C

Case Study Analysis

Write a mini case on any organisational situation which has a strategic issue to tackle. Analyse the case and explain clearly how the material relates to core theories in strategic management.

Module Title: Student ID: Submission Date: Word Count:

IB3070 Corporate Strategy 0116337 02 December 2003 Case: 785 Words, Briefing Note: 1211 Words

Student ID: 0116337

The University Of Warwick Warwick Business School Academic Year 2003 2004 I. The Mini Case

The Mazda Comeback:

Is the Renesis RX-8 zoom-zoom enough to save the company?

Mazda, one of the most important Japanese car manufacturers, has a long history of designing impressive cars which are acclaimed by critics, but fail to attract customers. Now the companys leadership is counting heavily on the reengineered Renesis rotational engine and the brand new RX-8 sport coupe to start the revolution and drive Mazda to success.

Mazdas plans include major changes within the organisation to improve its financial performance: Japans capacity will be reduced by 24%, and a new production unit in Valencia will be built, to serve the European market more effectively. This shift of production will also reduce the companys exposure to currency fluctuations. Extensive cost cutting will take place, as Mazda is eliminating 2,200 workers and reducing its subsidiaries. The company will finally benefit from joint platform development with Ford and usage of its suppliers, estimated to bring a further 15% reduction in procurement costs.

These changes alone though will not be enough to save Mazda, a company that needs to be re-launched in order to drive sales and profits up; We need an icon product to set ourselves apart from other manufacturers, comments Mark Fields, Mazdas chief executive1. And this is where the RX-8 and the Renesis engine comes into play.
1

Schreffler, R. and Chrysler, M., Will Wankel work wonders?, pg. 67

Student ID: 0116337

The RX-8 is an extraordinary car. It is based on the Renesis engine (Engine of the year 2003), which makes use of a triangular rotor instead of pistons. Renesis is far more efficient than traditional engines; it weighs significantly less and is a lot smaller in size. Improved combustion leads to high levels of economy and fewer emissions. Also, the smaller size of the engine allows for optimal positioning and better handling.

The increased reliability and incredible power of the Renesis engine will thrill sport cars enthusiasts. But what really sets the RX-8 apart is its design. The car has no centre pillars; it features rearward opening back doors and two back seats that can comfortably accommodate grown ups. The RX-8 is also built with the highest safety standards. In short, it is a modern, top-quality, top-performance car, available at a price far below the prices of the competition (starting at 20k).

The impressive RX-8 promises to lead Mazda's revolution

The RX-8 is a great car indeed, but the question still remains: Is it going to achieve its sales targets and become a profitable venture? An older model of the Renesis engine was used in 1996 with RX-8s predecessor, RX-7, but the car was soon proven commercially unviable and was withdrawn shortly after. Mazda learned from its

Student ID: 0116337

mistakes, and todays model features many enhancements, the most important probably being the spacious four-seat interior and the much lower price, which was considered the principal reason for the failure of RX-7.

The degree of success of the RX-8 will probably determine the future of the company. In 1991 Mazda was the third largest car manufacturer in Japan, and had 2.9% of the US market; this percentage dropped down to 1.4% in the years that followed2. After the $1.3 billion loss in 2001, Mazdas collaboration with Ford Motor (the controlling shareholder with 33% of shares) has brought the company back to profitability. The RX-8 will play a crucial role in the process of redefining Mazdas image, and it will open the way for more new cars to follow.

Mazdas marketing efforts for the RX-8 will be focused on its two basic advantages: the cars sporty character and design, and its excellent price/value ratio. In contrast with all other sport cars, the RX-8s unique four-seat design makes it a car for the family man. The no-compromise approach in respect to performance and number of passengers means the car can be targeted at many different markets: The RX-8 caters for the needs of a middle-aged father of two as well as for the desires of a young sport cars lover. We aim to redefine the meaning of a sports car, declares Noboru Katabuchi, manager of the RX-8 program3. Probably the biggest challenge for the RX-8 advertising campaign will be to educate consumers about the advantages of the rotary engine, and convince them of its superiority against conventional engines. The effectiveness of Mazdas marketing activities is a prerequisite for RX-8s successful entrance in international markets.

2 3

Bremner, B., Kerwin, K. and Armstrong, L., Will the RX-8 put Mazda back in the race?, pg. 52 ibid.

