BMW Group Strategic Management: Analysis, Direction And Capabilities Essay.

Discuss possible strategies that the company could follow to defend its core business.

Concept of Capabilities in Strategic Management

Organizations all over the world use strategic management tools to promote their national, regional and international competitiveness, growth and innovation (Voor 2012)

The corporate strategy refers to the command and control over a long-term. It is based on articulating the organization desired position in the market that matches its strengths and weaknesses with the market opportunities and threats. The strategic planning takes place at the top of the organization. Competitiveness examines the organizational competitive advantage on the national or the international levels. It depends on investigating the demand conditions, costs, related industries, organizational strategy, governmental regulations and strategy and the influential events (Cummings 2015).

This report considers the case of BMW Group strategic management and future strategic direction. BMW was founded in 1917 in Germany, with an original aim of producing airplane engines. In 1952, BMW started to produce vehicles. The company could acquire Mini and Rolls-Royce,  BMW Group became among the top ten largest car manufacturers in the world. The company operates 30 assembly and manufacturing plants in 14 countries (Border, Midland and Western Regional Assembly 2011; BMW Group 2015). In 2015, BMW initiated a stakeholder dialogue and involved more than 200 experts to discuss its strategy, this dialogue resulted in the necessity of continuous development of the group strategy (BMW Group 2016 a).

The following section provides an analysis of the BMW Group strategy. It discusses the Group strategic direction, analysis of its strategic position in the industry, its mission and vision, strategic capabilities, strategies that the Group could follow to defend its core business and an evaluation of the Group's ability to achieve its desired goals.

The concept of capabilities draws on theory and empirical research in strategic management. It was found that capabilities are a complex set of skills and knowledge that are embedded in the organizational process. The organizational capabilities enable the transformation of resources into valuable outputs. The intangible capabilities develop over time to represent unique core competency that the rivals cannot imitate. The core competencies enable the organization to build its competitive advantage and sustain it. The researchers have conceptualized marketing capabilities to be the organization's ability to utilize its available resources to perform activities in the way that enables it to achieve its desired marketing goals. The marketing capabilities are valuable, rare, nonsubstitutable, inimitable and can create a sustainable competitive advantage. The international marketing capabilities include the product innovation, global brand management, overseas market–related exploitative and explorative capabilities, international customer support, adaptive capability, local market competence and global account management capabilities (Morgan, Feng & Whitler 2018).

BMW Group enjoys a high level of innovative technologies, design and intelligence. These three areas enabled the company to maintain a high level of innovation competence. The company leading production system is featured for its unique flexibility. The system is aligned with the organization strategy, where the production competence provides a competitive edge, contributes to the profitability and sustains its success. BMW’s capability in innovation technology enabled it to develop an engine that became of its core competencies. Since 1990, it could reduce the average fuel consumption and CO2 emissions by 30%. This innovation enabled BMW to create a competitive advantage due to the high quality of product and the delivery of luxurious driving for its customers (Hwee 2015).

BMW Group's Strategic Capabilities

BMW has a worldwide network of production that utilizes the resources and capabilities of various countries. Over the last five years, the marketing activities of the company continued to spread over various world countries. The company is challenged with developing the battery cell technology. In addition, the custom-made cars provide customers with more options compared to other competitors, like Mercedes and Audi. They result in higher profit margins that create a competitive advantage to BMW over its competitors (BMW Group 2017 a).

The large production network that BMW enjoys, provided reliable capabilities to the company over the last five years. It could acquire and manufacture cost less depreciation. The cost of constructed plant and equipment are related to the manufacturing process. The engine plants that supply diesel and petrol engines take place in Munich, UK and Austria. The engine plant in China supplies local production facilities. About 20 million engines were produced from BMW worldwide production lines by 2017. Manufacturing of the electrified vehicles spread over the production network. Being competence centers, Dingolfing and Landshut are the leading locations for producing electric drivetrain systems (BMW Group 2017 a).

Organizations provide a social platform where employees interact with each other. This social context impacts the way individuals perceive and react to information. The relationships with others impact the employees' attitude to act in the shareholders' interest. The human capability in a task context, for example, tools, processes and interdependence represent the bases of the organizational human resource capability (Wright & McMahan 2011).

The workforce at BMW is the main reason for its success, they are high skilled and capable of bringing new ideas. BMW manages risk and maintains safety standards internally and externally to be sure that it will achieve its desired targets. During the last five years, the risk management system focused on the effectiveness, completeness and practicability. Risk management is not a centralized process, it is considered the responsibility of every employee and manager as well to report the risk through the relevant channels (BMW Group 2017 a).                                     

According to the resource-based view theory, the organizational superior financial performance is a result of its rare resources and skills. These resources are rare and organization specific, they represent the VRIO framework. The value, rareness, immutability and organization represent the dimensions of the VRIO framework. The value refers to the organization's ability to create customer value and competitive advantage. Rareness refers to the inability of the competitors to imitate it. Immutability refers to the inability of rivals to imitate it because of the high cost. Organization refers to the ability of the internal organization of the firm to exploit resources (Lin et al. 2012).

