Strategic Management and Leadership

1 Strategic Management and Leadership Introduction Businesses and organisations occur mainly for the purposes of making as much profits as possible. If businesses can manage to effectively reduce their operations costs as much as possible and therefore transform the saved revenue into profits, then they could be termed as successful as far as their business venture is concerned. However, succeeding to manage a business in the most efficient ways requires that a proper and elaborate strategy be put into place.

The strategy should basically aim at building competitive advantage for the organization so that the end result can be a huge customer base that can be relied upon for business. This paper analyses in detail BMW’s performance and success in the manufacture and sale of motor vehicles and motorcycles in the general automotive industry. The paper further discusses the strategic drift model with particular reference to Blackberry RIM.

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2 BMW’s Success in Business Bavarian Motor Works, BMW is an established automobile manufacturer that has been in existence since 1917. Initially, the company manufactured aircraft engines but it later on ventured into motorcycles and cars industry. BMW is a giant firm whose total number of employees by the end of 2011 stood at 100,306. In the year 2010, the company manufactured a total of 1,481,253 automobiles while the total number of motorcycles produced during the same period stood at 112, 271. The revenue for the same year was €60.48 billion while the operating income and profit was €5.094 billion and €3.218 billion respectively. The Rolls-Royce and Husqvarna together form the hugest subsidiaries of the automobile manufacturer.

BMWs Pestel Analysis Political environment Germany, which is home to BMWs headquarters, is a peaceful country with very strong established political structures. The country’s stability has played a significant role in sustaining BMW’s growth over a long period of time (Berger & Woitek, 1997). A stable political environment assures investors of their safety as well as that of their investment. Additionally, the company has suitably chosen other global locations for their subsidiaries and production units, which also enjoy great political stability. These countries include the Great Britain, South Africa, China, the USA, and Austria. There have been little or hardly any instances of political uprisings or turmoil in these countries, a factor that builds investor confidence to a very great extent (Clapham, Pestel & Arnaszus, 1979). A strong political structure enables regimes to focus on the construction and establishment of high standard infrastructure that supports and promotes business performance. Highly skilled expatriates are also attracted to a peaceful environment that does not witness intermittent violence and clashes (Iwata & Wu, 2005). As such, BMW has been

3 able to benefit from this expertise which in turn has enabled the country gain strategic advantage (Markovits, Reich & Westermann, 1996).

Economic factors Germany is a strong economy with some of the finest financial infrastructure and practices in the world. The country’s inflation rates are very minimal even during such harsh economic times when the global financial crisis is biting. This makes it possible for the country’s economy to sustain relatively cheaper production strategies that enjoy competitive advantage even at the global market. Companies in Germany, such as BMW, are able to acquire raw materials at very competitive costs and manufacture quality products at very fair prices. Thus, BMW brands have been able to compete with other premium automobiles at the global market effectively well (Auerbach, 2000).

The taxation regime in the country is very reasonable and her foreign exchange rate is also very strong to an extent that the economy has been considered as the role model in the whole of Europe (Henderson et al, 2002). The interest rates offered by banks and other financial institutions are accommodative and have been the pillar of sustaining businesses in the country, particularly those that suffer from stagnated growth. This strong economic position of the country makes it a perfect market for manufactured goods, particularly for those that are considered luxurious and expensive like the BMW models (Deville & Malinvaud, 1983).

Social environment Germany has not recorded any social trends that are likely to affect negatively on the country’s overall productivity. The population remains energetic and is also averagely young.

This makes it easier for firms and industries in the country, such as BMW to acquire workers who are trainable as well as being full of energy and verve The government has put in place

4 numerous social policies all of which target at ensuring that the population always remains balanced and healthy (Oxelheim, 2003).

There is limited industrial action in Germany as well as in all the other countries where BMW has set up manufacturing units. In essence, BMW does not lose a lot of manpower hours in engaging in court battles and experiencing high employee turnover. The company has succeeded in optimizing its human resource and expertise which in turn has enabled quantity and quality productivity (Yorke & Knight, 2006). In return, the BMW brand has performed extremely well in terms of customer satisfaction, which is a strong competitive capability (Stock & Watson, 2002).

