another star is BMW X5 that record a 4. 6% of growth or represents the sales of 105,554 units. The second quadrant in the lower left is cash cows. It is similar to main sources of revenues/income for a company where it represents a product line(s) that continue exhibiting low-growth businesses or they have a relatively high market share (‘Boston Consulting Box’, 2005). Cash Cow is a business unit that has a large market share in a mature, slow-growing industry.
Due to the slowing down of market growth, cash cows only need little investment and generate cash that can be used to invest in other business units. In BMW case, the cash cow is the home market, Germany. In the home country, BMW experiences declining trend in which in 2003, it recorded -0. 9% of growth compared to the previous year. Meanwhile, concerning the product lines, the cash cows are BMW 3 series and 5 series. The BMW 3 series, for example, have many models that all of them continue showing declining sales volume.
The sales of BMW 3 series Limousine, for instances, decline by 5. 9% compared to 2002. Similarly, the sales of BMW 5 series also plummets by -23. 5% compared to the previous year sales volume. In the upper right of the matrix lie question marks. It represents BMW product line(s) that exhibit low market share but operate in higher growth markets (‘Boston Consulting Box’, 2005).
These business units require resources to grow market share, but whether they will succeed and become stars is unknown or potentially less likely. The last quadrant is Dogs. They are BMW’s products lines that have low relative market share in unattractive, low-growth markets (‘Boston Consulting Box’, 2005).
It means that dog is a business unit that has a small market shares in a matured industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. If a dog has no other strategic purpose, it had better to liquidate the product lines since the product lines have little opportunities to gain market share. Also read Axiata strategic management