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BMW Strategic Management AnalysisBy: Brittany Norling, Robert Wickham, Richard ChambersBusiness Policy and Strategy Term ProjectDr. Seth ChatfieldIntroductionBayerishce Motoren Werke AG, or Bavarian Motor Works in English, is a German automobile and motorcycle manufacturing company. Bavarian Motor Works, or BMW, was founded in 1916 and is currently headquartered in Munich, Bavaria. ?The company oversees three automobile brands, one of them formally known as Rolls-Royce Motor Cars, and two motorcycle brands. BMW is also part of the German Big 3. The German Big 3 also includes Mercedes and Audi. These brands are currently known as the best-selling luxury automakers in the world. centercenter00BMW does a tremendous job maintaining this reputation. In the year 2014, the company produced 2.1 million cars and 12,000 motorcycles while bringing in a revenue of $80,401,000. They currently employ over 100,000 associates with almost 10% of them aged under 30 years old. The most impressive part is BMW maintains such a reputation globally. The company’s presence can be found in over 140 countries, 5 continents, and includes over 90 nationalities worldwide. The typical consumer of BMW products is a brand loyal male around the age of 46, with a higher education, no children, and has an average income of $150,000.LogoBMW’s logo, as seen in Figure 1, gives insight to the history of the company. BMW was in charge of building the aircraft engines for the German military during World War II. For this reason, the logo represents a propeller in motion with the blue representing the sky. Every time the BMW logo is seen, it not only represents what the logo is on and what the company is today, but it also represents where the company comes from.Purposecentercenter00The goal of this paper is to propose a series of strategy recommendations for BMW. Although they are doing outstanding, every business needs to have a series of strategies to keep moving forward. In order to come up with successful strategies there are three important steps to take. Each step involves a series of matrices that will analyze its own part of the company.The first step includes the input stage. The input stage is the formulation of the strategies. It summarizes the information needed to implement strategies. The input stage includes an External Factor Matrix (EFE), a Competitive Profile Matrix (CPM), and an Internal Factor Evaluation Matrix (IFE). The next step is the matching stage. Now that the information is presented, it is time to start focusing on generating feasible alternative strategies by aligning the key external and internal factors. Matrices involved in this stage include the Strengths-Weaknesses-Opportunities-Threats matrix (SWOT), the Strategic Position and Action Evaluation Matrix (SPACE), the Boston Consulting Group Matrix (BCG), Internal-External Matrix (IE), and the Grand Strategy Matrix. The final step is the decision stage. This is a single technique. The Quantitative Strategic Planning Matrix, or QSPM, uses the information from the first stage to objectively identify appropriate alternatives identified in stage two and measures overall attractiveness of the strategies. It provides an objective basis for selecting strategies.The direction of this paper will move in such a way that it provides you with information for the input stage, the matching stage and the decision stage. Afterwards it will discuss how the chosen strategies will be implemented and then further evaluated. There will be a section in the very end of this paper with all the figures referenced throughout the paper.BMW Mission StatementIn order to develop a successful and well-written mission statement, it is essential to have nine key components. The nine components are: customers, products and services, markets, technology, survival, growth, and profitability, philosophy, self-concept, public image and employees. The mission statement must discuss to whom the company’s product/service will be beneficial. In other words, who is the target market? It must also explain what product or service the company is providing. Where will the company market? What geographical regions will the company market to? In today’s world new and improved technology is essential to a company’s centercenter00survival. The company’s intentions of growth and enrichment are essential.The mission statement must state what the company’s philosophy is. This is the company’s opportunity to explain what is most important, such as fairness, honesty, and integrity. Self-concept and public image are also equally essential to having a good mission statement. Finally, a good mission will reference the company’s employees and their role in the company. These are critical components to a business overall and therefore should be mentioned in the mission statement to give the reader a good idea of what the company is all about.Current Mission StatementWe will provide our clients with the best customer treatment experience. We will under-promise and over-deliver in all we do. We will sell and service our products with the highest quality and integrity. We recognize that the greatest asset in achieving our Mission is the individual effort of each employee. All of our staff will be indoctrinated with our vision. Further, they will be asked to define, and therefore to understand, what their role in the accomplishment of that mission is. His or her own definition, from a customer’s point of view, can then be applied in their own personal job description on a daily basis.centercenter00When evaluating BMW’s current mission statement for the nine components previously mentioned, two components can be found. The first component is the philosophy of the company. This is referenced in the sentence, “We will sell our products with the highest quality and integrity.” This sentence indicates that BMW has a high philosophy of not only providing the quality they believe is deserved but also having high integrity. The second component mentioned is the customer when the company references how the customers will be treated. Next is a revision to the mission statement to incorporate all nine components.Revised Mission StatementAs a leader in the automobile manufacturing industry, we will provide our clients all around the world with the best customer treatment experience. We will under-promise and over-deliver in all we do. We will sell and service our luxury vehicles and motorcycles with the highest quality and integrity. We recognize that the greatest asset in achieving our Mission is the individual effort of each employee. All of our staff will be indoctrinated with our vision and be viewed as an essential asset to our success. Further, they will be asked to define, and therefore to understand, what their role in the accomplishment of that mission is. Their own definition, from a customer's point of view, can then be applied in their own personal job description on a daily basis. We pride ourselves on the technology we have integrated to become more environmentally friendly. With the ever-changing market we will use our high level of expertise and advanced technology to consistently provide the best products and services to our customers and provide profit and growth to our shareholders.In this revised mission statement, it is possible to reference all nine essential components. Additions were made to the statement in order to incorporate these components. The first addition is the leading sentence that reads, “As a leader in the automobile manufacturing industry…” This is the addition of the public image component. The next addition is the “all around the world” phrase put in after “our clients” This adds the market component by indicating to the reader that BMW markets globally. The products and services component is incorporated in the addition of “luxury vehicles and motorcycles.” Now the reader is able to identify what it is that BMW sells. The addition that reads: “and be viewed as an essential asset to our success” incorporates the employee component into the mission statement. Finally the last addition is the entire last paragraph. This incorporates the technology, self-concept, and profit and growth