Contemporary Development in Business and Management Essay Sample
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Contemporary Development in Business and Management Essay Sample
Bayerische Motoren Werke AG, commonly known as BMW the world over, was founded on March 7, 1916. It has carved and established for itself a position of immense responsibility as a niche member of the extraordinary club of multinational corporations that are respected as global industry leaders. BMW was initially in the business of manufacturing aircraft engine parts and motorcycles and this business was virtually disbanded by late 1945. It has since been revived and been in the business of producing motor vehicles, motorcycles and engines. BMW is now at the forefront of manufacturing motor vehicles, motorcycles and aircraft engines. It has also outshone itself as a leader in the development and deployment of alternate energy sources. It is also in the business of financial services of financing and leasing, asset management, dealer financing and company car pools as well as insurance (Bavaria Wirtschaftsagentur GmbH) and Information Technology consulting and systems integration (Softlab GmbH).
The philosophy of BMW emanates from a ceaseless quest for excellence in all areas of endeavour, identifying potential and encouraging growth and enabling formulation of crystal clear systems and processes to strive to achieve the goals most efficiently considering all aspects of time, man and money resources.
Statutes, protocols and practices around the world metamorphose very quickly and the organisation and its employees respond to such changes either by innovating new solutions or through making adjustments to the changes with already well tried and tested methodologies. Thus, external as well as in-house training and knowledge transfer as well as research and development within the company and group will continue to be necessarily emphasized with increasing deployment of quality resources in order to guarantee continued growth along expected timeframes. Increasingly transparent emerging economies across the globe will also enable faster growth for the group both in terms of manufacturing capabilities as well as more market penetration due to heightened prosperity in such markets.
A very well defined and structured organisational structure, modern communication systems, bleeding edge information technology driven systems as well as a market orientated and innovative research and development centres will lead the group in the future desired directions.
The BMW Group’s Research & Development employees use the most advanced methods and technologies to continuously and systematically convert ideas into innovations for vehicular and traffic systems. Current trail blazing projects initiated by the group relating to engine technology, mobility research, safety and traffic technology will enable the group to remain at the forefront of implementation of the most current and successful technologies available in the international automobile market. This will also enable the competition to be held at bay for a sufficient timeframe to enable the group to move to the next level of innovation to stay an industry leader.
All the above internal and external differentiators, inter alia, will enable The BMW Group to maintain its industry leadership position in the international market.
This management report is based on the business of the German group Bayerische Motoren Werke AG (the AG stands for Aktiengesellschaft and is a German acronym meaning “public company”). To outline the primary internal and external influences to the BMW group, it is imperative to comprehend the national and international activities of this group as well as its core business and its range of products in the different business verticals.
As per the Financial Analysts Meeting held on 15th.March, 2007, and per information available at http://www.bmwgroup.com/e/nav/index.html?../0_0_www_bmwgroup_com/home/home.html&source=overview , the BMW Group plans to continue its successful business course in 2007, following the new high revenues and earnings figures posted in 2006. “The current year should be the best year in the company’s history in operating terms. Excluding the one-off gain on the Rolls-Royce exchangeable bond, we plan to beat the record pre-tax profit achieved in 2006”, stated Norbert Reithofer, the Chairman of the Board of Management of BMW AG at the BMW Group Annual Accounts Press Conference on 14 March 2007 in Munich.
In spite of the tricky circumstances facing the worldwide automobile business, the BMW Group can look back on a triumphant financial year 2006. A grouping of sales volume growth, a more favourable model sales mix and efficiency improvements enabled the company to offset the considerable adverse effect of foreign exchange fluctuations and high cost of raw material. The profit before tax rose by 25.5% to euro 4,124 million.
