Strategic Management

Strategic Management Macmillan and Tampoe OUP (c) Macmillan & Tampoe 2001

Case Examples BMW in 1999 (c) Macmillan & Tampoe 2001

The reasons for choosing BMW • 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 (c) Macmillan & Tampoe 2001

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? (c) Macmillan & Tampoe 2001

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? (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

Post-Rover Acquisition • 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 (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

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? (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

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 (c) Macmillan & Tampoe 2001

Strategic Management