components.BMW Visioncentercenter00BMW has a vision for the present and future. Their current vision is to treat their customers like “F.A.M.I.L.Y.” The F stands for family treatment, A stands for attitude, M stands for more than the customers expects, I stands for individual attention and enthusiasm, L stands for like an honored guest and the Y stands for you make the difference. This is BMW’s motto. However, BMW also has a vision for the company in the future. Their future vision is for the year 2020. BMW hopes, by 2020, to be the leading provider of premium products and services for individual mobility. They have specific aims in place to reach this goal. First, the company aims to make a 45% reduction in resource consumption per vehicle. Second, BMW aims to cut the levels of CO2 emissions from 1995 in half with their European new vehicle fleet from the levels in 1995. The company is aware that the levels currently stand at 133g/km and already have 39 different models that customers can choose from with emissions less than 120g/km.Internal Assessment of BMWOrganization Chart (Current and Revised)centercenter00When conducting an internal assessment, the first factor to take into consideration is the internal organization. How is the management set up? Is there one main boss or multiple bosses? The internal structure can sometimes even determine the success of the company. Looking at BMW’s organizational chart, it is definitely visible that there is a lot going on with a lot of different people. Although BMW is already very successful, it is possible that improving the organization of their internal structure could help reduce any miscommunication problems and enhance relationships within the organization.BMW’s current organization chart, represented in Figure A, represents one president at the top of the hierarchy. There are a total of nine people who report to the president. One of the people that report to the president is the Executive Director. The executive director has 10 people under him or her, one being a group who also reports to the president, the volunteer staff. There are a couple issues with this organizational structure. First, there are entirely too many people reporting to the president. Secondly, there is a group of people reporting to the president and the executive director. Having two different bosses can be confusing and result in miscommunications. It is also redundant to have a group report to the president and someone else that also reports to the president.Changes to BMW’s current organizational chart can only be beneficial to the company. The first revision in place is to add a middleman position to the higher level of the hierarchy. This person will be known as the Chief Executive Office, or CEO. All directors currently reporting to the president will now report to the CEO, who will then report a summary of the information to the president. The second revision in place will be for the volunteer staff to solely report to the executive director, if there are problems that need to be addressed by the president, the executive director will be able to relay the information accordingly. Also, if there are any major volunteer events that the president requires, the executive director will also be able to relay that information. A summary of these revisions can be found in Figure A.1.These revisions will help the president keep things organized. The president will also be able to save time by hearing a summarized report from one person instead of a detailed report from eight. This will save any miscommunication and confusion for the volunteer staff on who to report to and what the order the priorities should be in.Financial Ratioscentercenter00???????Over the years, many factors have changed for not only regular consumers, but also big businesses. As the years have progressed, and economies fluctuate, costs rise and fall. BMW has been impacted by these fluctuations, though not in an extremely harmful way. Over the last four years, BMW has seen a decrease in both categories of the liquidity ratio. These categories, both the Current Ratio and Quick Ratio, should usually be around, if not over, one percent. BMW has seen an almost (0.1) drop in both sections, bringing the ratios below one. These ratios can be summarized in Figure A.2.Internal Factor Evaluation Matrix (IFE)Another essential step to making a proper internal assessment is analyzing the strengths and weaknesses of the company. After analyzing the key strengths and weaknesses it is possible to conduct an Internal Factor Evaluation, or IFE matrix. Figure A.3 shows an example of what BMW’s IFE matrix looks like. Along the left side is a list of BMW’s key strengths, followed by a list of the company’s key weaknesses. Each strength and weakness is assigned a weight based on the importance of each. The company is then assigned a ranking based on how the company performs on these strengths and weakness. The rankings range from one to four. The ranking is then multiplied with the weight to get a weighted score.Of highest importance, at a weight of (0.12), is BMW’s excellent brand recognition. BMW currently has the third most valuable brand valued at $29 million. BMW was ranked a three in this category. The second most important strength, weighted at (0.11), is the company’s global presence. As mentioned in the introduction, BMW currently has a global presence in over 140 countries and five continents. They currently have two major factories set up in both the United States and Germany. To be more specific, BMW has an exceptional sales growth in China, which happens to be the largest automotive market in the world. In 2012, BMW sold 326,444 vehicles in China alone. For these reasons, BMW was ranked a four in global presence.There are two strengths that come in line next on the list of importance: BMW’s strength of its number of distribution networks and its number environmentally friendly options. Each of these strengths is given the same weight of (0.08). BMW currently has 339 distribution networks worldwide. Without this huge networking system, there would be a lot of markets left untouched. In comparison to Audi’s mere 280 networks, BMW is ahead of the game. Therefore BMW was ranked a four in this category. centercenter00BMW is also strongly committed to environment protection, employee and community well-being, and sustainability programs. They are also involved in producing environment friendly vehicles, which is the next most important strength BMW has at a weight of (0.08). The production of these vehicles is a significant indicator that BMW is able to keep up with the trend of increased environmental conscientiousness. The company currently offers 20+ eco-friendly models and therefore earns the ranking of a four.Next on the list of importance, with a weight of (0.08) as well, is BMW’s weakness in advertising. Surprisingly BMW spends just as much on advertising as major competitor Audi but still manages to fall behind on number of views. In 2014, Audi spent a total of $195 million and BMW spent $196.6 million in advertising. However, Audi managed to buy nearly 5,000 more national airings across 50 more networks. On top of this BMW is falling behind online. As of January 2015, Audi outweighed BMW 10:1 in online ads. BMW also only attributes to 0.98% of the online activity in the industry. With today’s world this just doesn’t cut it. Therefore BMW is ranked a two in this category. centercenter00The next important strength, weighted at (0.07), is BMW’s production rates. In the year 2014, the company produced 2.1 million cars and 12,000 motorcycles while bringing in a revenue of $80,401,000. This earns BMW a rating of a four.BMW unfortunately lacks in diversity and this leaves it with a weak portfolio. Having a weak portfolio and brand diversity earns the weight of (0.06). While competitors such as Toyota, General Motors, and Volkswagen own up to six different brands, BMW owns only three. This can be very limiting to the market in which BMW markets to. While General Motors has brands such as Chevrolet, that reach the lower income families, and Cadillac that reach the higher income families, BMW has only Mini, BMW, and Rolls-Royce, which are all very limiting to higher