In order to attain sustainability, a business must have clear objectives. Strategic management of a business assists in gaining a deeper insight about the industry (LaMarco, 2018). The management of business resources of the organisation is essential in order to attain its objectives and goals and this effective management is known as Strategic management (Rastislav & Silvia, 2015). Strategic management involves the process of analysing the competition in the environment, evaluating strategies, setting objectives, and ensuring00 that management is fulfilling their responsibilities appropriately.
Strategic management is very important for an organisation as it offers a direction and framework of measurable goals (Hussler & Pe´nin, 2012). The purpose of this report is to examine strategic management theory in the context of the Porsche Company which operates in the automotive industry. It will explain the objectives and environmental factors that affect the performance of the company. Besides this, the explanation of the company’s position and competitors will be provided so as to to get a better idea about the company. Further, the report will provide value chain analysis and VIRO analysis of Porsche Company and in the end, the report will provide some recommendations for the company.
Overview of Porsche Company
Porsche Company is a leading automobile company in Germany which specializes in manufacturing high-performance SUVs, Sedans, and sports cars. Porsche AG has it’s headquarter in Stuttgart, and the brand maintained by Volkswagen AG. Volkswagen was founded by the German Labour Front in 1937. Porsche’s present line-up comprises the 718 Boxster/Cayman, 911, Cayenne, Macan, and Panamera (Porsche, 2018). The company was founded by Ferdinand Porsche. In the initial years, the company only offered motor vehicle improvement work and checking services and did not manufacture any cars under its own name. The most initial project that the company received was from the government of Germany to create a car (Porsche, 2018).
2.1 Objectives of Porsche
The primary objective of Porsche Company is to ensure sustainable growth, wide reach and a positive brand positioning in the world. The Porsche team works hard at creating sustainable solutions for problems faced by the automobile industry. The company is now moving towards sports section. The brand has a wide reach of customers who are staunchly loyal. The focus of the brand is to establish and maintain long term relationships with its stakeholders and ensure profitability for them all. Porsche is a solid brand that promises luxury, flamboyance and comfort. The brand firm continues to work towards its growth and development (Porsche, 2018).
3. External and Internal analysis
The external analysis of a company covers the broader environment of business that influences the performance of the business whereas internal analysis considers the factors that are within the company like its strengths and weaknesses.
3.1.1. Political/ Legal
Huge problems have occurred as a result of the economic downturn for the automakers particularly in the sports car section. However, Porsche is trying to put maximum efforts to be fuel-efficient but the government of US is still dissatisfied and hence continuously pressurising the car makers. In the US market, the mpg requirement for every car has been increased by a policy called as CAFÉ (Corporate Average Fuel Economy) (Pratap, 2018).
It is specified in the policy that all the importers and manufacturers of automobiles must have a rating of 39 mpg. The violation of such policy will cause them bear a penalty of around $35,700 per violation (Department Of Transportation, 2017). This legal feature works as a threat for the makers of sports cars because their mpg normally remains low and if the said policy is made compulsory, it will make it difficult for the automobile manufacturers to trade in the market.
3.1.2. Economic
In the 20th century, the whole sports car segment had to confront the economic despair. The economic downturn made various companies bankrupt and the entire economy had to deal with the problem of recession. The occurrence of recession event in the economy had created adverse impacts on the global level and it also resulted in increased fuel prices. Moreover, the rate of unemployment was increased and customers became quite price-sensitive. These economic factors affected the functioning of Porsche to a great extent.
3.1.3. Social
The fans of sports cars are quite less. They are said to be those buyers who are trend-conscious and are intrinsic to the high-end and luxury market. Because of their unique traits of personality, they like the vehicles that offer them high degree of fun and excitement whereas the other vehicles are generally created to meet the user’s requirements or needs. They chose the vehicles on the basis of their affordability and needs. However, the fans of sports car concentrate more on design and performance.
3.1.4. Technology
Constant innovation is required to outshine in the automobile segment especially in the sports car segments which in turn needs the technologies that are highly advanced in nature. With the changing time, technologies undergo quick changes to bring advancement and hence supporting all type of industries that are capital intensive and also the segment of the automobile. Porsche have created an affluence of technological expertise of their own and along with the support of strategic partners.
3.1.5. Environment
The environment is affected in various ways due to Automobiles. Influence initiates at the time when a vehicle is created and finishes with its scrappage. Maximum of the environmental influence happens when those vehicles are utilized. The laws related to pollution have become harsh in all over the world and even in few of the markets people have to pay huge penalties for the brands that do not fulfill the criteria.
3.2.1. Strength
Brand image and reputation- Porsche has not merely made its name successfully in the market but its brand’s footprints are also very strong as compared to other players in the market. The company is famous for its luxurious cars and legacy sports with automotive representation. The major preferences to its products are given by the high-end customers in the market not merely because of the high prices but due to the power of the machine (Bhasin, 2018).
Sports base- Porsche’s motor racing base is the strongest among all other brands in the world due to the quality they maintain in the manufacturing of the vehicles. In fact, the company possesses machine line which is particularly dedicated towards this section (MBA Skool, 2018).
3.2.2. Weaknesses
Costly for the Middle base- The mindset behind manufacturing the cars under Porsche brand is the set which considers the rich or upper-class customers and this is said to be the weakness of the company. The company faces no recognition in the middle-class society due to its high price.