The net profit rose by 28.4% to reach a new all-time high level of euro 2,874 million (2005: euro 2,239 million). Earnings per share improved to euro 4.38 (2005: euro 3.33) per share of common stock and to euro 4.40 (2005: euro 3.35) per share of preferred stock. Group revenues increased by 5.0% to euro 48,999 million (2005: euro 46,656 million) on the back of a strong sales volume performance and continued strong growth in the financial services business. The pre-tax return on sales increased to 8.4% (2005: 7.0%). (BMW, 2007)
The BMW group was founded in 1916, when technology for aircraft engines was being developed. The Wrights Brothers had just successfully launched their initial endeavours in 1903 and commercial airborne travel then was seemingly possible in the not so distant future.
The Treaty of Versailles in 1919 barred the production of aircraft in Germany and consequently, BMW turned to manufacturing railway brakes. 1919 also saw BMW designing its first motorcycle engine, which led to the first motorcycle being built in 1924. It was not until 1948 after World War II that a car model was built, after which it succeeded in becoming, globally, an aspirationally coveted brand and the favoured manufacturer of small and luxury motor vehicles for their technological superiority and excellent quality and service standards.
In addition to the core business, the company focuses on research and development of innovative solutions and applications based on customer feedback and customised requirements. These requirements are translated to outputs based on superlative and stringent quality specifications. To continuously stretch and roll the targets forward and to constantly test the limits of excellence is the philosophy that inspires every individual employee and associate of The BMW Group. It influences the group’s organizational structure and plays a pivotal role in the decision-making process. BMW’s corporate culture promotes the inculcation of the pursuit of excellence. This enables BMW to produce automobiles and motorcycles which have the best in class technology and ease of use for all customers who value precision and luxury. This will ensure the group’s growing popularity in the decades to come.
The manufacture of BMW, Rolls Royce and MINI motorcars enables the group to espouse the cause of luxury mobility in the global automobile market. The company’s success over the last nine decades is ample testimony to the success of their modus operandi. The BMW Group is one among the most premium global manufacturers of automobiles and motorcycles that concentrates entirely on best-in-class standards for each of its vehicular segments. The same standards of excellence also apply to their range of motorcycles because they are also produced with the same passion for technology and customer focus and friendliness.
Financial services is also reckoned by the BMW group as one of the key differentiators in the automobile industry and has, in its stable, an extensive product portfolio in terms of, inter alia, financing and leasing, asset management, dealer financing and company car pools to generate information and satisfy the customers for all financial sector customer service and queries. The other business interests include insurance (Bavaria Wirtschaftsagentur GmbH) and IT consulting and systems integration (Softlab GmbH).
The BMW group had revenues of 49 billion euros during the financial year 2006 and had 106575 employees in their workforce as on 31st.December, 2006. It is also a testimony to the group’s operational acumen that, though the total revenues have increased by 59% approx. from 31 billion euros approx. to 49 billion euros approx. over the last decade from 1997 to 2006, the workforce has shrunk 9% approx. from 117624 to 106575 as on 31st.December, 2006.
The BMW Group’s global activities are managed and from the corporate headquarters at Olympic Park in Munich. A city landmark, designed as the “four-cylinder” tower is the nerve centre for the group spanning over 150 countries which are served by of 23 production plants in 12 countries on 4 continents, of which seven vehicle plants are for BMW automobiles and motorcycles, the Oxford plant for the MINI in Great Britain, three engine plants, eight engine plants and four plants for components and special functions. The luxury Rolls-Royce Phantom is manufactured by hand by Rolls-Royce Motor Cars Limited, in Goodwood in England. This ensures that every individual customer receives the motor vehicle with the desired specifications and preferences.
The BMW group started by building aircraft engines for the first time in 1917 in the Munich plant and, after World War I, it had to shift to making train brakes and power units. Simultaneously, the company started to build motorcycles in 1923 and, in 1928 BMW acquired the Fahrzeugfabrik Eisenach where it built all the BMW cars there till 1941. During World War II, the company concentrated again on its production of aircraft engines. Subsequent to the disbanding of the plant facilities and installations, the motorcycles production resumes in Munich in 1948 and in 1951, the motorcars again emerge from the Munich plant for the first time.