income. Unfortunately it does not appear in the future that BMW is going to be opening a new brand and therefore BMW receives a ranking of two in this category.The increasing sales from competitors at a faster pace are another major weakness of BMW. This also earns a (0.05) weight. BMW has increased 9.5% in sales over the past year, but unfortunately competitors like Audi and Mercedes have increased sales at higher rates. Mercedes, for example has increased sales by 13% and Audi has increased by 10%. For this reason, BMW has received a ranking of three. While BMW is behind, they are not trailing too far from Audi.BMW has also been known to have a higher cost structure than competitors, which is a major sign of weakness. Having higher costs couples with having to charge higher prices to make up for those costs. This earns a weight of (0.05). However, BMW is now starting to see lower costs from its newly implemented modular manufacturing strategy. This strategy raises the component system commonality across different models and has been a huge decrease in costs. Therefore BMW will earn a four in this category. centercenter00BMW’s research and development team is a major strength to the company. Without research and development a company lacks in innovation and new products. For this reason this strength is weighted at (0.05). BMW’s R&D team currently brings in 5.1% of BMW’s revenue. Additionally BMW continues to realize the importance of this department and has recently raised the budget by 6.5% in 2014. BMW was ranked a three in this category.Next on the list of importance, at a weight of (0.04), is BMW’s strength of having a skilled workforce. In order to work for this company, it is a qualification to have a background check, a valid driver’s license, be an experienced factory trained BMW technician, and have 2-3 years of BMW dealership experience. Having a skilled workforce is important in order to properly inform customers of the products and services the company has to offer. BMW is not slacking in this category and makes sure each position is filled with someone with an expertise of the company. For this reason the company is ranked a four. A major weakness for BMW is their repair costs. This earned a weight of (0.04). High repair costs are never attractive to any car owner, regardless of the initial price. It is a constant cost that will be encountered during the span of ownership of that vehicle. In addition to this, BMW does not do well in comparison to its competitors. In a list of 20 of the least to the most expensive repair cost vehicles, BMW showed up two different times in the top ten most expensive. In comparison to Audi, who only showed up once in the top ten and once in the lower ten, this is not so great for BMW. BMW’s 750Li model actually showed as number one for the most expensive repair costs at $21,500 over the span of five years. For this reason BMW was ranked a two in this category. centercenter00Of same importance, and therefore same weight of (0.04), another weakness of BMW is the number of recalls in the past year. Recalls are a huge downgrade to any company, especially in the automobile industry. Unfortunately for BMW, when counting the number of recalls in the past year alone the number exceeds 20. This is horrible for not only the brand reputation but also the brand quality rankings. BMW was ranked a one in this category.Next in importance, at a weight of (0.03), follows two company weaknesses and one strength. BMW earns a four in the strength of safety. When checking quality ratings for the company’s vehicles, the company earns all rankings of 10. This is superb and therefore earns the company a four in this category. The first weakness at the weight of (0.03) is BMW’s perception of being limited. Unfortunately this is a weakness for BMW due to its limited target market. As mentioned earlier, BMW does not have a lot of diversity, and due to this BMW does not attract lower income families due to the high pricing. Lower income families will probably not even consider BMW knowing that they are a very specific brand. Since the company is not making any forward movement on expanding and creating a new brand, the company earns a one on this weakness. Finally, market share and product Series 3 are next in importance for BMW’s strengths with a weight of (0.02). BMW currently holds the largest portion of market share in the automobile industry at 18.3%. This earns the company a four rating. As far as Series 3 goes, this earns the company a four. This product earns the company a four because of its outstanding sales. Represented in Figure A.4, Series 3 brought in over 500,000 sales in the year 2013. This is incredible for one line of products. This earns the company a four in this strength.centercenter00External Assessment of BMWExternal Factor Evaluation (EFE)Just like with any other company, BMW has its share of opportunities and threats. Having knowledge of the key opportunities and threats of a company makes it possible to conduct an External Factor Evaluation, or EFE. Figure B.1 shows a list of BMW’s key opportunities followed by a list of key threats. Each of these opportunities are weighted in importance and then ranked according to how the company is performing on each. The first opportunity, the opportunity to expand BMW’s brand portfolio was given the highest weight of (0.12). BMW was ranked a three in this category because the company is currently producing environmentally friendly automobiles and if BMW can continue to produce enough that it could develop a separate brand for these cars it would be a great opportunity to expand its portfolio. The next highest weights were assigned to the opportunities to market to lower income families and to establish new and non-traditional marketing techniques. Being innovative in the marketing and advertising department is an essential opportunity to make BMW more memorable. These opportunities were both given the weight of (0.10). As far as BMW goes in marketing to the lower income, they received a ranking of a one. The reason for this ranking is that BMW currently does not market at all towards lower income. The company is completely limited to upper class individuals. In terms of new and non-traditional marketing techniques, BMW received a two. The reason for this ranking is due to the fact that BMW is still putting the majority of its advertising business towards television ads. As mentioned before they have hardly any type of presence in the virtual world and in this day and age where customers are on the internet and phones almost 24/7, this is not acceptable. There are plenty of new and improved ways to reach the target audience at a cheaper, more reliable fashion, but BMW is not capitalizing on this opportunity. ?centercenter00The next highest weight, at (0.09), was given to the threat of newer and faster products from competitors. This is a huge threat for BMW and being able to keep up is essential to maintaining a competitive advantage. BMW received a ranking of a four on this threat. BMW in comparison to its competitors, which will be discussed in more detail later, is doing an outstanding job. Among a list of success factors, BMW is ranked the highest. For this reason BMW earns a ranking of four. This is followed by the opportunity of increasing fuel prices with a weight of (0.08). This opportunity allows for BMW to really expand its portfolio and focus on their hybrid and hydrogen cars. Additionally, it increases the attention on their existing fuel friendly automobiles. Due to the fact that BMW already has alternatives in place, the company earns a four in this category. The next highest weight is at (0.06), which is the opportunity of changing consumer needs. This will always be a major opportunity for BMW. Whatever the consumers’ new needs are, the company has an opportunity to jump into a new and possibly untouched market. BMW received a ranking of a three due to the fact that BMW is capable of adjusting to constantly changing customer needs and demands. Two major threats are up next on the importance list. At a weight of (0.5), intense competition and rising raw materials costs earned BMW a ranking of four and three respectively. The reason for this four ranking