A STRATEGIC ANALYSIS A CASE STUDY ON BAYRISCHE

MOTORENWERKE, BMW
Ralph Colditz
Key words:
Strategic Management, PESTLE, Five-Forces, Competitive Rivalry, Competency Choice,
Differentiation, BMW Group, Car-Making Industry, Leadership
Abstract
Todays economies are volatile and influenced of fast changes all over the world. Hence, an
on-going market position of a single company depends on analysis and evaluation of its
surrounding. Harari (1994) states the successful organisation should even conducts brief
periodic environmental scans that include what todays official competitors are doing - but the
primary intention is on doing whatever it takes to lead the race.
BMW is one of the big players within the car manufacturing industry. Its formidable position
is caused by a strong strategic intend that has been given distinction successfully over the last
decades. The questions arise: What is behind this strategy? What makes the difference?
First, this paper gives an overview about the notion of strategic thinking. Second, analysing
tools are extracted from academic theory and applied to the case of BMW. Later on the study
discusses the strategic position of the car-maker in contrast to competing companies.

Introduction
Chandler (1993) argues that an environmental analysis helps an organisation to achieve
compatibility with its environment while this compatibility should be a product of strategy
making. Consequently, the focus is on sensitive strategic processes for on-going, successful
tactical moves. This work seeks to identify and analyse the strategic challenges that BMW has
to meet. The purpose of this paper is also to aim at strategic issues concerning of two
environmental analyses. Critical theories are going to match the latest strategic approach.
Statements of different authors are applied and discussed. Finally, a conclusion and limitation
part is hold in place.
Organisational Background
BMW is one of Europes top automaker. The German manufacturer produces a varied range
of high quality automobiles and motorcycles. Beyond the automobile production the most
important sectors are banking, insurance, telecommunication and industry
(www.bmwgroup.com).
The BMW Group is the only premium automobile manufacturer running different brands,
which solely focuses also on the premium segments of worldwide automobile and motorcycle
markets. The year 2001 saw the company re-launched the MINI. In 2003 the Group acquires
successfully Rolls Royce in the top segment. Finally, in 2007 it completes its market spectrum
in Motorcycles with Husqvarna.
With a total of 1,380,384 cars (BMW), 285,060 (MINI), 3538 (Rolls-Royce), and 104,286
(BMW motorcycles) as well as 9,286 (Husqvarna motorcycles) sold in 2011 the group
increased its sales in a stagnating world-market. For the fiscal year ended December 2011 the
company achieved revenues that totalled Euro 68,821 billon (Annual report 2011).

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That means an increase of 13.8% to 2010.

BMW has worldwide 25 subsidiaries and manufacturing plants in 14 countries on 5
continents (Germany, Austria, Italy, UK, U.S., Brazil, South Africa, Egypt, Thailand,
Malaysia, Indonesia, China, India, and Russia). Hence, the BMW Group has worldwide a big
workforce of in total 100,306 employees at the end of 2011 (Annual report 2011).
Since 2007 the BMW Group follows its Number ONE strategy with a strong focus on
profitability and enhancement in value. The strategy is defined to bring the organisation in a
position of an international technology and innovation leader for premium products and
services for individual mobility (Annual report 2011).

1. Method of the Review

The review started with search on the Business Source Premier database for all papers and
articles for that some variants of the terms strategy (or related terms, such as environmental
analysis and competitive analysis) and leadership (or related terms such as
differentiation and costs) appeared in the abstract. The researcher was focused on
qualitative academic journals and narrowed his attention to statements published within the
last 20 years as in his opinion the resulting sample of 36 papers represent current thinking.
The selected articles are critically appraised, compared and contrasted to other studies and
results. In order to apply strategic tools this review exhibits an initial outline to management
thinking towards a better understanding. The order of the review is chronological and is
building up the knowledge upon the foundation of the publications that has gone before. The
order of the summary is typological and exhibits the reviewed research.

