Strategic Management
Macmillan and Tampoe
OUP
1 (c) Macmillan & Tampoe 2001
Case Examples
BMW in 1999
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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
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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?
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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?
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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
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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
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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
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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
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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?
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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
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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
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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
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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
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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
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