Post the financial crisis in the latter half of the 1950s decade, the company begins its climb to prosperity and popularity. Further, in the late ‘60s, BMW takes over Hans Glas GmbH, bringing the Dingolfing and Landshut plants under the BMW umbrella. However there were no further possibilities of expansion of the Munich plant, due to paucity of space, since residential areas had been built around the plant. During the interim period, motor-cycle production, to cite an example, was moved to Berlin in 1969 to provide space for the production of engines and automobiles at the Munich plant. (BMW, 1977)
The BMW group opens its first foreign plant in 1973 in the South-African town of Rosslyn and, in order to develop new markets internationally, further production plants are established, some as joint assembly ventures, in Asia thus starting the course for the 1980s.
BMW‘s new engine production plant in Steyr in Austria begins operation in 1982 and in 1986 BMW the Regents-burg plant supplements the network of Bavarian production plants and is expanded in 1989 by the completion of the Wackersdorf plant. In 1992 BMW returns to the company‘s car production base in Eisenach, where large tools for production purposes have been built ever since and in the same year itself, BMW lays the foundation stone for the Spartanburg plant in the USA. Further, in 1994, the acquisition of the Rover Group adds further plants and locations in Great Britain.
For strategic reasons the Rover, MG, and Land Rover brands are sold six years later, while the MINI brand remains within the BMW Group. The new MINI enters series production at Plant Oxford in 2001, accompanied by the start of production in the same year at BMW‘s engine plant in Hams Hall. The first models of the newly developed Rolls-Royce Phantom leave the highly specialised facility in Goodwood, in the south-west of England, built only for this purpose in early 2003 and towards end 2003, BMW cars are built for the first time in China in close cooperation with a local partner. Subsequently, starting in 2005, the BMW plant in Leipzig increases production capacities of the BMW Group to an even higher level and in early 2007, BMW‘s assembly plant in south India serves to penetrate yet another emerging market.
Appendix 1 maps the global network of the BMW group’s manufacturing facilities, assembly plants, contract production locations as well as the joint venture locations.
To enable survival and prosperity in the current dynamic domestic and global business environment, today’s managers of multinational billion dollar corporations need to compete against all odds thrown at them, whether the considerations are internal and / or external influences. Contemporary factors in the political, economic, social, technological or ecological environment have an impact on corporations like the BMW group and need to be managed. To ensure that the group continues to remain an industrial leader, the internal factors have to be resourcefully and appropriately managed and the company must be cognisant of the new external situations as and when they emerge.
The degree of the growth in income will mostly depend on whether opportunities emerge for enhancement of group earnings, especially against a milieu of difficult currency factors, high raw material prices, changes in interest rates and bitter rivalry. The group is responding to these challenges through improvements in sales volume growth and continuous improvement of efficiency. (BMW, 1977)
Any organization or group of companies can and needs to continuously assess, control and manage the internal factors or influences that affect its resources and outputs to enable the fulfilment of the organization’s goals and objectives to the satisfaction of all its shareholders or associates, whether customers, vendors, employees or any parties dealing with the group.
The BMW Group lays great emphasis on the strategic importance of being global to be able to recognize first the sunrise trends affecting the automobile industry and also to be able to exploit them to create the innovations for the future.
Our ten Research and Development centres are spread across five countries, of which four research centres are in Germany, three in the United States of America and one each in Austria, Japan and China.
The globally entrenched production network of the BMW Group is the backbone for the growth in our international markets. Due to the extremely close cooperation between all the plants in the production network, manufacturing takes place quickly and flexibly and this generates considerable benefits in the global market. The BMW Group currently has 15 production and assembly plants, in seven countries, of which six are in Germany, four in Great Britain, and one each in South Africa, China, USA, Austria and Brazil. The BMW Group currently engages in assembly with the help of external partners in Indonesia, Russia, Egypt, Malaysia, Thailand and India.
The Sales and Marketing function in the BMW Group is committed to maintaining and enhancing its presence in key markets across every market in the world and the BMW Group marketing subsidiaries and their activities are present in Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Great Britain, Greece, Hungary, Indonesia, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Russia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand and the USA.