2. Academic Theory
Strategy is the determination of the basic long term goals of an enterprise, and the adoption
of courses of action and the allocation of resources necessary for carrying out these goals
(Chaffee, 1985, p.89-98).
The complexity of the strategic process has led researchers to build frameworks that stress the
main characteristics of what they consider to be distinct patterns or paradigms.
Mintzberg et al. (1998) identified ten schools of thought on strategy formation. They
recapitulated distinct and dominant works. For instance, Planning School is based on Ansoff
(1965) and Learning School synthesises the work of Quinn (1980) as well as Cyert and
March (1963). Also, Chaffee (1985) came up with three models namely Linear, Adaptive
and Interpretive. Likewise, Johnson and Scholes (2002) defined the Design, Experience
and Ideas Lenses. While they focus on a set of common criteria to form general patterns,
other authors chose precise criteria to differentiate existing and new paradigms. Schools of
thought have often developed interrelated models. Boulding (1956) cited in Chaffee (1985,
p.94) states the basis for suggesting that the models are interrelated is that they show some
similarity to well-known hierarchy systems in which each level incorporates the less complex
levels that precede it.
Making new theories out of old is one element. But the ever-growing competition and the
inherent collaborations have changed the strategic purpose. In a post-industrial era, business

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strategies translate much more customer-, and more broadly people-needs into action.
Mintzberg (1987) adds there is a close connection concerning action and thought. He argues
further the same close link exists concerning learning and control as well as concerning
stability and change. However, the whole business needs to have a clear direction to follow.
Therefore, Mintzberg (1987) proposes the Umbrella- and Process- strategies, setting
guidelines as well as delivering power to so-called nodes of an organisation.
Hamel and Prahalad (1989) spoke about strategic intent and rather considered that the
organisation should aim at shaping the future instead of merely adapting. They also stresses
that convergence involves an intent that is adequately exact to guide decisions and suggested
focus strategies, arguing that industry maturity is only a narrow concept. Differently, to
shape or [to] adapt Courtney (2001) highlights it is all about understanding and managing
uncertainty. And by issues like globalisation, financial crises, etc the level of uncertainty
raised. Finally, he points out that a good strategy contains adapting as well as shaping and can
become a real choice.
Johnson and Scholes (2002) go further and claim that strategy can be perceived through the
framework of ideas and innovation. At the extreme this is related to natural evolution, seen as
being Darwinian (Combe, 1999; Pascale, 2000). Described by Combe (1999) as postmodernist, the world is viewed as unpredictable and organisations must be very reactive to
change. However, at the edge of chaos, innovation often thrives and startling breakthrough
can come about (Pascale, 2000, p.64).
Lynch (2000) emphasises direction should focus on the future and an organisations intentions
to utilise its resources within the environment. Segev (1977) finds the increasing rate of
change in all aspects of the environment, and the expectation that future organisations will be
more complex and more dependent on their environments, indicates, that to survive,
organisations must conduct environmental analysis. The key to the environment is to
recognize how the trends are likely to impact the firm. Hence the environment of an
organisation consists of the outside forces that directly or indirectly influence its goals,
structure, size, plans, procedures, operations, input, output, human relations, and so on. Chung
and McLarney (1999) conclude environmental analysis is one of the ways management
gathers and generates information on external events and trends in order to avoid
organisational decline.
Additionally, Zou and Cavusgil (1996) point out competitive advantage is the basis for most
strategic decisions and its creation a key issue of management. According to Collins and
Porras (1994) the best (longest surviving and most profitable) business organisations are those
that do not keen on profitability as their primary mission. For instance Keeley (1988) and
Velasquez (1983) see corporation should act rather like persons in terms of ethical issues
because they are faced by individuals. This perspective simply regards all organisational
motives, processes, behaviour, outcomes, and consequences, from a moral point of view
(Keeley, 1988; Velasquez, 1983). A helpful concept for a competitive strategy which includes
above mentioned aspects (seen from a macro-environmental perspective) is the PESTEL
framework (Johnson and Scholes, 2002).
The next sections will describe these basic ideas and explain how PESTEL is connected to a
further environmental framework; Michael Porter's Five Forces, published in his books
Competitive Strategy (1980).