in intense competition is because compared to its competitors, again, the company is doing excellent. In the Competitive Profile Matrix which is represented in Figure B.3, BMW earns the highest score in cash flow. A company with good cash flow has the ability to maintain rising costs of raw materials. With a ranking of three in this cash flow category, it is only necessary to rank the company a three in their ability to maintain these costs.Next are three opportunities and four threats all weighted equally in importance. Each of these threats and opportunities were assigned the weight of (0.04). The first opportunity BMW has is new emission standards. Fortunately for BMW, as mentioned earlier in this paper, BMW is focusing on the CO2 emissions and cutting the levels in half from 1995 levels. This is an opportunity for BMW to be ahead of its competitors with already having a focus on decreasing these levels. Also, due to the fact that this is already a focus for BMW, BMW receives a four in this category. centercenter00This opportunity is followed by the opportunity of the growing used car market in the United Kingdom. This is a major opportunity for BMW to expand its market in the UK and increase used car sales. BMW was ranked a three in this category because they are currently doing well with expanding on this opportunity. BMW used car sales are increasing in the UK and thus this is an opportunity for BMW to increase sales. The third opportunity that received a weight of (0.4) is the growth in the global cars market. This could be an extremely beneficial opportunity for BMW to pursue because it is another way to expand sales globally. BMW received a ranking of a four in this category due to their already highly proficient global presence. As mentioned earlier, the company has presence in over 140 different countries around the world. For this reason the company is performing well on this opportunity. The four threats that were weighted a (0.4) are: the threat of decreasing fuel prices, the increase in number of company recalls, the ease of entry into the market, and competitor pricing. Decreasing fuel prices can be both an opportunity and a threat for BMW. It is weighted higher as an opportunity due to the fact that BMW can use that towards its advantage considering they are already using the technology to produce alternative cars, however it still stands as a threat to existing models that are not as fuel-efficient. BMW was ranked a three in this category since it is already present in the alternative market and they can make up their lost revenue with sales of the alternative car. centercenter00Another threat to the automobile industry is the number of recalls. Recalls are a tricky number to keep down but it is essential that each company does its best. They are unavoidable but the more recalls a company has, the worse it looks. BMW received a one in this category because it is a major threat to BMW’s company. As mentioned before, BMW has had 20 plus recalls in the past year alone. This is a major threat to the company’s reputation. Although most recalls are for minor adjustments that will not affect the performance, it still can be pretty harsh on the reputation and frustrate current customers. They also received a three in response to the ease of entrance into the market. They received this ranking because as mentioned before, BMW does not struggle with competition. Among its main competitors the company is right there at the top. Their performance as a company has not been decreasing at all and therefore new entrants do not pose as much of a threat to BMW as of right now. BMW also received a ranking of a two in competition pricing. The reason for such a low ranking is because in comparison to similar models of competitors, with the same specifications and accessories, BMW tends to have higher pricing. Growing euro exchange rate, with a weight of (0.3), is another threat to BMW. This is a major threat due to the fact that this is out of the company’s control and this significantly impacts them. BMW received a rank of a three because the company earns part of its profits outside the euro-zone and will not significantly be affected by this change. This is followed by the opportunities of the rising green awareness and the growth in Asia, which are both weighted at (0.2). The rising green awareness is a huge opportunity for BMW to expand its portfolio. BMW fortunately has had a jump start on this opportunity and has been expanding into this market already. With its moderate selection of hybrid and fuel-efficient cars and its socially responsible reputation (discussed in more detail later) BMW earned a ranking of a four on this opportunity. The rising growth in Asia is the other key opportunity for BMW. This gives the company the opportunity to expand on its market and increase sales. Due to BMW’s excellent performance in Asia (a 17.3% growth in 2013), BMW will earn a four in this opportunity. centercenter00Major Competitors BMW has four main competitors: Audi, Mercedes, Lexus, and Porsche. The two bigger competitors are Audi and Mercedes. Audi was founded in Zwickau, Germany in the year 1909. It is the oldest of the competitors and has been a wholly owned subsidiary by Volkswagen since 1966. With a total of 68,604 employees in 2012, the company generated a total of 197 billion euros in revenue in 2013. Audi has a net profit margin of 8.23% which is significantly better than BMW’s net profit margin of 7.23%.Mercedes is another major competitor of BMW. This company was founded in Stuttgart, Germany in 1926. With 279,972 employees, Mercedes brought in a total of 129.872 billion euros in revenue in the year 2014. It is a division of parent company Daimler AG. The company just recently spent $4,0350,000 in their research and development department. Mercedes has a gross profit margin of 20.79% and BMW sits just behind this at 20.01%.The next major competitor of BMW is Porsche. Along with Mercedes, Porsche was founded in Stuttgart, Germany. This company was founded in 1931 and is one of the younger competitors of BMW. Due to being so young, the company does not have nearly as many employees. Porsche only employs about 19,456 as of 2013. However, even with such a small number of employees, Porsche still managed to generate revenue of 14.326 billion Euros in 2013. BMW generated a total of 76.06 million euros this same year to put this into perspective. Finally, the last major competitor of BMW is the baby of the group. Lexus was founded in 1989 in the United States and is a division of parent company Toyota Motorola. It is currently one of the fastest growing car manufacturers in the industry. In 2013, Lexus sold 523,000 vehicles, which was a 9% increase from the previous year. Additionally, the number of employees at Lexus is 338,875. Lexus generated a total of $18.7 billion in 2013. centercenter00Positioning Map Figure B.2 represents BMW’s perceptual, or positioning, map. This map compares two major factors in the automobile industry: reliability and performance. The scale is from 1-5. The coordinates can be found in the chart in the bottom left-hand side of this figure. These numbers were calculated based on data that ranked each of these components 1-10. In order to get the coordinates, the initial rankings were divided by two and subtracted by one. This gave rankings from 1-4. To make it graph friendly the numbers were then moved two to the left so the new rankings ranged from negative two to two. As the figure represents, Lexus stands at the strongest reliability and Cadillac and BMW battle for the best performance. When comparing BMW with its competitors its reputation on reliability is not so hot. It trails behind Mercedes, Cadillac, Scion, Acura, and Lexus in reliability. Performance certainly is not a problem in comparison to its competitors. Competitor Profile Matrix (CPM)A Competitive Profile Matrix, or CPM, identifies a firm’s major competitors and their strengths and weaknesses in relation to critical success factors. The critical success factors are given a weight of importance, which will then be multiplied against the assigned ranking for each company in that success factor, similar to the EFE and IFE matrices. A sum of the products