The VRIO framework is used to conduct internal analysis in evaluating the ability of the BMW competitive advantage to produce a future outcome through the utilization of its current resources and capabilities. BMW has a sustainable competitive advantage in the automotive industry, it gained it through innovation, brand portfolio and design capabilities. The rivals cannot imitate, duplicate or substitute BMW valuable resources even if they got large capital. The applied technology help in developing highly efficient engines that enhance the motor performance and reduce fuel consumption and CO2 emission. BMW can effectively utilize its human capital resources and get the best of the R&D expertise (Hwee 2015).

BMW Group's Marketing Capabilities and Competitive Advantage

Grant (1991), as cited in Viitamo (2018), argues that the business strategy is important to make sure that its competitive advantage above the real costs of its resources. Grant proposed a five-stage procedure, it involves:

• Identification of the organization's resources and classification of them in terms of strengths and weaknesses
• Combination of the firm’s strengths into specific capabilities that lay the bases of the core competencies.
• Appraisal of the potential profits of the core competencies in terms of the sustainable competitive advantage. It is important to define the distinctive competitive advantage of the organization.
• Selection of the strategy that best fits the organization's competencies relative to the external opportunities.  
• Identification of the resource gap and upgrade the weaknesses.

BMW utilizes its tangible and intangible resources in creating a premium attribute that accelerates the investment in production. BMW adopts the differentiation strategy that helps it in creating an image of producing rare vehicles because of its high value. BMW got its excellence from its experience in making aircraft and its reputation in Germany where, it created its competitive advantage. By using its core competency of technological innovation, it could achieve strategic results. Also, the corporate culture enabled BMW from turning its resources into capabilities, then core competencies, then sustaining its distinctive competitive advantage (Hwee 2015).

Porter has outlined three main strategies through which companies can achieve competitive advantage; the cost leadership, differentiation and the focus strategies. The BMW business strategy could be classified as product differentiation that focuses on product design. Electromobility is BMW latest differentiated product, it introduced a fully electric BMW i3 in 2013 and then in 2014, it produced BMW i8. BMW business strategy focuses on product and service mobility in the premium segment. The company adopts its long-term strategy; 'Strategy Number One' focuses on long-term value creation and short-term profitability. BMW operates in four strategic areas; growth, profitability, shaping the future and access to technology and customers. The BMW competitive advantage is based on representation of status and achievement, it is among the premium automotive category. The effective design and features and post-sales service of each model of the brand introduce a competitive advantage (Dudovskiy 2016; McGee 2014).

The over 100-year-old BMW’s mission statement is to be the leading world premium products and services provider for the individual mobility through leveraging innovative technologies, the design of products and brands, delivery of unique customer experience digitalization and profitability (BMW Group 2015) (BMW Group 2017 a). BMW has a luxury image, it depends on utilizing its unique resources and managing its network of manufacturing plants and using the latest technology in innovating its products. The company maintains high quality, it has energy efficient machines that could be adjusted and customized to align with the company mission. These capabilities allow the production system to enjoy the high flexibility and manage complicated structure. BMW vision over the next 100 years is to make a fascinating driving experience more intense. The driver communicates with the vehicle in a natural way, the vehicle expands the driver perception to transform him into an ultimate driver. This vision aims to make the customer enjoys driving as the best driver through responding to the customer needs. BMW seeks to create the most emotionally-intense customer experience (BMW Group 2018 c). BMW vision and mission are aligned with the company strategy for survival in the automotive industry. BMW is required to keep innovating new products to compete effectively in the marketplace.

The industry of luxury automotive vehicles is expected to be more competitive in the future. The intensity of competition enforces BMW to maintain product continuous improvement to compete effectively. There are possible future changes represented in; new entrants and new innovated products in the industry. The possibility that the new entrants could establish new names in the industry will create a worthy competition to BMW. This implies that BMW has to face the competition intense and the potential threat of new entrants to the market to keep its image and market share.

BMW Group's Production Network and Capabilities

The company strategic capabilities mean that it has sufficient and appropriate resources and expertise that allows its long-term growth and survival. BMW capabilities are mainly represented in its engineering excellence that introduces new IT features like RSS feeds and MP3 connectivity. Also, it could introduce high-performance design, innovation and hybrid engine options. BMW also relies on the value added of its workforce; it considers its employees as the most success factor through the contribution of the highly talented, motivated and dedicated employees. In addition, BMW brand management could utilize the company tangible and intangible resources to create the ultimate driving machine (Hwee 2015; Kamal 2017).

The company also developed its BMW Vision iNEXT to create “My Favorite Space”. This vision stresses accompanying the designers to their favorite spaces to get inspired and rethink to create a new space that never existed before. BMW aims to cope with the individual mobility changes, like autonomous driving, increasing connectivity and electrification that allow more control over the road and time. The BMW Vision iNEXT fulfills the customer dream of driving a car that does not need to be driven. It involves fully electric vehicles, fully connected and allows high autonomous driving (BMW Group 2018 d).