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PESTEL Framework
Johnson and Scholes (2002) explain that PESTLE is a strategic tool that groups
environmental impact into six main categories: political, economic, social, technical,
environmental and legal. Hence, it delivers an answer of some of the questions about key
forces at work. They argue also it is particularly important that PESTEL can be used to
analyse the future impact of environmental elements. Ennew (1999) adds on the international
level, it is of vital importance that a business is aware of understanding of prevail political
climates within countries in which it operates. Furthermore, new situations for instance such
as terror danger have also drawn the attention of the world. This influence of non-business
factors affects national respectively international business.
Also, Cummings and Doh, (2000) see resources and capabilities have varied in the course of
time and technological as well as political life-cycles have changed. The PESTEL framework
enables to illustrate evolutionary scenarios and gives guidance to strategic planning efforts.
However, Fahey and Narayanan (1986) argue that environmental analysis cannot predict the
future, and it is also limited to reduce uncertainty entirely. Environmental scans should
degrade the likelihood of surprises that may occur to an organisation. Further, a major
difficulty with foretelling the future of the action of moving elements is their relations with
each other. One element is directly influenced by another element, and consequently,
anything what happens will have an effect on the whole environment (Scherrer, 2003).
Five-Forces Framework
Within this broad and general interrelation of elements the next layer below (microenvironment) would be called an industry. The Five Forces framework and the concept of
hyper-competition (Johnson and Scholes, 2002) can be useful to understand how competitive
dynamic within and around an industry is changing. An organisation does not stand alone
rather it is part of an environmental system. To analyse this area the important factors are:
Competitive Rivalry, Bargaining Power of Suppliers and Buyers, Threat of new Entrants and
Substitutes (Porter, 1980).

Five-Forces Framework adopted from Porter (1980)

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Competitor analysis enables to be anticipated to competitors' next moves thereby allowing an

enterprise both to plan the defence of its territory and to prepare itself for opportunities that
result from competitors' mistakes and weaknesses (Wilson, 1994). Mintzberg et al. (1998)
warns the focus on strategic development is shifting away from identifying drivers of the
organisation towards maximising the change potential of a company. Morgan et al. (1998)
criticise that the model neglects learning, which is the process of internalising, analysing,
gathering, and acting with external as well as internal information, to improve the fit between
the organisation and its markets. Kaufman, (2000) adds competitive advantage stands for the
ability to learn and react faster than the competition on a daily basis. Rather than structured
techniques, the need for persistent learning environments will accelerate the need to integrate
communications, collaboration and learning processes into one unified network of
information.
The next chapter scans the macro- and micro environment of BMW by help of the strategic
tools PESTEL and Five-Forces.

3.

Analysed Challenges

PESTEL Analysis
Political Factors:

Taxation policy: oil, petrol, diesel;

Introduction of tolls could reduce car-using (particularly in Germany);

Foreign trade regulations for examples: USA / China try to stabilise their car
manufacturer by regulating the trade respectively by customs duty regulations; similar
regulations concerning the import of final products to Asian countries;
Environmental Factors:

Regulations of fuel consumption (l/100 km) of new cars respectively manufacturer

fleet figures incl. reduction of Co2;

Demand of cleaner and more efficient engines to reduce environmental pollution;

Production of synthetics has to be free of Chlorofluoro-Carbon (CFC-free);

Ecological certificates and waste disposal in terms of recycle-ability of cars;

manufacturers have to ensure a total recycle-ability respectively the sewage and refuse
disposal of their products to save raw material;
Sociocultural Factors:

Increasing figures of old people in industrial countries;

Ecological awareness leads to less car using within cities;

Lifestyle changes lead to an increase of more social mobility;

Technological Factors:

The German government is spending huge sums of money on research because of the
need for gaining innovative energy. This led to development of combustion
technology and electric cells and to a demand of vehicles with alternative drive
mechanism;

With the growing concern of environmental issues, the development of new

technologies is likely to stand a company in good stead in the future as eventually cars
will require alternative fuels some days;

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The speed of technology in the car manufacturing industry is very high particularly in
terms of active and passive safety, engine efficiency, environmental aspects, and
network technology like GPS in connection to the internet and traffic management
systems;

Economic Factors:

An increase in interest rates, inflation, and unemployment caused by the financial

crises particularly in the South Euro-Zone affects the purchasing power of cars;

Increased petrol prices and general running costs may reduce the demand for new cars;
car-sharing and lift-sharing gets more and more popular;

There are competitors in Asia that are becoming formidable because of their low
manufacturing costs, increasing quality of products, and a better local position;

Current Worldbank-figures mirror a rising inland performance of India (Gross

Domestic Product, GDP of 1,684.3 billion US$: an increase of 9.6% to the year
before), and also in China (GDP with 5,930.5 billion US$: an increase of 10.4% to the
year before); however the on-going financial crises in Europe and the U.S. may also
degrade the Asian continent (www.data.worlbank.org);

Rise in prices of raw material (e.g. steel, oil, and so on incl. refining costs)