The open environment within the BMW group has taken the learning curve across all employee levels and functions to the next level of innovations. This has built in much higher tolerance levels for diversity of opinions in all functions, whether in improved designs or in bleeding-edge manufacturing technologies, and has led the group to path breaking creativity and openness in decision making.
The above internal factors are, inter alia, the major internal factors that influence the BMW group in particular and the global automobile industry for its contribution to all aspects and functions in the automobile sector in the major automobile markets of the world.
The Board of Directors consists of The Chairman and the five other Directors. The Board is chaired by Dr. – Ing. Norbert Reithofer. The other five Directors are Messrs. Ernst Baumann (Human Relations and Industrial Relations Director), Dr. Michael Ganal (Sales and Marketing), Dr. Ing. Klaus Draeger, (Development and Purchasing), Stefan Krause (Finance) and Frank-Peter Arndt (Production).
The Supervisory Board consists of twenty members of whom ten represent the investors and the balance ten the employees.
The BMW Group is a leading multinational manufacturer of technically superlative and individual automobiles, motorcycles, engines and components and the prime focus is systems, structures, technology and people. The major Corporate Divisions in the BMW Group are Banking, Consulting / Organising, Controlling, Design, Purchasing, Finance, Research / Development, Service / Administration, IT, Logistics, Marketing / Production Management, Human Resources, Press / Public Relations, Production / Production Planning, Quality, Law Patents, Revision, Training, Sales and Distribution, Business Interests, Branches, Subsidiaries and Partners.
The Human Resource function is considered to be the one of the most critical aspects of the BMW Group business. The recruiting, supporting and developing of the Group’s associates are considered essential tasks for the associates who are encouraged to acquire a global outlook, whichever continent they might originate from.
The open culture in the group breeds extremely healthy internal competition and has engendered a passion for the group and the automobile amongst all employee levels. There is a pride in being associated with the BMW Group and the group is considered to be a very considerate employer with liberal policies relating to flexi-timing, job-sharing, sabbaticals, training, work-life balance, etc. This has translated into an attrition of only approx. 1 % per annum.
The seamless integration and central control and decision-making in each function right from design, engine construction, purchasing, integrating and assembling, testing, service and warranty matters, is at the very core of producing excellent products along the entire product range. This is based on the technical know-how acquired over almost a century. The global and flexible production network ensures that most plants are able to switch to manufacturing other models as per the market demands.
The stringent standards for quality, safety and sustainability as well as the efficient use of all resources apply worldwide to all the BMW Group plants and products. It is no longer the “Made in Germany” tag that attracts customers but it is the precision engineering synonym for the “Made by BMW” tag that continues to sell. BMW has driven the precision engineering function to be an art form with tolerance limits of a micron i.e. a thousandth of a millimetre. Continued emphasis and relentless focus on Research and Development has contributed immensely in attaining this excellence.
All the external factors affect the entire business and the industry over the long term and the company cannot control them. The LE PEST C analysis is used to explore the BMW Group’s external factors. It stands for legal, environmental, political, economical, socio-cultural, technology and competitors (Morrison, 2002). It is crucial to dissect a company’s current and future environment for developing the appropriate group strategy.
The BMW group works within the prevailing legal and political boundaries and this has an impact on its business. For instance, when aircraft manufacturing was banned in Germany in 1919, the group had to discontinue this activity and shift to manufacturing railway brakes. Similarly, laws relating to emission and pollution standards and labour laws affect the conduct of the business in terms of the markets to operate in as well as the employees and associates that are brought on board. Also, other political factors regarding the ruling government and its policies for promoting investment in select industries will also affect the conduct of the business. Expansion of operations to different countries would also depend on the local government and other local regulations.
The Dow Jones Sustainability Index has repeatedly acknowledged that BMW is the most futuristic car manufacturer. This eminent success has been achieved due to efficient resources utilisation, prompt risks detection and environment friendly action. Environment protection and clean production techniques far in excess of the minimum statutory requirements are practiced not only by the group but it also encourages all its partners to follow the same responsible processes and use environment friendly resources.