The series-production model aligns with the company differentiation strategy that makes copying or imitation by rivals a very complex process. It is considered a core competence that allows the company to sustain its distinctive competitive advantage.                                                                                        

The merger and acquisition (M&A) and alliance related activities gained the attention of the researchers. M&A are sometimes accelerated and in other times they slow down because of their impact on the organizational performance (Shi, Sun & Prescott 2012).

The automotive industry witnesses a healthy position, it accounts for 3-4% of the US GDP and 6% of the EU GDP, representing by this one of the most important industries in the world. It has the ability to influence the country's international position and trade competitive advantage. The industry witnesses an increasing trend of concentration through M&A that caused significant change in the Europe competitive position. The alliance of BMW, MINI and Rolls-Royce brands, represent three of the highly reputed premium brands within the automotive industry. They operate in the luxury automobile segment and represent one of the ten largest automotive manufacturers worldwide (Gomes 2013).

BMW acquired Rover in 1994, which included Land Rover, MG and Mini. Taking over Rover represented a very good strategy at that time. Rover offered BMW a direct access to the booming market of sporty SUVs; represented in Land Rover and Range Rover. By acquiring Mini, BMW could access the small car technology that cuts the effort of many years of investment if BMW had decided to invest in its production. BMW could gain 13% of the UK market and the know-how of Rover Honda through this acquisition. BMW positioned Rover in the lower mid-range segment in the UK market as a price alternative to the mass market volume. This strategy failed to achieve its desired goals because BMW could not consider the weaknesses of Rover. This acquisition failed and terminated in 2000 after BMW lost 2 million pounds (Aldea 2011).

• Concentration strategies: Organizations tend to diversify when their product lines do not match their potential growth or they cannot achieve the desired profits. There are two basic growth strategies that organizations can adopt; concentration and diversification strategies. Concentration refers to adding products and services related to its strategic business area that aims to gain a strategic fit. It could be achieved through vertical integration; backward integration is done by the suppliers to diverse the resources and materials, while the forward integration is done with the distributors to allow the organization to move closer to the customers. The horizontal integration refers to organization moves to business related to its current activities (Haapalainen & Skog 2011).
• Diversification: It occurs when an organization accesses a new strategic business area that is not related to its current business area. Diversification could be achieved through fulfilling the market needs or technology. It requires good management skills to achieve synergy, management should be capable of evaluating the potential success and failures. Internal diversification happens when the organization starts a new business related to its core strategic business area through the development of new lines of business. The external diversification occurs when the organization accesses a new business by acquiring another business through M&A (Haapalainen & Skog 2011).

Human Resource Capability and Risk Management at BMW

BMW adopts the internal diversification strategy by adding new product lines. The “project i” resulted in the introduction of the BMW i3 in 2013. It represents the latest innovation through the production of the "i models". The company is still improving them to introduce autonomy, electric, connectivity and services (BMW Group 2018 d). The external diversification took place through the acquisition of Mini, Rover and Rolls-Royce.

BMW could achieve many successes through its adopted strategy. The company succeeded in reducing the CO2 emissions of its products. It is considered a sustainability leader in the automotive industry for more than 15 years, according to Dow Jones sustainability indices. Also, it is listed in the FTSE4Good index, its corporate responsibility rating by Oekom is prime and it is ranked no. 1 in the “DAX 30 Sustainalytics (BMW Group 2018 a). In 2017, BMW Group continued to achieve new sales volume records for BMW, Mini and ­Rolls-Royce brand vehicles (BMW Group 2018 b). The Group revenue in 2017, recorded 94.123 million Euros, growing by this 2.2% annually. The Group net profits recorded 9.6 million Euros, growing by this 8% on annually (BMW Group 2017 b).

BMW positions itself as a premium brand, it could succeeded in focusing its market segment and tailoring its strategy to satisfy the customer needs. The company set its target to achieve 2 million car sales by 2016, this target was achieved and resulted in an increase of 8-10% in its earnings before interest and tax margin (Hwee 2015).

Conclusions

BMW Group enjoys a high level of innovative technologies, design and intelligence. These three areas enabled the company to maintain a high level of innovation competence. BMW’s capability in innovation technology enabled it to develop an engine that became one of its core competencies. The workforce at BMW is the main reason for its success, they are high skilled and capable of bringing new ideas.

BMW has a sustainable competitive advantage in the automotive industry, it gained it through innovation, brand portfolio and design capabilities. The rivals cannot imitate, duplicate or substitute BMW valuable resources even if they got large capital.

The BMW business strategy could be classified as product differentiation that focuses on product design. The company adopts its long-term strategy; 'Strategy Number One' that focuses on long-term value creation and short-term profitability. BMW operates in four strategic areas; growth, profitability, shaping the future and access to technology and customers.

BMW adopts the internal diversification strategy by adding new product lines. The “project i” resulted in the introduction of the BMW i3 in 2013. It represents the latest innovation through the production of the "i models".

References

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