Strategic Planning at BMW - Case Study Example

Industry Report: BMW Table of Contents Introduction 3 Strategic planning at BMW 4 BMW business model 5 BMW’s perspective of current market trend and the corresponding developments 5 Porter’s 5 forces analysis of BMW Group 7 Recommendations 9 Reference List 10 Introduction An automobile manufacturer’s position for making strategic decisions and planning is complicated by trends in market, increasing market dynamics and internationalization of the supply chain that is inclusive of sales markets, suppliers and the production sites. The growing intensity of competition in the automobile industry has compelled automobile manufacturers to launch modern vehicle models with innovative design and attributes in order to provide upgraded functions to customers; introduce modern concepts such as, futuristic electronic cars, sports activity vehicles; and innovative features such as, dynamic stability control or the integrated driving system introduced by BMW, known as the I-Drive (Fleischmann, Ferber and Henrich, 2006). The growing demands of customers for individual configuration specifically in premium cars have made automobile companies like, BMW, to come up with creative ideas so as to stand apart in this fierce competition and gain significant competitive advantage. Alongside the classical markets in North America, Europe and Japan, newer markets such as, China and the Eastern Europe, are also emerging. The product life cycle in emerging markets are supposed to be dissimilar from the one that is witnessed in already developed markets. This provides big opportunities for companies like, BMW, to sell models, which have been discontinued in the established markets, in these relatively newer markets. BMW has been implementing effective strategies in order to set up their production sites throughout the globe for bringing their production closer to markets and thus, satisfy growing needs and demands of the customer base. This has enabled them to accrue benefits by attaining country specific advantages. Example of such advantages attained by the company include incentives for investments and accessibility to cheap labour that they have obtained by gaining entry into emerging markets such as, India and China (Fleischmann, Ferber and Henrich, 2006). This study involves a thorough analysis of BMW’s strategic management. The following sections will discuss BMW’s strategic planning aspects and their business model will be subsequently explained. Thereafter, the company’s understanding of current trend in the industry will be explained. The report will also include Porter’s five forces analysis of the automobile manufacturer and lastly, a recommendation will be provided. Strategic planning at BMW The BMW Group headquartered in Munich, Germany, is primarily engaged in the manufacturing and sales of BMW, Rolls Royce and MINI cars. The products manufactured by the company belong to all car types and sizes and are exclusively premium standard cars. Currently, the premium automobile manufacturer has eight plants based in Germany, the US, UK and South Africa. Magna Steyr, BMW’s company’s external partner, also has a plant in Austria. Figure 1: BMW manufacturing sites (Source: Fleischmann, Ferber and Henrich, 2006) Sustainable strategic planning of product development is a crucial activity for BMW. The company is famous worldwide for its vision and strategy. The management of BMW has implemented efficient and effective strategies, which have developed considerably in accordance with creation of new strategic framework and innovative business models each year. The esteemed automobile manufacturer has devoted its attention towards a global vision, which is to innovate, manufacture and sell the best vehicles in the world. This is a fundamental motivation that saw BMW create superior quality products, which has enabled the company to become an undisputed leader in the industry. BMW business model The developments, in terms of strategy, that the company has gone through over past few years have largely been based on a business model. BMW’s business model is expanding gradually taking into account growing needs and demands as well changing taste of the customers. It is largely responsible for steady improvements being brought about in the design of vehicles, brand value, production control, competitive margins and pricing. The world is developing at a constant pace. Individual mobility remains primary focus of national industrial policy and political regulation in various countries. This unprecedented change in the society influences BMW to formulate modern mobility solutions. Fluctuation has been a constant factor affecting the automobile industry since decades and BMW understands that markets as well as consumers remain relatively uneasy in this period of crisis. In order to mitigate such challenges, BMW Group has come up with a business model, which brings about an alignment within the company and has two targets. One is to realize long-term profitability and the other is to enhance value of service provided to customers. This applies to all aspects of the company, be it structural, cultural or