gives a total score that can be used to compare the companies. BMW’s CPM is represented by Figure B.3.Brand LoyaltyBrand loyalty is extremely important to success. It is what keeps customers coming back when they want to a new car. Considering the nature of the industry, it is extremely important to maintain customers in the automobile industry. The weight given to brand loyalty is a (0.10). ?BMW was ranked a three in this category, just behind Mercedes: which was ranked a four. The reasoning behind this is because Mercedes came in first in most brand loyalty, while BMW trailed in second. Audi was ranked a two in this category because it did not make the top luxury brands with the most brand loyalty.centercenter00Cash Flow A good cash flow is beneficial for a number of reasons. First: it will help keep costs under control. For example, some lines are prone to fluctuations in price due to its raw materials so having a good cash flow will help to contribute to those slight increases. Another reason a good cash flow is beneficial to success is because it will allow the automakers to provide incentives and lower prices to help increase sales. Due to the level of importance of cash flow, it received a weight of (0.025).When comparing each company’s operating cash flows in 2014, Audi had the highest of the three companies at a total of 7.42 billion euros. This was also an increase of 643 million from the previous year. For this reason, Audi was ranked a four in cash flow. BMW came in second, with a ranking of three. The total cash flow from operating activities was 2.9 billion euros however this was a 1.215 billion decrease from the previous year. Although one could assume that this big of a decrease could be bad, that is not always the case. If the company is spending more by making major changes, this is not a bad thing. Therefore as long as BMW is still bringing in a positive cash flow, they are doing all right. Finally, Mercedes had a total operating cash flow of -1.3 billion. Due to having a negative cash flow, Mercedes received a one in cash flow. centercenter00ComplianceCompliance is also extremely important when it comes to the automobile industry. This is the ability to follow federal and local regulations and standards. Without compliance, a company would not be able to sell its products or services legally. Additionally, if automakers decide to sell noncompliant automobiles, they may have high costs for potential recalls. Due to this level of importance, compliance received a weight of (0.15). Audi has a total of 24 model recalls and BMW and Mercedes tied at a total of 16 model recalls. Therefore the rankings are as followed: Audi ranked a two, BMW and Mercedes ranked a three. Having any recalls at all is a bad thing but it is understandable that they are not always 100% avoidable. Fours were therefore not assigned and neither were ones. Distribution Network Next is the distribution network. A distribution network is essential to success due to the nature of the industry. Automakers rely on franchised dealerships to take on the role of a showroom. Having more franchised dealerships will help advertise and increase the market. However, it’s essential that these dealerships not only exist, but they are knowledgeable and reputable. Without a strong distribution network, the company could lose market share quickly. Due to this level of importance, the distribution network received a weight of (0.10). BMW, with a total of 339 dealerships, was ranked a four for the most dealerships amongst the competitors. Mercedes was ranked a four as well for coming in just ahead of this at 368 dealerships. Audi sits at only 280 dealerships and was therefore ranked a three. Having 339 dealerships is nowhere near bad, it just is not as good as its competitors and this could strongly affect the company’s competitive advantage. ?centercenter00Flexibility Flexibility is another major critical success factor. Car buyers are susceptible to quickly changing their buying habits. This can be for a number of reasons, whether it be from increased fuel prices, the state of the economy, or new automotive technologies. Regardless of the reason, car manufacturers must be flexible and must be able to respond to these changes in order to survive. Flexibility received a weight of (0.05). BMW, Audi, and Mercedes all received a four in this category due to their participation in green awareness and their environmentally friendly and efficient cars. This is one example of how each company is adapting to the changes around them and producing new cars based on changing consumer needs. Operational Efficiency Next is operational efficiency. Operational efficiency is what provides a company with competitive advantage. It helps cut operational costs as well as bring in a necessary margin in order to compete successfully with its competitors. Operational efficiency received a weight of (0.15). Total asset turnover, or TAT, is one way of analyzing a company’s operational efficiency. Audi has a TAT of (1.1). Mercedes has a TAT of (0.7) and BMW has a TAT of (0.5). The highest TAT will receive the highest ranking since that indicates they are producing a higher revenue per every dollar of assets. Audi received a ranking of four, Mercedes received a three, and BMW received a two. centercenter00Positive ImagePositive image is extremely important and received a weight of (0.15). It received this weight because it is the one of the main reasons a company will be able to survive in the automobile manufacturing industry. When a customer considers buying a car, they are not only entrusting that chosen car company with their safety but they are also making a major investment. Due to this, most customers will do their research on what type of company is best to invest in. Without a positive image a customer will not look twice. A way to analyze a company’s positive image is to see how much they are spending on advertising. Figure B.4 represents how much money was spent on advertising in the United Kingdom in the year 2013. As the graph shows, BMW comes in first at 26.55 million British pounds, with Audi following close behind at 26 million British pounds. Mercedes is lagging at the bottom with only 21.21 million British pounds being spent on advertising. Due to these statistics the rankings are as follows: BMW ranked a four, Audi ranked a four, and Mercedes ranked a two.Product Quality Product quality earned a weight of (0.15). Product quality is extremely important when it comes to success in the automobile industry. Without quality, the company has nothing. Think about it, if a company is constantly having recalls, who is going to have enough trust to buy one of their cars? If they buy from the company and their first car is constantly needing repairs and giving them problems, are they going to go there for their next car? Absolutely not! Due to their reputation of being known as the top three car manufacturers in terms of overall brand quality, all three companies received a four in product quality. centercenter00Resource Sharing Resource sharing is another critical success factor that earned a weight of (0.025). It earned this weight because it is extremely beneficial for advancement. Technology advanced sharing can help a company keep up in the industry. This goes hand in hand with acquisitions and mergers. Having the ability to increase an information network is critical to success. Without knowing how to keep up, a company will quickly fall behind in the automotive industry. Due to BMW’s partnership with Toyota, the company received a four on resource sharing. Also due to Mercedes just partnering with Nissan, Mercedes receives a four as well. Finally, Audi established a partnership with AT&T to introduce the first car with in-car LTE capability. Audi also was ranked a four in resource sharing. Social Responsibility Finally, social responsibility is the last critical factor in the automobile manufacturing industry. It earned a weight of (0.10) because the trends in social responsibility are increasing. People are looking more and more for environmentally friendly automobiles and for company’s that are socially responsible. Having social responsibility will only help with marketing and will