Technological factors Germany is one of the leading global technological powerhouses. This has well been adopted by manufacturing companies based in the country. As such, BMW employs state of the art technology when it comes to its production strategy (Zahra & Covin, 1993). Apart from the highly improved quality of the finished products, the production strategy of the company remains highly efficient. Consumers often go for quality and BMW has been able to attract a lot of consumers sufficiently well. However, the company also grapples with the highly dynamic nature of technology. A lot of resources are spent on investing on technological innovations some of which do not necessarily profit the company. These increased expenses push the prices of BMW products, thus affecting their competitive advantage negatively (Vredin & Warne, 1991).

Environmental factors BMW is one of the global firms that fully adhere to universal practices that promote clean environmental surrounding. The company subscribes to Environmental Protection

5 Agency’s standards of clean practise. BMW is also a member company of Environmental Excellence Program which is based in the United States, in South Carolina. The Dow Jones index of which lists companies that practise sustainable environmental practise also features BMW as one of the countries that adhere to acceptable practices (Kaptein, 2004).

Despite the fact that clean environmental practices are desirable to many consumers, they are also costly to the organisation. BMW has invested heavily on the latest production technologies which ensure environmental pollution is maintained at very minimal levels. These technologies are costly and further add up to the total costs of production incurred by the firm.

The additional costs lower the brand’s competitive position in the market thus affecting its profitability (Abraham, 2005).

Legal environment BMW operates under numerous legal statutes which affect its overall market performance. Being a global marketer, brands by the manufacturer have to meet different legal requirements in order to be accepted into these markets. The overall complex nature of varied legal requirements makes the company further spend on mechanisms that will ensure these requirements are adhered to. The additional expenses on the other hand negatively affect the brand’s competitive position (Carpenter, 1977).

BMWs strong strategic capabilities One aspect that has strongly sustained BMWs continued growth is the flexibility with which the company carries out production, particularly as far as the future unknown demand is concerned. The corporate policy defines flexibility reserve, which in other words refers to the balance between demand expected and available capacity, as mandatory. Often, production systems, whether single or multi-stage, would have their flexibility based on the manner in which

6 products of the firm are allocated to the sites. This strategy thus develops flexible measures that targets good allocations while at the same it refrains from maximising the allocation (Fleischmann, Ferber & Henrich, 2006).

When it comes to introducing new products into the market, BMWs strategy uses its demand estimate per product for every year to determine what their exact production would be.

Equally, this forms the basis for determining the company’s distribution network for the near future as well as the basis of installing its capacities. However, since the exact logic for newly launched products has an inverse proportionality relationship, BMW perfectly creates demand by launching it. This demand gradually develops through out the life cycle of the product. In other words, the company uses the demand of its various models to decide on where the product will be produced but not the decision on when the launching should be done. These decisions are accurately arrived at after allocating the demand of the product over its life cycle (Berry, Levinsohn & Pakes, 1999).

Basic model of the supply chain BMW has successfully improved its load planning by putting into consideration a number of factors. The company has developed a quantitative maximisation model which also has an objective function that is clearly defined. This model has been implemented by the automobile manufacturer in a software system that is also easy to use. Its benefit began to be felt at BMW soon after it was integrated into what existed as the strategic planning process.

However, there was need for the existing load planning to be extended beyond departmental boarders in a bid to obtain the cooperation that was needed (Grein, Craig & Takada, 2001).

The implication of product planning under this strategy was taken good care of where decisions as far as the product program were considered into the maximisation model. Thus,

7 BMWs product policy was particularly designed for purposes of competition. The load-planning helps BMW management especially where decision is required to be made concerning the release of a new product into the market. The decision making process in this regard is aided by the consequences that are caused by the supply chain. This strategy comes in handy in allowing the management of the automobile manufacturer to determine its allocation plans. The making of highly customised cars, which is BMWs main objective, requires that assembly lines which are highly flexible be put in place as opposed to an assembly line that is more dedicated. The latter system is much preferable for mass products (Lombard & Morris, 2010).

Strategic drift Strategic drift is a concept where companies or businesses use cultural parameters of the organisation to respond to the dynamic environment. Thus, culture stifles innovation and instead leads to strategy momentum that has a high probability of causing strategic drift. Failure of leadership can easily result in a case of strategic drift becoming costly to the organisation as there needs to be a transformational change that will eventually protect the organisation from obvious demise. It is therefore worth noting that only strong leadership can institute and sustain a transformational change that will eventually turn out to be profitable (Powell, 2001).

Nevertheless, strategic drift can also result from a more focused and result-oriented leadership. In an instance where the external business environment changes such that an organisation’s previously designed strategy no longer tallies with the objectives, a strong leadership would be required to drift the strategy such that appropriate results can be attained.