technological. Since the year 2007, company’s business model has been incorporating various initiatives in order to upkeep the four strategic pillars--Growth, profitability, shaping future and access to technologies and customers (BMW Group, 2012). BMW’s perspective of current market trend and the corresponding developments BMW realizes the current market trend of individual mobility. The company understands that with every passing year, purchasing power of people in the country where it operates is rising at a swift rate. Along with that, number of people opting for personal commuting option is also increasing. In addition, people who are already enjoying the luxury of owning a car are demanding for more efficient models with greater luxury, be it in terms of space, vehicular features or technology. These factors have served as a stimulant behind the creation of innovative vehicles with technological upgrades and increased space. Personalized cars have also become a modern trend and this factor has been addressed by BMW promptly (BMW Group, 2010). Through the company’s service campaign, BMW-i, referred to as ‘Driving the next movement’, the management is striving to give a new direction in order to bring about innovatory change in the field of vehicular technology. The company focuses on innovation and that is evident from the organizational vision and strategy. With this campaign, the company is trying to tackle economical and environmental challenges that exist in this rapidly changing society (BMW Group, 2013a). According to DNA (2013), BMW-i reflects the major aspects regarding ways in which the design team of BMW Group treats automobile designing. The concept of BMW-i is to provide customers with flexibility to modify the design of BMW i3 as per their own specification, before buying, by accessing company’s website that offers different simulation process. The concept also allows customers to gain knowledge regarding daily driveability and new technologies associated with BMW cars as well as provide them with the option of booking test drive (BMW Group, 2013b). The company not only believes in producing world class cars, but also to provide their customers with world class driving experience. The concept of BMW-i is promoted, marketed and distributed heavily over internet, including the company’s website, in order to address changing trends of the market and in this manner, they have adapted to those changes so as to remain competitive (Walters, Whitla and Davies, 2008; Mbwette, 2013). Porter’s 5 forces analysis of BMW Group Figure 2: Porter’s five forces model (Source: Porter, 2008) Rivalry between competitors Due to the presence of giant automobile manufacturers such as, Nissan, Honda, General Motors and Toyota, intensity of competition in the automotive industry throughout the world has increased to a great extent. Companies have been competing among themselves in terms of both non-pricing and pricing dimensions. Reducing the price of automobiles is a strategy adopted by companies, as far as pricing dimension is concerned. However, that may significantly impact the company’s profitability. Offering loans with zero interest as well as discounts on selling price is a non-price dimensional strategy. Both the strategies are followed for attracting more number of customers and staying ahead in this intense competition. Threats posed by new entrants The presence of new firms in the automobile industry compels established players to cut down price of cars. Consequently, financial performance of the existing automobile manufacturers gets significantly affected. Despite that, there are few obstructions to entry faced by new entrants while they are striving to achieve economies of scale. The start up automobile manufacturer will first have to achieve a considerable proportion of the market to be in a position to compete with already existing players. Failure to achieve this position would lead to a considerable cost disadvantage for the manufacturer. Alternative or substitute products The fact that BMW indicates luxury, royalty and modern technology, people owning them would always seek something even better, in terms of above three factors, when they decide to purchase a new car. Customized car is a definite alternative that can be chosen by customers who would prefer to design few parts of the car using gold in order to flaunt their royalty. This is one service that BMW is yet to develop. In addition to that, people who buy luxurious cars may also switch to brands offering enhanced luxury. Few examples of such brands that reflect royalty are Rolls Royce and Audi. Super cars and assorted motorbike companies such as, Lamborghini and Harley Davidson, respectively are also certain substitute products, which can pose significant threat to BMW cars. Lastly, newly developed electronic cars that constitute all modern technologies can also be a substitute product for those customers who prefer technology over other aspects. Bargaining power of suppliers Vehicle manufacturers require input-labours, car parts, raw materials as well as other services. The cost incurred by companies in order to get access to abovementioned elements has a