increase the attractiveness of the company. BMW, in 2012, donated a total of $30 million towards education, the community, and the arts. It has also decreased water and energy consumption, waste disposal in a landfill, and industrial wastewater by over 50% in all categories since 2006. For these reasons, BMW received a four ranking in social responsibility. In 2010, Mercedes partnered with the China Youth Development Foundation and created what is currently known as the one of the biggest start-up charity funds in the Chinese auto industry. Known as “Nurturing the World of Tomorrow,” this represents the company’s long-term commitment to China and sets a comprehensive and leadership model in advocating in sustainable cause. This is a great cause and helps the children in China and earns Mercedes a four ranking. Audi is in charge of what is currently known as the Oak Forest Research Project. With this project, sponsored by the Audi Environmental Foundation, over 90,000 trees have been planted in the vicinity of selected Audi production sites. This is also a great cause and earns Audi a four ranking in social responsibility. centercenter00The ScoresThe total scores are as follows: BMW with 3.43, Audi with 3.40, and Mercedes with 3.33. This shows where BMW stands amongst its competitors in terms of these success factors, and these are great results. This shows that among these success factors, BMW is the leader with Audi trailing just behind. Mercedes is slow to keep up. Strategy FormulationStrengths-Weaknesses-Opportunities-Threats (SWOT) Matrix A Strengths-Weaknesses-Opportunities-Threats, or SWOT, Matrix helps managers develop four types of strategies. This matrix can also be known as TOWS. The purpose of this strategy is to match key internal and external factors and develop appropriate strategies from the combinations. The four types of strategies are: Strengths-Opportunities (SO) Strategies, Weaknesses-Opportunities (WO) Strategies, Strengths-Threats (ST) Strategies, and Weaknesses-Threats (WT) Strategies. centercenter00Strength-Opportunity (SO) Strategies SO Strategies use a firm's internal strengths to take advantage of external opportunities. This is a position that all managers would prefer their company be in. The first SO strategy developed in this matrix combined BMW's strength of producing environmentally friendly automobiles, S4 in Figure C.1, with the opportunity of expanding their brand portfolio, O1 found in this is graph. The strategy is to produce enough environmentally friendly models to establish a new "green" brand. The second SO strategy combined BMW's strength of research and development skills, S6 in Figure C.1, with the opportunity of ever changing customer needs, O6. The strategy is to continue to capitalize and increase the budget for the research and development department in order to keep with the changing consumer needs. The third SO strategy combines BMW's strength of strong brand recognition with the opportunity of growth in the global cars market (S1, O10 in Figure C.1. This strategy would be to use the company's brand recognition to expand in the global market.Weakness-Opportunity (WO) Strategies WO strategies aim at improving internal weaknesses by taking advantage of external opportunities. This might happen when there is a key opportunity but certain internal weaknesses may be holding them back. The first WO strategy developed from this matrix is to expand the BMW market to include lower income families in hopes to change the perception of being limited. This is the combination of the weakness of being perceived as limited, W7, and the opportunity of reaching out to a market that is currently left in a gap, O3. Another WO strategy developed involved using the company's Eco-friendly cars as a new and non-traditional way to advertise. An example of this may be paying major celebrities to drive them around or displaying these cars surrounded by trees. This strategy capitalizes on the opportunity of the rising green awareness, O8, and BMW's current weakness in advertising, W5. The third WO strategy developed in this matrix is establishing new partnerships or acquiring companies in the Asian market in order to capitalize on the industry growth in this region. This combines BMW's weakness of lack of partnerships and acquisitions, W4, with the opportunity of industry growth in Asia, O9. centercenter00Strength-Threat (ST) StrategiesST strategies involve using a firm’s strengths to avoid or reduce the impact of external threats. Firms do not always need to capitalize on opportunities. Sometimes it is more important to avoid threats and maintain the firm’s competitive position. In this matrix there were a total of three ST strategies developed. The first strategy involved BMW’s strength of producing high quality products, S3, and the threat of faster and new products of competitors. In response to these two factors, BMW will emphasize their higher quality products in their advertisements and continue to find new and innovative ways to increase their higher quality to maintain their competitive advantage. Newer and faster products do not always necessarily mean high quality. Weakness-Threat StrategiesWT strategies involve using defensive tactics directed at reducing internal weaknesses and avoiding external threats. When a firm takes on this strategy they are fighting for survival. Although BMW is not at this point, it is good to have strategies in mind in case they reach this point. The first WT strategy developed by this matrix is reducing the cost of production in order to combat raw materials cost rising. The second WT is the introduction of lower model vehicles in order to advertise to the lower income families, also if the car is cheaper to make they can keep up with demand and make profits. and WT three is the fact that BMW focusing solely on quality and not speed, which it should keep doing but introduce new cheaper models to its portfolio. centercenter00Boston Consulting Group (BCG) Matrix The Boston Consulting Group Matrix, or BCG matrix, is used to graphically portray differences among different divisions. It facilitates in managing portfolios of multidivisional organizations by examining relative market share position and the industry growth rate of each division in relation to one another. It is essential to know the differences among the divisions in order to come up with appropriate strategies. In Figure C.2 the three divisions represented are the automotive, motorcycle, and financial services divisions. The circle represents the division. The blue portion of the circle represents what portion of the profit belongs to that division, and the grey part represents the sum of the other two division’s profits. The total amount of profits comes to $9,112,000,000. centercenter00The top circle represents the motorcycle division. The blue portion is $112,000, which leaves the difference of $9,000,000,000 for the grey portion. The motorcycle division is only bringing in 1% of the profits the other two divisions combined are bringing in. This division has been placed in the Stars Quadrant, or Quadrant II. This quadrant represents the best long-run opportunities for growth and profitability. It represents a high relative market share position, a high growth industry, and requires substantial investment in order to maintain the strength in their dominant position. Appropriate strategies include: forward, horizontal, or backward integration, market development, product development and market penetration. The next two circles, or divisions, are in the Cash Cows Quadrant, or Quadrant III. This quadrant represents successful and profitable divisions. These divisions generate cash in excess of their needs and should be managed to maintain their strong positions for as long as possible. They have high relative market share position and a low growth industry. Many times cash cows are yesterday stars. Appropriate strategies for the Cash Cow Quadrant are product development and diversification. The circle to the left represents the financial services division. This division’s profit is represented by the blue portion and comes to be $1.756 billion. This leaves a remaining $7,356,000,000 left for the grey portion. This division