Currency fluctuation (e.g. Euro US$); that means European companies, which want
to sell their commodities to countries with an American Dollars based currency, record
a current decrease in profits because of a weak US$ Dollar;
Legal Factors:

The age of workers to get in retirement is increased (Germany / partially in Europe);

Germany has a high standard of product safety (TV: Technical Supervisory

Association) and work safety (DIN: German Industrial Standard) - that means
frequently changes of higher safety regulations;

The automotive industry is permanently confronted with new changes appearing on

matters such as safety and environment (European legislation).
Porters Five Forces Analysis
Threat of Potential new Entrants (low)

Capital intensive industry;

Patents and proprietary knowledge restrict entry;

Customer loyalty protects from new entrants and substitute products;

Bargaining Power of Suppliers (low-medium)

Specialized suppliers, high switching costs /- time;

Licensed production;

Customer loyalty: even increasing prices are paid to a certain extent;

Bargaining Power of Buyers (low-medium)

Unique products reduce opportunities to switching to another brand

As a technology and innovation leader BMW provides the most demanded products
which customer cannot buy elsewhere customer has got less power if they keen on
Threat of Substitute Products or Services (low)

Little arising convenience of substitutes like public transport incl. aviation;

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BMW is already ahead of the game (innovations) with a number of joint-partnerships

with companies that have the technology and expertise to develop combustion
technology and electric cells: e.g. Toyota;

Intensity of Competitive Rivalry (medium-high)

Competitors (e.g. Mercedes-Benz, Audi) competing in the same market segment, and
aiming at the same customer groups with similar product;

Asian manufacturers compete on price while simultaneously delivering high quality

and innovative products: e.g. Lexus(-Hybrid); see also Appendix below.
The following graph gives insight to BMWs competitors in terms of level of product range
and geographical scope:

BROAD

PRODUCT
RANGE

NARROW

REGIONALLY-FOCUSED BROAD-LINE
PRODUCERS
Fiat, PSA, Renault

NATIONALLY FOCUSED,
INTERMEDIATE LINE
PRODUCERS
Tofas, Proton, Maruti, Seat, Skoda,
Dacia, Lada, Rover, Vauxhall, Opel,
Alf Remeo, Lancia

GLOBAL SUPPLIERS OF NARROW MODEL RANGE

Volvo, Subaru, Isuzu, Suzuki, Hyundai, KIA

LUXURY CAR MANUFACTURERS

Jaguar, Rolls Royce, Bentley, BMW, Audi,
Mercedes-Benz, Lexus

NATIONALLY- FOCUSED, SMALL,

SPECIALIST PRODUCERS
Bristol (U.K.), Classic Roadsters
(U.S.), Morgan (U.K.), Tesla (U.S.),
Wiesmann (D)

NATIONAL

GLOBAL, BROAD-LINE
PRODUCERS
GM, Ford, Toyota, Nissan, Mitsubishi, Honda, VW, Chrysler

PERFORMANCE CAR
PRODUCERS Porsche, Ferrari,
Maserati, Bugatti, Lotus,
Lamborghini, Aston Martin

GEOGRAPHICAL SCOPE

GLOBAL

Source: Authors view

4. Discussion
An organisation can protect itself best if its competitive force is a key issue of the
management. To achieve this defendable position a strategy based on competency must be
accomplished and processes, structure and policy need to be regarded (Porter, 1980). There
are three generic strategies building on different competences:

Competency Choice - adapted from Hill and Jones (1995, p.171)

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The cost leader produces standardized goods (economy of scale) with the same value similar
like competitors, however, its manufacturing cost are lower (Bowman and Asch, 1996). If an
organisation is focusing on a specific niche in the market place and develops its competitive
advantage by offering products especially developed for that niche than it is called a focus
strategy (Lynch, 1997).
BMW is identified as a differentiator because its strategy aims at goods and services which
are unique and broadly valued by the customer. The company is perfect in fulfilling the needs
of specific customer groups in the whole market with the underlying concept of market
segmentation (Lynch, 1997).
BMWs differentiation can be achieved by:
Use of high quality and luxurious materials (Lynch, 1997);
Providing better levels of services (Lynch, 1997);
Branding and designing an excellent company image (Gordon, 2002);
Innovation and research leadership.
Though, these activities generate additional costs. Therefore BMW has to try keeping its costs
close to the average market costs per unit (see figure below). It is vital that costs arise only in
areas that buys can recognise as important (Thompson, 1993). It is crucial that the difference
between the premium price and the increased costs is the greater than average profit.