In 1973 BMW became the world‘s first car maker to establish an Environmental Protection function within the BMW Group as a whole, holding and performing a wide range of responsibilities and competences in all areas. And signing the United Nations Cleaner Production Environmental Declaration in the year 2001, the Company once again confirmed its commitment to preventive environmental protection in production. … BMW uses Water-based and clear powder paint in lieu of products containing volatile solvents in line with its environmentally friendly production philosophy and since 1998 CO2 emissions per car have been reduced by more than 14 per cent, process effluents by more than 25 per cent, the virtual elimination of cadmium and mercury and the reduction in energy consumption from 3.9 MWh to 3.1 MWh.
Only about one-third of the entire volume of all BMW Group effluents comes directly from production. Benefiting from the conservative use of water in all kinds of processes as well as re-processing of approximately 80 per cent of all the water consumed, the consumption of water per vehicle built has dropped from 1.3 cubic metres in the year 1998 to less than 1 cubic metre today. The remaining two-thirds of the water consumed by the BMW Group is required mainly for sanitary purposes or evaporates in the production process. And to reduce the consumption of water even further, the BMW Group is establishing further material processing cycles, for example directly in production. (BMW, 2007)
Recycling of components and material resources is another critical area that has been at the centre of the group’s attention to ensure conforming to the individual and environmental protection.
There were probably four major economical factors that lead to BMW embarking on a learning curve that made the BMW group one of the major players in the global automobile industry and they were : the major economic devastation of the German economy during the two World Wars, the oil crisis during the 1970s, the revaluation of the Deutchmark by 29 per cent during the two decades from 1967 to 1986 and the exploding demand for premium products due to improved global economic conditions and higher Gross Domestic Products across the world.
BMW has now declared its patient terminally sick and has cut off the life-support machine. Its declared reasons do not stand up; the exchange rate was first mentioned as the problem in an interview on the Today programme given by a Rover spokesman in mid1998. Gordon Brown moved quickly to shoot it down, declaring the problem to be Rover’s low productivity. Without wishing to belittle the difficulties caused to British manufacturers by sterling’s present level, I think the Chancellor had more than a point. The pound, in fact, is worth no more today than it was in 1986; it is the Deutschmark/euro that has gone down by 29 per cent. But BMW can hardly be a stranger to an appreciating currency. The Deutschmark revalued by 250 per cent against the sterling between 1967 and 1986. Over that period, BMW learnt to cope by improving quality and productivity. (Robinson, 2000, p. 13)
The social and cultural norms and influences vary from country to country and the BMW group actively encourages conforming to participation in the cultural and social activities of the region. The group believes in giving back to society what it takes from it.
The principle of being “glocal” is practiced in all the regions and countries that it operates in. This translates into being simultaneously local as well as international in its outlook and responsibilities towards the people and inhabitants of the respective operational regions. Also, changes in a particular country’s socio-cultural factors like governments, political changes, laws and money can make a great impact on global corporations like the BMW group. The economic prosperity also affects the socio-cultural influences thereby also influencing future investments and research.
4.2.5. Technological factors
The automation of certain processes whereby no human intervention is required at all not only enables fault free precision engineering but also ensures the most efficient utilization of resources with the least manufacturing and maintenance and warranty costs. This is highlighted in the following assembly operation. The “marriage”, of the “drivetrain”, made up of the engine, transmission and chassis, with the body, and functional and visual inspection, finally, ensure that all cars come off the assembly line with the high standard of premium quality so characteristic of a BMW Group product.
Massive consumption and the resultant depletion of petroleum reserves and other currently used fossil fuels has driven the BMW Group’s endeavours to explore the manufacture of viable alternate fuel driven automobiles.
Apart from research on energy saving technologies, attempts have been made internationally recently to find supplementary or alternative fuel sources that will reduce or eliminate the need for petroleum energies. Hydrogen is one such solution, although it is a secondary fuel that has to be produced from other fuel sources. Further, the production and storage of hydrogen as pressurized gas or cryogenic liquid in vehicles requires complicated technology. It currently also has inadequate distribution infrastructure. Another solution could be using hydrogen-powered fuel cells to provide the onboard electrical power supply in cars which could make an all-electric car viable. However, it might take a few years before the fuel cell technology matures to enable commercial production.