is bringing in about 19% of the profits. The last division is the automobile division. It should come of no surprise that this is a cash cow division. This is what BMW is known for. This division is bringing in $7,244,000,000, or 79% of the company’s profits. IE Matrix centercenter00An Internal-External Matrix, or IE Matrix, is similar to a glorified BCG matrix. It involves nine quadrants instead of four and requires information regarding the revenues of the divisions as well. The circle again represents each division. For this matrix, however, the size of the circle represents the percentage of sales contribution the pie slice indicates the percentage of profit contribution. There are three different approaches to take when formulating strategies. It ?all depends on what quadrant each division falls under.For BMW, the motorcycle division falls under quadrant IV. Quadrant IV recommends a grow and build strategy. This includes backward, forward, and horizontal integration, market penetration, market development and product development. The automobile division falls under quadrant V, and the financial services division falls under quadrant VII. These quadrants recommend a hold and maintain strategy. This will include market penetration and product development. This is summarized in Figure C.3.SPACE MatrixThe Strategic Position and Action Evaluation Matrix, or SPACE matrix, involves two internal and two external dimensions. It is one of the most important determinants of an organization’s overall strategic position. There are a total of four different positions: financial, competitive, stability, and industry. Industry and stability are obviously the external dimensions where financial and competitive are the internal dimensions. As represented in Figure C.4, it is possible to see components under each position with a ranking next to them. A ranking is assigned to each component based on BMW’s performance in that specific category. The rankings range from one, being the worst, to seven which is the best. Financial Position First is the financial position. The financial position involves return on investment (ROI), leverage and liquidity, earnings per share (EPS), and cash flow. The first factor, ROI, is ranked a seven. BMW currently has a ROI of 6.37%. This means that BMW is producing six times the amount they are investing. This is outstanding! Research shows that on average, during a good year, this number is generally 2-3%. This reinforces how well BMW doing with return on investment. The next factor taken into consideration is leverage. The leverage ratio indicates how much, for every dollar in equity, the company has in assets. BMW was a 4.39 leverage ratio. This means that for every dollar in equity, BMW has $4 in assets. This is very risky for a company. However, rcentercenter00isk does not necessarily mean bad. Therefore a ranking of four was given to the leverage ratio. When analyzing a company’s liquidity, it important to view the current, quick and cash ratios. Current ratio is 0.96, quick ratio is 0.77, and the cash ratio is 0.22 as of 2014. These statistics show that BMW has 96% capability of paying off its obligations however for every dollar in liabilities, BMW only has $0.77 in assets. In cash, BMW only has $0.22. These are not the greatest ratios, but it is important to keep in mind that when analyzing these numbers there are aspects that are not taken into consideration. For example, cash ratio ignores the amount of receivables the company has, which may have the opportunity to be liquidated if need be. The ranking assigned to liquidity, for this reason, was a four. It is not the greatest of ratios, but it is not necessarily all that bad either. Next is EPS and cash flow. BMW’s EPS is 8.83. When comparing this with Mercedes, who is only at 6.51, this is a good earnings per share ratio. The ranking is a six. Cash flow is not doing as well. When analyzing the total cash flow between financial, investing, and operating activities, it produces a negative number! Therefore the ranking for cash flow is a two.Industry Position The next position is the industry position. This includes five components: growth potential, financial stability, ease of entry into market, resource utilization, and productivity and capacity utilization. After analyzing Figure C.4 it is clear that BMW has a high market share. In fact, the company has the highest beating competitor Audi by 4.5%. Therefore the ranking assigned was a seven. With a net profit margin of 5.6%, BMW was assigned a three for financial stability. For every dollar of sales, BMW keeps $5.60. Although this is good, comparing it with Mercedes indicates otherwise. Mercedes has a net profit margin of 20.79%. Therefore while BMW is making $6, a major competitor is making $21.When it comes to ease of entry into the market, BMW receives a six because it seems to be in the company’s favor. The last competitor of BMW entered all the way back in 1989 (Lexus). Before this a new competitor did not enter this market since 1931 (Porsche). BMW also received a ranking of seven in resource utilization. In 2013, the company had increased its expenditures in research and development by 580 million euros. To couple this, the R&D ratio is 5.1% of revenue. BMW is also currently manufacturing in 30 different sites in 14 countries and on four continents. It is safe to rank them a seven for production. centercenter00Competitive PositionWith competitive and stability positions, the rankings are from negative one, being the best, to negative seven which is the worst. For market share, as previously mentioned, BMW has the highest out of its competitors. Therefore the ranking for market share is a negative one. Unfortunately for BMW, when analyzing the quality of the products, there was a recall of 1.6 million cars not even 1 year ago. This unfortunately led to a ranking of a negative five. BMW currently ranks second in most loyal customers at 31.7%. Therefore the ranking stands at negative two. When looking up requirements to work for BMW, it is required that the person is a factory trained BMW technician with at least two to three years of experience with the company. This indicates that all workers have a high knowledge of what they are doing and talking about, because if they did not, they would not be there. The ranking is therefore a negative two. In September of 2014, BMW just opened a port in Baltimore, Maryland that will serve 96 dealers in the Eastern and Central regions of its network. The port is expected to import 166,000 vehicles by 2016. The ranking for control over suppliers and distributors is a negative one. Stability PositionThe final position to be analyzed is the stability position. The five components of this position are rate of inflation, price range of competing products, demand variability, competitive pressure, and technological changes. The rate of inflation has an significant impact on a company’s stability position. The last inflation rate change in 2012, BMW dipped 7.5%. Therefore the ranking for this component is a negative three. When looking at the top ten most expensive vehicles to own, only one of the ten are Bcentercenter00MW, four are Mercedes, and two are Audi. In comparison to its competitors, BMW seems to have the competitive advantage and is therefore ranked a negative two. Although it is not necessarily avoidable, demand variability significantly impacts the BMW sales. In fact, so much that the latest recession caused BMW to drop 74% in profit. The ranking due to this is a negative six. It would seem that BMW is successful when it comes to competition, however this is far from true. BMW actually does not code for competitive pressure from other firms at all. This earns the ranking of a negative seven. Finally comes technological changes. BMW has become one of the most innovative automobile manufacturers in the world. Additionally, BMW Efficiency-Dynamic vehicles achieve 120 g/km CO2 emissions. BMW’s resource utilization and technological advances in the vehicles earn the company a ranking of negative two. The Graph Figure C.4 shows an average at the bottom of each position’s section. As you can see the financial, stability, competitive and industry position averages are 