Methods of Strategic Development

Each organisation which is planning to succeed in the long-term, have a competitive advantage and build on the organisation’s competences and resources must have a strategy. Strategy is ‘a statement of what an organization should be doing to achieve its objectives. Strategies have no start or end dates. Strategies contain many programs or projects’ (MG. Rush). However, according to Horst Rittel (1972), strategy is described as frequently important rather than urgent. Changes in the macro and micro environment of an organisation can make an organisation change its corporate strategy.

According to Emery and Trist, there is an ‘environmental connectedness’ and rarely problems can be isolated for individual treatment. An example is how BMW’s corporate strategy evolves during 20th and 21st century, how the organisation manages to gain competitive advantage in the automobile industry and finally becomes the number one producer of premium cars. BMW strategy was affected by many factors in the business environment generally, and in the automobile industry in particular. In general, we have the macro-environment and industry, whereas in particular we have the competitors, markets and the organisation – BMW in our case study.

Lets first examine the macro-environment of BMW corporation. This will be done using the PESTEL framework which according Johnson, Scholes and Whittington (2005) it categorises environmental influences into six main types: Political, Economic, Social, Technological, Environmental and Legal. In BMW’s study, political, economic and socio-cultural factors seemed to have a greater influence on corporation’s strategy. Political factors that had an influence on corporate strategy of BMW company was the fact that the German VAT rises dramatically from 16% up to 19%.

This reduces the demand of consumers, especially in expensive goods like cars. Moreover, the liberation of the automobile market through the European Union, strengthens the position of dealers in relation to manufacturers. In the economic sector now, the increased petrol prices not only lowered the demand for petrol, but led to a reduced car demand affecting directly the car manufacturers lowering their annual sales. Socio-cultural factors included the lower average income, leading to a lowering disposable income which lowered the demand for luxury products, like cars, especially in the luxury segment.

In the automobile industry now, Second World War was the reason why national economies destroyed. This made the automobile industry an important employer and a source of significant economic funds only after the war finished and national economies were starting to incline again, getting better year to year. Furthermore, several environmental influences in the first few years of 21st century affected the industry as well. The rise in equity prices accompanied with some geopolitical tensions about oil supplies added to the uncertainty about the economic and political environment of 21st century.

The fact that USA go against Afghanistan and Iran – countries whose main production is oil – made oil prices increase dramatically, a cause that car manufacturers suffered from. In addition, as industry was now in maturity levels, economies of scale were crucial, necessary for companies in order to survive in the market. Changes in competition, strongly affected the strategy of BMW organisations. While in the mid 1990s competition was based on the engineering and quality of vehicles, by 2000 competition is now based ultimately on design and brand appeal. All cars are strong build and there is no more an issue on their quality.

Design was the strongest weapon for the market share ‘war’, while brand identity was the only way to compete having huge amounts spent for banding and advertising. Branding now becomes the major driver for differentiaition. BMW’s actual rivals, both competing on the same basis of product excellence and cost of ownership – usually very high – was Mercedes Benz, Lexus, Cadillac and Lincoln. For instance BMW model Z4 – a sport car – was competing with Audi TT and Mercedes CLK. Main BMW markets was Germany and USA, having almost the half of the total annual sales of the company.

As mentioned above, Germany’s incline in VAT reduces dramatically the demand for this country, while USA’s attacks for petrol made oil prices even higher. Other major markets are Europe, Japan and the Pacific Region, while a significant increase in BMW automobiles showed up in China for the range of 7 and 5 series models. The organisation of BMW decided to reduce cost of production in order to make a significant profit on each car. They decided the increased use of the Spartanburg plant in US and the utilisation of Chinese cheaper labour force.

Also, in 2002 the new CEO of the company Helmut Panke, committed himself and the company to a strategy of internal growth achieved by product and market development. Moreover, some difficulties in controlling the cost of its labour force in European political climate led the company to invest more in US production than EU. The company was aiming to find buyers in US and Asian markets, and increase the production in China, where labour cost was relatively low. As a result, in 2003, BMW finally becomes the number 1 producer of premium cars, leaving Mercedes ranking at the second place.