Increased profits of a differentiator strategy adopted from Lynch (1997, p.489)

The impact of the Five Forces for the differentiation strategy of BMW will now be discussed
in further depth.
Competitive Rivalry
A rise of competition activities leads to lower prices. If production costs cannot be reduced or
remain constant than the profit will shrink. However a customer will even pay a higher price
if he is looking for a good or service with unique value which he is not able to get elsewhere.
Hence, the differentiator can holds up its high prices also in case of an increase in
competition due to customers loyalty. However, the unique value explains the price difference
up to a certain extent. The differentiator stays in a stable position even there is a threat arising
by more competitors. For instance, Japanese and European car manufacturer step up efforts to

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achieve a higher market share within the U.S. market (Muller et al., 2002). By doing so,
vehicles in the lower segments are sold much cheaper but not in the premium segments. In
spite of an arising competition for instance the BMW 7 series is sold even to a higher price
and customers stay (Flint 2002 cited in www.forbes.com).
Substitutes
A different product that fulfils the same customer needs and cuts market share or replaces a
product is a substitute. It is not easy to predict substitutes and to protect against them. BMW
defends itself by providing a unique value, and it is investing in project for individual
mobility like car-sharing and -rental. To fight against BMW, first, substitutes have to meet the
same customer needs; second, they have to break customers loyalty (Hill and Jones, 1995).
So, the speciality of BMWs products makes it less likely that it can be substituted easily.
Power of Buyers
BMW manufactures the most formidable products in each segment. As pointed out before,
customers cannot get such products elsewhere. Therefore, they have less power due to a lack
of choice. However, it is vital not to charge more than the market is willing to pay for
uniqueness (Hill and Jones, 1995). BMW must weigh up and explain an increase of higher
production costs before adding product value otherwise customers do not accept extra costs
(Lynch, 1997). Therefore, BMWs attention of the whole market development is vital, and the
company must be the first to gain new ground in terms of radical changes and new trends.
Power of Suppliers
BMW can hand over an increase of suppliers costs to its customers due to a strong brandloyalty (Hill and Jones, 1995). Customers have already paid high prices and will do it after a
price rise too. However, the room would be limited if brand and value is stagnating.
New Entrants
Carmakers are working in a capital intensive industry and new entrants can only be expected
in niche markets where they are forced to build up a distinctive competency (Hill and Jones,
1995). Moreover, any innovation of the existing manufacturer makes the threshold for new
companies higher because customers already get used to the current standard and take it for
granted. BMW, with its strong position as an innovation and technology leader, is doing lots
of research to create new value, and is fare away from threats of new entrants.

Conclusion
The most important awareness of Porter's study might be that every firm should have a clear
idea of its own strategy to stay competitive. Porter (1980) underpins the essential determinant
of competitive success is dynamism, the ability to progress and improve, and to upgrade.
Strategy is not static and a company should see itself as part of a vibrant and moving
construct and update its strategy frequently.
It appears that disruptive environmental factors compel businesses to make radical changes
that end up with restructuring but also with a different market perception. BMW cultivated a
start-up spirit embedded in its Number ONE strategy to improve the dynamic learning
process. It enables the company to keep up with the market evolution (Hamel, 2006).
However, the decision making process comprehends to go through a complex process of
uncertainty. Apparently BMW is capable to manage the risks arising from the market to
access new customer groups (current innovations: BMW-AktiveE, ActiveHybrid,

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EfficientDynamics, and as of 2013 Electric-Car Series BMW i3 and i8). Since more than one
decade BMW indeed was been able to become a market leader that operates globally, drives
standards, attracts partners, and most importantly its strategy is customer focused and value
adding.

Limitation
Authors from different disciplines of strategy development have recommended the need for a
dynamic strategic approach due to a rise of dynamic environmental change. Such a dynamic
approach involves that a companies achievements cannot only be justified by the use of
specific techniques like PESTEL and Five Forces. Leadership in dynamic environments is a
distinctive feature that must be continually aimed at an improving strategy that is in line with
changes. In an unpredictable environment it is therefore difficult to survive just by following
a structured process of strategic analysis.

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Ralph Colditz, MSc, BA

Authorized Expert
Doctoral student
Faculty of Business and Administration,
University of Economics Prague
W. Churchill Sq. 4, 130 67 Prague 3, CZ
xcolr900@isis.vse.cz

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