4.6, -4.0, -2.2, and 6.0 respectively. To find the plot points for the black box shown in Figure C.4 the averages are added together. The x-axis point is found by adding the competitive and industry position averages (-2.2 + 6.0 = 3.8). The y-axis is the sum of the stability and financial position averages (-4.0 + 4.6 = 0.6). The arrow in the graph represents the directional vector which reveals the types of strategies recommended for the organization: aggressive, competitive, defensive, or conservative. For BMW strategies recocentercenter00mmended are aggressive. This means that the organization is an excellent position to use its strengths to either take advantage of external opportunities, overcome internal weaknesses or to overcome external threats. Market penetration, market development, backward, forward and horizontal integration, and diversification are all plausible options for BMW.Grand Strategy Matrix centercenter00For the Grand Strategy Matrix, also found in Figure D.1, there are four quadrants. ?The classifications for these four quadrants are weak competitive position with rapid market growth, weak competitive position with slow market growth, strong competitive position with rapid market growth, and strong competitive position with slow market growth. ?Of these four areas, BMW falls within the rapid market growth with strong competitive position. ?BMW is one of the older companies in the luxury market. ?As such, its name has been known for some time. ?BMW is still one of the leading competitors in the market and is consistently contending with other companies to outperform the others. ?As BMW continues its ventures in innovation, it will continue to see an increase in profits and overall revenue.QSPM For the Quantitative Strategic Planning Matrix, we have chosen three main strategies to compare. The first is to be profitable and to enhance long-term value in times of change. The second is to focus in the quality of vehicle production to increase reliability. The third is the development of new technologies. ?We have selected a number of key external and internal factors to assist in measuring which strategy will be best. With these factors in place, the best strategy for BMW to follow would be to focus in the quality of vehicle production to increase reliability. ?This strategy is twofold in meaning. Referencing back to the positioning map, BMW has some issues with quality, though not ranked too far from its competitors. ?In addition to this, BMW intends to decrease its waste of resources, thus increasing the quality of production. This can be summarized in Figure E.1.Recommendationscentercenter00We have selected three recommendations for BMW to follow. ?First of those three is to increase a focus in strong markets like China and the USA. ?Though there is a larger opportunity for growth in the Chinese market, BMW can focus more efforts in the US as well because of a steady market and lower production cost. ?BMW has more manufacturing facilities located in the US that will help reduce additional shipping costs thus driving more profit. ?With these profits, the company can than focus on a new type of distribution or even a location of a facility within the Asian market borders. ?This will give BMW a strong foothold and show promise for a steady increase in profits from both markets. ?This strategy may be one of the easiest in terms of cost. ?Though building a new facility would call for a large financial hit, the increased revenue generated between the continuing US sales as well as the potential that will come in from the Asian market would easily compensate for the cost.The second recommendation is to increase focus in the quality of vehicle production to increase reliability. ?One of the pitfalls to the BMW brand is the amount of recalls it has. ?Though the number of recalls from BMW are comparable in number to many of its rivals, one way to rise above the competition would be to increase the quality of production. ?In doing so, this would increase the reliability of the parts within the vehicles and reduce the amount of recalls. ?From a financial standpoint, this may be one of the more expensive routes. ?Increasing quality means spending more time in production and making sure that the systems in place work properly. ?However, with a restored reputation and actual facts showing the reduced recalls and increased quality, this could attract many new customers that had formerly purchased other luxury vehicles.centercenter00A third recommendation is to attempt to attract new consumers to the brand by creating a larger brand portfolio. ?What this would entail would be creating or acquiring a lower end company that BMW would be interested to share its brand with. ?This would be an extremely costly venture. ?For BMW to acquire another brand, it would take massive amounts of research, legal steps, and a very large amount of capital. ?Though the prospect of purchasing a brand that reaches out to a different economic and essentially social class, the application of such a strategy will be a long and costly endeavor. The benefit of doing so would take years before showing any real positive or negative impact, and by that time the backlash of such a move could be detrimental to the company as a whole.Strategy Implementation For the projected statements we estimated a small increase in just about every primary field in both the balance sheet as well as the income statement. ?The primary strategy that we felt would provide the best overall outcome is would be the increase focus in the quality of vehicle production to increase reliability. ?To reflect this strategy, we calculated about a .5% increase in the principle areas, such as revenue, income, assets, etc. ?However, we projected a larger increase in the debt and expense areas to reflect a higher cost increase. ?The reason behind this is because we anticipate that with the increase in focus of the production to increase reliability, this would cause a more expensive assembly strategy and perhaps a much larger increase in the research and development. ?In the end, we still anticipate that there would be a positive increase overall profits, and with the increased expenses in the following year, it would provide fruitful in the years to come.Strategy Evaluation (Conclusion)BMW is a company that is in a very competitive market. ?We have learned that there are many factors to the success of a company. ?Changing a company’s mission statement and evaluating their vision isn’t enough to bring success. ?Through our evaluations, we have looked into many different aspects of BMW. ?We’ve evaluated financial data, measured competition placement, analyzed competitors and where they stand by means of position on the competitor positioning map. ?We were able to compile data to narrow down strategies that we feel would potentially help BMW rise from its current status to become not only more successful, but to make a more positive image to their consumers and the rest of the world. ?Not only has this helped us learn a lot about a successful company and the many areas that require the focus and attention to become successful, but it also showed us the values and hard work that are required to create and uphold a company on a world-wide scale. ?With the information we have gathered and the strategies we’ve learned, we can take this information and use it in many more applications that just this evaluation of BMW.centercenter00Charts, Graphs, etc. center27051000Figure A: Company’s Current Organizational Structurecenter000Figure A.1 Revised Organizational Structurecenter000 Figure A.2: Financial Ratio Summary22860035306000Figure A.3: BMW Internal Factor Evaluation Matrix039370000Figure A.4: Series 3 Sales SummaryFigure B.1: BMW External Factor Evaluation MatrixFigure B.2: BMW Positioning Mapcenter000Figure B.3: Competitor Profile Matrix035750500Figure B.4: Advertising Expenditures in the United Kingdom in 2013Figure C.1: Strengths-Weaknesses-Opportunities-Threats MatrixFigure C.2: Boston Consulting Group Matrixcenter000Figure C.3: Internal-External Matrixcenter000Figure C.4: SPACE MatrixFigure D.1: Grand Strategy Matrix0381000Figure E.1: QSPM ................
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