Strategic Management

(c) Macmillan & Tampoe 20011

Strategic Management

Macmillan and Tampoe

OUP


Case Examples

BMW in 1999


The company is well known to most students in the UK The industry structure and challenges quite well understood It’s a sizable company but a minnow (table C3.1) in terms of

global car production and sales. Strong European and US brand image and customer base but

faces tough decisions on how to move forward Faced with many options – merge, get taken over, buy to

grow, move into new segment, become specialist supplier, stay as now.

Interesting ownership structure. Provides comparison with Japanese companies who have

moved into the UK to spread their wings in Europe

The reasons for choosing BMW


Critical Strategic Issues

Car industry converging into mega-corporations where size seems to be the determining factor

BMW very small in comparison to top five (see table C3.1)

Can it survive by staying roughly the same size, selling their extremely successful and sought after high margin cars to discerning customers?

If not, how can it grow? How can it retain current ownership structure so that

major shareholders do not see their ownership diluted or lose control of the company?


Consequences of a growth strategy

Can it exploit its core competence in new markets? Can it modify its ethos to match new markets? Should it abandon its proven competence and approach

to business? How does it choose a new approach? Should it seek to develop a new customer base with

wider potential sales? Should it spread its brand over wider range of products? How will it counter threats to its new approach? How will it position itself vis-a-vis it chosen competition?


Strengths pre-Rover acquisition

Company ranked among the more admired companies in the auto industry

Its chief executive a respected industry and national figure with the industry in his blood

Customers are loyal to the brand 5 series is considered the benchmark for the executive

car market Profitable Perceived to be invincible Company announces expansion plans by buying Rover

from BAe in the UK


Possible causes of BMW success

Its aircraft and motorcycle heritage of quality and driveability

Its ability to deliver high value, reliable, consistent quality

Its ownership structure (see page 306) Its quality of management which was ranked

very high Its marketing ability which positioned it as the

epitome of the best and most desirable products in the industry


Inherited a range of products to exploit a slightly different market segment and customer

Required huge ongoing investment to get production facilities and product to meet BMW standards

Attempting to improve Rover’s share of its home market UK acquisition draining finance and management time

and effort What they got was not what they thought they were

buying BMW itself had competing products in its pipeline UK acquisition sours

Post-Rover Acquisition


Untangling its investment

Chief executive and his second in command leave the company

Divided the roles and appointed a chief executive

Went in search of a new chairman Sold its UK subsidiary for £1 Returned to its knitting having written-off

£billions of investment in the UK Harmed its reputation in the UK for a short time


Causes of BMW failure to exploit Rover

Was it the strategy or the implementation of the strategy?

Was it shifts in shape and structure of the industry which was going through a major reshuffle?

Was it failure to tackle the structural issues to do with organisation, management controls, and culture of Longbridge works?

Was it because Rover image did not appeal to the emerging generation – too associated with their parents and grand parents – ‘uncool’?

Was it arrogance and complacency?


Question 1 – Survival in global car industry

Obviously the BMW board felt that it had to grow in size and widen its appeal to survive as a independent producer of quality cars

Its 3 and 5 series car were selling very well. There were new models in the offing (MX5, Z3, Z8 new 3 Series)

Expanding volume in its own products could cause oversupply and result in diminution of market appeal with knock-on effect on residuals and exclusivity

Growth route chosen was one that protects own brand and widens scope by entering mass market

It decided to do this by acquisition of an ailing company but one that sold to a different market

It felt that it could inject its ‘magic’ to Rover


Question 2 – Growing the business

Choices were organic growth, alliances and/or acquisitions

Organic growth too slow to match pace set by other major players who were buying into niche markets

Few partners with whom to form alliance Fewer still available for purchase Choice meant two things – deciding the route

and then picking the target


Question 2 – The way ahead

By the time BMW took the decision to buy Rover its choices had diminished because Ford, and GM had acquired many desirable brands such as Volvo, Jaguar

VW had acquired lesser brands such as Skoda and SEAT and then a prestige brand in Bentley and Rolls Royce

Mergers and alliance opportunities were in France with Renault or Japan with Nissan, also South Korea

BMW may not have had the management expertise to work with non-European manufacturers

BMW woke up too late and found itself with only Rover as an acquisition opportunity


Question 3 – Making a Success of Rover

Point out that the ‘devil is in the detail’ Implementation should take consideration of survival and

also quality improvement Change culture first before throwing money at the

business Protect BMW at all costs Do not try to make Rover equivalent to BMW as it is a

different product in a different market Rationalise product range i.e., keep Mini and Range- Rover - Kill the rest


Question 4 – Rover In hindsight

Still a good buy? Product range complementary to BMW Offered entry to new market Opportunity to learn how to emulate VW, Skoda,

Seat as way forward Reap before re-investment

Strategic Management

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