substantial impact on their financial performance. The robustness of suppliers is largely dependent on bargaining power that can be exercised by them on the vehicle manufacturers. Due to the fact that automobile manufacturers have access to an extensive group of suppliers, bargaining power of the latter in this industry is very low. However, in American automobile industry, bargaining power of suppliers has increased to a certain extent due to considerable deals signed by the United Auto Workers with giant automobile manufacturing companies based in US (Winter and Priddle, 2001). Bargaining power of buyers The bargaining power of buyers especially in the automobile industry is significantly high because of availability of numerous brands of cars in the market. Customers can easily switch to an alternate car company if their requirements are not met with promptly by a particular automobile brand. In addition, development of information technology has also amplified bargaining power of buyers. Recommendations Strategies that can be implemented by the BMW Group are as follows: Product advancement Market development Reinvestment of profit (Kotler and Keller, 2009). Reduction of expenditure (Grant, 2008) BMW Group has to apply efficient strategies aimed towards making improvement in their vehicles and henceforth, increase their market share (Schlie and Yip, 2000; Johnson, Scholes and Whittington, 2008). Following that, the established automobile manufacturer has to implement effective profit reinvestment strategies as well as cut down expenditures. The underlying rationale behind prioritizing product advancement is that BMW Group needs to manufacture hybrid cars so as to be able to gain substantial competitive advantage as owning hybrid cars is the modern trend. A revolutionary step in favour of the company will be to manufacture hybrid sports utility vehicles. By doing so, BMW group will be successful in strengthening its grasp on the segment of SUVs. Alongside that, the company will also be able to achieve product diversification (Niederhut-Bollmann and Theuvsen, 2008). The management of BMW will have to rethink their strategy and bring about plans of complete makeover for the models that have a conventional outlook. The changing trend of the market necessitates manufacturing of cars that are appropriate to the market. According to Twarowska and Kąkol (2013) and Diez-Vial (2009), in order to beat competition in the market, BMW should develop cars that run on electricity instead of fuel. In the contemporary world, where the price of fuels is rising rapidly, developing electric cars would be a highly effective strategy, enabling BMW Group to attain competitive advantage (Arif, 2012). Reference List Arif, K. K., 2012. General Motors strategic management. [online] Available at: [Accessed 17 January 2014]. BMW Group, 2010. Sustainable Operations. [pdf] BMW Group. Available at: [Accessed 30 April 2014]. BMW Group, 2012. Company portrait. [online] Available at: http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/unternehmen/unternehmensprofil/strategie/strategie.html [Accessed 30 April 2014]. BMW Group, 2013a. “Driving the Next Movement” - BMW Group campaign for a revolution in mobility. [online] Available at: [Accessed 30 April 2014]. BMW Group, 2013b. BMW i3 launch campaign. [online] Available at: https://www.press.bmwgroup.com/pressclub/p/pcgl/pressDetail.html?title=bmw-i3-launch-campaign&outputChannelId=6&id=T0144257EN&left_menu_item=node__809 [Accessed 30 April 2014]. Diez-Vial, S., 2009. Firm size effects on vertical boundaries. Journal of Small Business Management, 47(2), pp. 137-153. DNA, 2013. Driven by design. [online] Available at: [Accessed 30 April 2014]. Fleischmann, B., Ferber, S. and Henrich, P., 2006. Strategic Planning of BMW’s Global Production Network. Interfaces, 36(3), pp. 194-208. Grant, M., 2008. Contemporary Strategy Analysis. 6th edn. United Kingdom: Blackwell Publishing. Johnson, G., Scholes, K. and Whittington, R., 2008. Exploring Corporate Strategy. 8th edn. London: FT Prentice Hall. Kotler, P. and Keller, K. L., 2009. Marketing Management. 13th edn. New Jersey: Pearson Education. Mbwette, K., 2013. BMW e-marketing analysis. [online] Available at: [Accessed 30 April 2014]. Niederhut-Bollmann, C. and Theuvsen, L., 2008. Strategic management in turbulent markets: The case of the German and Croatia brewing industries. Journal for East European Management Studies, 13(1), pp. 63-88. Porter, M. E., 2008. The five competitive forces that shape strategy. Harvard Business Review, 86(1): pp. 78-93. Schlie, E. and Yip, G., 2000. Regional follows global: Strategy mixes in the world automotive industry. European Management Journal, 18(4), pp. 343–354 Twarowska, K. and Kąkol, M., 2013. International business strategy - reasons and forms of expansion into foreign markets. [pdf] Make learn. Available at: [Accessed 16 January 2014]. Walters, P. G. P., Whitla, P. and Davies, H., 2008. Global strategy in the international advertising industry. International Business Review, 17, pp. 235-249. Winter, D. and Priddle, A., 2001. GM Revamping Purchasing Strategy. [online] Available at: [Accessed: 16 January 2014]. Read More