This needs to be done at the right time with the right planning such that the organisation may not eventually suffer from delayed actions (Marcus & Nichols, 1999).

8 The Blackberry RIM In the recent past, the Blackberry RIM has been performing poorly in business for what has been attributed to a number of reasons. In the technological front where innovation and the ability to effectively compete are very important, manufacturers and producers of devices cannot afford to remain inactive and proactive. In the information age where every consumer is knowledgeable and knows exactly what he is looking for, no company can afford to do without an elaborate strategy that particularly touches on research and development (Kiernan, 1993).

Global consumers have complained about Blackberry’s poor performance and the company has been blaming it on a number of reasons which might not really be important for the users. These events have been taking place at a time when RIM’s biggest competitors, iPhone and Android, have been releasing a series of models that are by far an improvement of their previous releases. In other words, it is true to point out that both iPhone and Android have realised how important the demands of their consumers are in terms of using the mobile gadgets and have put all their resources together in carrying out extensive research. This development requires proper planning and coordination that will ensure every concern is taken good care of (McNamara, Luce & Tompson, 2002).

As a result, RIM has constantly been on the loosing end, as many consumers shift their allegiance to other manufacturers. This trend is likely to continue because technology is expensive to sustain and requires huge revenues to be able to put up with the kind of competition that iPhone and Android provide. Good leadership is required at the helm of RIM in order to ensure that whatever little the company is still keeping does not get lost eventually. The strategic drift in the company has further been compounded by the fact that its total sales and revenue have continued to plummet while the competitors eat into its existing market. Very urgent action

9 is required by the firm’s management to see to it that this trend does not continue (Eisenhardt, 1989).

First and foremost, it must be determined exactly why the company’s performance has been registering below par results. Integrating a new strategy to a company could be profitable but chances are high that it could cause an undesirable outcome, especially because it is often resorted to as reparatory measure or action. In the case of the Blackberry model, the obvious reasons are lack of innovation and less participation in the research and development sector (Mehra, A., 1996). As already explained, this industry is almost wholly dependent on technology and its dynamic nature requires that every effort be put to improve on the area. Producing relatively cheap products at this juncture may not really bail out RIM from the quagmire because it is almost certain that consumer trust has waned. Additionally, Android and iPhone have already launched products targeting the low end market and therefore withstanding such competition could be almost impossible (Mizik & Jacobson, 2003).

Motorola Like the Blackberry RIM, Motorola has suffered from a strategic drift that has since seen its market leadership position taken by other industry players, including Samsung, LG, Nokia, as well as Apple Inc. Given the fact that Motorola had pioneered innovations in the mobile telephone industry since its inception in 1928, the period after 2006 has seen the company grapple in the market as a result of numerous strategy-related issues. In 2007, just at a time when competition in the mobile telephone manufacturing industry had hit a crescendo, the team of managers at Motorola did not see the need to pursue a strategy that was more customer-oriented in their production. Instead, Motorola continued with their innovation strategy that, although was

10 successful in introducing new designs and models of mobile phones, the latest innovations did not really match what the market desires and demands was like.

Around the same time, Nokia surpassed Motorola as the world’s leading manufacturer of mobile phones. Nokia’s success was mainly attributable to its strategy of releasing into the market mobile phone models that were more customised to the market. In 2008 alone, for instance, Nokia manufactured 26 different models that targeted different categories of customers as it targeted to maintain its market leadership position. Still, the management at Motorola did not counter this challenge with meaningful action plans. Thus, the continued failure by Motorola to model their research and development alongside market trends further left the company at a weaker position as it registered losses. Another competitive front, meanwhile, had been opened up by the rival companies who had taken up the market by storm. Apple introduced its iPhones, iPods, and iPads which were every customer’s dream to own. Samsung, Nokia, and LG also released a series of their smartphone models which were received very well in the market.

Although Motorola has immense capabilities, some of which cannot be matched by it competitors, the company has continued to plummet in terms of its market position and performance. The WiMax technology which the company has completed network trials with in Vietnam, for instance, is the first one of its kind which can prove strategic for Motorola.

However, the company’s management has failed on its part to initiate and sustain strategies that can support long-term results. Both Research in Motion, RIM, and Motorola can avoid any further strategic drift by focusing all their innovations on market customisation. The mobile telephone industry is very sensitive to technology and remains highly dynamic. Players in the industry should, therefore, ensure that their innovations are customer driven in order to remain successful in their performance (Binmore & Samuelson, 1999).

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