Student ID: 0116337

The Renesis rotor engine

The RX-8 will be produced in two editions, the standard power and high power. The car was launched this January in Japan with great success, and there is currently a two months pre-order list. Mazda aims at a monthly output level of 5,000 units, a global selling target of 60,000 cars within the first twelve months. Soon we will discover if this powerful speedster is zoom-zoom enough to lead the new Mazda era.

For Consideration:

What are the main obstacles in Mazdas path to success, and how does the company plan to overcome them?

How does Mazdas previous economic performance affect its new strategy, and in what degree shapes the strategys mission?

Student ID: 0116337

II. The Briefing Note

The aim of this case study is to analyse Mazda, its competitors, and the environment the company operates in. This analysis will then form the basis for understanding the importance of effective strategic positioning and how it can bring radical change from failure to success.

Overcoming the Obstacles

SWOT analysis determines a companys position by examining two internal (Strengths, Weaknesses) and two external (Opportunities, Threats) factors4. This framework will help us understand Mazdas standing in the market and its advantages and disadvantages over its competitors.

Mazdas main weakness is also the reason why the company almost went bankrupt 3 years ago: its strategy and marketing efforts appear to lack focus and fail to approach consumers successfully. Mazda developed many great cars in the past, but most of them werent successful either because of their high price (RX-7) or because they didnt target a certain market segment(s) effectively. In other words, it seems as if Mazda spent maximum effort in developing high-power cars and minimum effort in understanding consumer needs; thus, its state-of-the-art vehicles were not commercially as successful as they could be.

With RX-8, the challenge is even greater. It being the only four-seat sports car in the market, the RX-8 faces the danger of not being accepted either by the sport car -lovers, who might opt for a pure-blooded sports car (ex. Porsche) with only one set
4

Dibb, S., Simkin, L., Pride, W. and Ferrell, O. C., Marketing: Concepts and Strategies, pg. 698.

Student ID: 0116337

of seats and doors, or the family men, who might prefer a standard four-seat car with a more spacious interior for their family. Thus, positioning and targeting of the RX-8 must be extremely accurate to be effective.

Furthermore, Mazdas flagship is threatened by hard competition from manufacturers that have already introduced sport cars in the international markets and have wellestablished networks, such as Audi (TT), Porsche (911) and Seat (Leon CupraR), to name but a few.

On the other hand, the RX-8 is truly a magnificent, one of a kind car. As a product, the RX-8 is flawless: the combination of latest technology powerful engine, reduced emissions, reduced petrol consumption, highest safety standards and highest quality standards is unmatched by competition. The RX-8 is fast, easy to drive, comfortable, luxurious, in contrast with other sport cars that might be faster but the internal space is inadequate even for two persons.

The second big advantage of the RX-8 is its price. The car sells from 20k, with most of its accessories as standard: RX-8 basic edition comes with six airbags, alloy wheels, leather steering wheel and a BOSE 6-cd changer stereo amongst others. Considering that the price range for an Audi TT is 24k - 31k, it is easy to understand how the RX-8 can rise above its competition.

Finally, Mazdas well-established name is a guarantee for quality, reliability, and aftersales service. This is probably the companys biggest asset; the Mazda brand is already trusted and consumers will easily shift from competitors. Its the RX-8s goal to bring the customers in for the first time, but it is the Mazda brand name that will build on their loyalty.

Student ID: 0116337

Finally, opportunities arise for Mazda from its partnership with Ford. Ford will not only bring financial resources to ensure stability of operations but can also provide market knowledge and a powerful network of suppliers and distributors around the world. Fords support will be crucial in the re-launch of Mazda as a profitable maker of expressive cars.

To sum up, it is Mazdas core competencies in innovating and designing unique cars superior to the competition that create its unique competitive advantage. The companys R&D in the field of sport cars is unrivalled even by competitors that are significantly bigger. Marketing effectively the new RX-8 (and all its products) in a market where the competition has already established its products and operations is the biggest challenge for Mazda, and the only way for a dynamic comeback.

Economic performance and the goal of the new strategy

# 0: The MX-5 is Mazda's biggest success so far.

After the huge success of the MX-5 in the early nineties, the company didnt manage to design any other successful models, and this is reflected in the continuous drop in its market share. The Millennium Plan, Mazdas new strategy, has been triggered from the deteriorating financial performance, and its sole objective is to bring Mazda up to the surface.