The BMW group has chosen hydrogen as the way ahead. This is amply demonstrated by the BMW Hydrogen 7 engine and its components (Appendix 2). It is pertinent to note that any new technology has to be vetted and approved for its impact on the entire product life cycle as well as through the entire supply chain. Only the above can render financial justification for investment in emerging technologies.
The principal competition to the BMW group is from their traditional rival Mercedes-Benz. However, over the decades, BMW has emphasized only on the premium end of luxury motorcars and so, Mercedes-Benz with, its mid and high-end profile range, caters to a different customer profile.
BMW posted a 10% sales gain in the United States and a 12% gain worldwide, in spite of a decline of 13 %, in the auto market in 2001. In the United States, BMW moved ahead of Mercedes-Benz to trail behind Lexus. The Pricewaterhouse Coopers’s annual survey put it at the top of the list of automakers on shareholder return.
Competitors will and should continue to surface to enable the viable progress across all business verticals to promptly breed the best in class technologies for the benefit of individuals as well as the environment. Competition will also be subject to the myriad national and international laws, statutes and protocols.
For the survival and prosperity of the global automotive industry, the supply of a mix of renewable and exhaustible fuel resources seems to be the only workable proposition. The main obstacle for attaining this goal is the lack of profitability that comes from the huge investments required for exploring these long term options. The only way forward is the technical expertise and all the possible fundamental innovations that need to be developed towards this end.
At the retail end, as the end-user of automobiles, this could translate to unmanned vehicles which could transport men or materials from point A to point B with GPS (Global Positioning Systems) enabled automobiles with the relevant co-ordinates being fed onto the onboard computer even from a remote location. These scenarios could also be fine tuned for weather patterns and traffic conditions.
In this Management Report, the impact of internal and external influences on the automobile industry and, in particular, on the BMW group has been described and evaluated. This has highlighted how the processes and policies and structures affect the business verticals and functions within the company and the group. The company’s business activity has been presented along with the ensuing economic risks and exposures. Used technologies and necessary actions in the research sector have been pointed out as well as the competitors have been identified.
Further, having particular regard to the learning organisation and the role of creativity, it has been analysed how the same impacts policies and decision making in the automobile industry and the BMW group in particular. The areas for improvement, inter alia, in research and development, seamless production and integration across the global plants, the ceaseless quest for excellence, the influence of group policies and decision making based on the prevailing statutes, protocols and regulations have also been amply demonstrated in the response of the group and the industry.
In the light of this conclusion, the critical recommendations as below have been made to enable the group to continue to remain the industry leader it has been. The future scenario based on the above information has also been presented as above.
The BMW Group needs to stay with its core competence of motor vehicles and should continue its focus on Research and Development as part of its ongoing process of discovering and the moulding of alternate environment friendly energy fuel options and its adaptation to the automobile industry. The group should refrain from investing in unviable acquisitions. It should continue relentlessly in pursuing further production, sales and marketing efforts in the emerging economies to attain true economies of scale. The group should continue its strict adherence to all national and international legal restrictions, statutes and protocols. The humungous knowledge bank within the group would also need to be continuously harnessed for achieving the goals and mission of the group.
Appendix 1 The BMW group’s global production network (BMW, 2007)
Appendix 2 Components of the Hydrogen Engine in the BMW Hydrogen 7
1 LH2 fuel tank
2 LH2 tank cover
3 LH2 tank coupling
4 Safety line to blow valve
5 Auxiliary units capsule
containing heat exchanger for
H2 and control unit of the tank
GH2 feed line
Safety blow-valve feed line
Exhaust pipe BMS
Air inlet BMS
Water cooling cycle
6 Bivalent internal combustion
7 Intake manifold with
9 Gasoline tank
10 Pressure control valve
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