Student ID: 0116337

The Sharpbender model analyses what causes companies to fail, what could trigger a reaction, and how recovery can be achieved through effective strategy. The following graph illustrates companys performance over time and the different types of sharpbenders:

Performance

Immediate Recovery Successful Sharpbender A D

Irreversible Critical Condition Stage

B Failure

Unsuccessful Recovery

Time

In stage (A), the companys performance starts to drop. In Mazdas case, the reason for the decline was managements failure to market its products effectively. Mazdas cars either didnt satisfy consumers needs or they werent marketed correctly.

In the case of immediate recovery, the company identifies the problem on time, and manages to solve it before the situation gets out of hand. Mazda failed to do so; it appears that the company tried to improve things by designing better cars, instead of focusing more on finding better ways to sell them (improving the distribution network, building production sites outside of Japan, developing better advertising campaigns). Thus, Mazdas economic performance continued to fall.

Student ID: 0116337

In many cases of companies that face crises, management goes in a state of denial and does not accept that there is a crisis at all. By ignoring the problem and doing nothing to correct it, the problem only gets bigger. Although Mazdas management doesnt appear to have ignored the problem, they failed to identify the correct course of action that would solve it. Management underestimated the problem and persisted on their current strategy and processes instead of changing them.

In stage (B), a series of events triggered the radical change in Mazdas strategy. The financial support that was given by Ford Motor when it acquired the controlling 33% share of the company brought stability and the opportunity to progress the RX-8 project and improve the rotary engine. More importantly, the shock from the abrupt and continuous drop in sales and profits helped management see the real problem and change their strategy to deal with it.

The third stage (C) involves the actual turnaround strategy. Mazda shifts production abroad to decrease its dependence on exchange rates and serve international markets more efficiently; then it employees the RX-8 not only to push sales ups and generate cash flows but to enhance its corporate image and position itself in the minds of consumers as a maker of expressive vehicles. In the past decade the majority of consumers has linked Mazda with only one car: the MX-5. The RX-8 aims to build up Mazdas image as a manufacturer of cars that do not compromise their sport character with their functionality and comfort; in other words, the RX-8 will bring together the Mazda name with all the company stands for in the minds of consumers.

Finally, on the last stage (D), upon successful implementation of its strategy, Mazda will try to achieve sustainable recovery. The RX-8 has been introduced in Japan very successfully; if this success is repeated in Europe and America, Mazdas next step will

10

Student ID: 0116337

be to find new ways to improve its performance. This will probably involve the development of new cars, the expansion of its core operations internationally, and even more vigorous marketing efforts to push its products.

Summary

To conclude, the sharpbender model revealed the importance of getting to the root cause of the problems that affect a companys performance. Mazdas dropping market share and profits dictated the need for powerful changes in its strategy; SWOT analysis identified the companys core competencies in designing top-spec cars, but also pointed out its greatest weaknesses in approaching consumers. The RX-8 will prove whether or not Mazdas strategy succeeded in creating a competitive advantage that will put the company back to the game.

11

Student ID: 0116337

III. Bibliography

Bremner, B., Kerwin, K., Armstrong, L. (14 July 2003) Will the RX-8 put Mazda back in the race?, Business Week Iss. 3841; pg. 52.

Daniels, J. D. and Radebaugh, L. H. (2001) International Business (Ninth Edition), Prentice Hall, New Jersey, U.S.A

Dibb, S., Simkin, L., Pride, W. and Ferrell, O. C. (2001) Marketing: Concepts and

Strategies (Fourth Edition), Houghton Mifflin, Boston, U.S.A.

Higgins, A. and Koucky, S. (18 April 2002), Advanced rotary engine technology for the RX-8, Machine Design Vol. 74; pg. 26.

Huczynski, A. and Buchanan, D. (2001) Organizational Behaviour (Fourth Edition), Financial Times Prentice Hall, Harlow, England.

Mayne, E. (December 2002), Shogun: With Renesis rotary, Mazda RX-8 soldiers into premium sports car segment, Wards Auto World Vol. 38, Iss. 12; pg. 44.

Morrison, M. (10 February 2003), The Right Stuff, Autoweek Vol. 53, Iss. 6; pg. 14.

Schreffler, R. and Chrysler, M. (May 2001), Will Wankel work wonders?, Wards

Auto World Vol. 37 Iss. 5; pg. 67.

Schreffler, R. (March 2002), Rotary Redux, Wards Auto World Vol. 38, Iss. 3; pg 43.

12

Student ID: 0116337

Treece, J. B. (24 February 2003), Final Assembly of RX-8 engine done by hand,

Automotive News Vol. 77, Iss. 6026; pg. 24.

13