High Maintenance- The maintenance charges of the Porsche cars is very high as compared to other players in the segment of sports cars. Besides this, the Porsche’s running cost is also increasing (Kurz, 2017).
3.2.3. Opportunities
Expansion- Expansion is said to be an opportunity for the company. It is undertaken to increase the market share. As the products offered by the company are target-based, therefore the production can be shifted to another country such as China, for the improved outcomes.
3.2.4. Threats
Government Policies- Policies of Government in few countries may upshoot as a restraint for vendors and owners of the Porsche Cars. Consequently, setting their concerns while they handle the policies is the improved choice for the company.
Recession- Growing recession has resulted in the decline in the number of customers who are capable enough to afford the different types of high-ranged cars manufactured by Porsche. Introducing cars which can be bought by a large number of people can be considered as the solution to the concern of losing the large customer-base in the market (Fern Fort University, 2018).
4. Sources of Cost and Differentiation Advantage
The global industry of automobile is extraordinary in various aspects. Apart from its huge growth in some last years; it has also generated billions of job opportunities across the world. It is one of the most important players in the global economy. It is the key part of the global economy. Sustaining a competitive advantage has become very important in the modern world.
Increasing digitization demands huge cost incurrence. However, at the same time it has become very essential to invest in the advanced technology and improved distribution and supply chain management looking at the intensity of competition in the market. A well-organized distribution system and supply chain function are said to be the essential mediums of gaining competitive advantage for the brands of the car but marketing and research and development are also equally important.
4.1. Brand Equity- The brand image could be considered as the key source of gaining competitive advantage for the reason as to how the consumers see the brand of the company influences the profitability and sales of the company. It is not just the source that can help in attaining competitive advantage. These systems also play an important role in changing the situations of the company.
4.2. Technology- In today’s era, technology is the greatest source of achieving competitive advantage. Nowadays, the expectations of the customers have increased. Also, consumers demand everything in one single product. Technology can support in serving the high expectations of consumers and can allow the company to make them satisfied. Innovations in terms of technology have become very essential for several other reasons. Today, the issues related to the environment are the major aspects in the industry of automobile and hence the company is investing more amounts in the sustainability projects (Bonab, 2017).
4.3. Efficient Global Distribution and Supply system- Besides all the other aspects business needs to focus on the distribution and supply chain management along with the suitable after sales services. An effective supply chain is an important aspect of the high-standard value chain. The efficiency of the supply chain can be achieved when businesses do not have to wait for the raw material for its manufacturing. The reputed brands of the automobile in the world have well-organized and managed supply chains established across the globe.
It allows them to possess the right quality of the raw material at the correct time. Presence of brand in various locations contributes to increased competitive advantage because it allows connection of more people with the brand. Hence, the big network of distribution supports the handling of brand and attaining a competitive advantage (Pratap, 2018).
6.1. Threats of New Entrants (Low)
The threat of new entrants in the automobile industry is low because of presence of various factors such as: high capital costs, intensified research and development processes, high brand implementation costs and the requirement of heavy investment in fixed assets that are featured with innovative technology.
6.2. Supplier’s Bargaining Power (Weak)
The supplier’s bargaining power is weak under the premium cars segments like Porsche as the company require parts manufactured with high quality, devices featuring high technology, high-class materials etc. These supplies are generally offered by limited suppliers. Besides being a business partner, Volkswagen is also the key supplier of Porsche.
6.3. Buyer’s bargaining power (High)
The key products of Porsche are highly performing SUVs, Sedans, and Sports Cars. Along with these products, the company is also providing engineering services to various other makers of the car. The products of Porsche are not significantly different from the products of other firms in the automobile sectors. Because of this aspect buyers in the market can simply switch from the products of Porsche to that of other players in the search of better quality and to avoid paying extra costs.
6.4. Substitute Industry threats (High)
Premium car primarily fulfil two requirements of the buyers: it provides them a means of transportation and defines the luxury status of its owner. There are various substitutes present in the market to meet the needs of transportation like public transport vehicles, bicycles, air- planes etc. The major substitutes of Porsche’s product are Lamborghini, Jaguar, Ferrari and Lotus. The key substitutes for Porsche’s engineering services are Hawtal Whiting, MSX International Inc. and Stola. These facts reflect that the substitute threat for Porsche is comparatively high.
6.5. Rivalry among existing competitors (High)
There exist highly competitive rivalry firms in the premium cars segment because of their distinct brands with different strategies and originations (Hunt 120, 2013).
Source [(Porter, 2008)]
7. Value chain analysis
Value Chain Analysis is the procedure under which a company recognizes its primary and secondary activities that enhance the value of the final products. Once such activities are identified, they are typically evaluated to decrease the cost.
Source [(Porter, 2008)]
Wide channel of distribution
Porsche is presently operating under the Volkswagen umbrella. Volkswagen is said to be the third biggest distributor and manufacturer in the world. The distribution channels of the company are dispersed across the world. Porsche can make use of the distribution channels of Volkswagen to deliver its products to the consumers.
7.1.2. Operations
Consultation and engineering on Vehicle and their engine’s design:
Porsche provides its own services in the areas of consultation and engineering. The company makes some of the finest designs and engines of the vehicles across the world as it holds expertise in this segment. They identify the value of customer satisfaction and create its products as per the demands and wants of their consumers.
7.1.3. Outbound Logistics
In 2008, Porsche turned off its key segment named as Porsche Logistics in order to handle its spare parts warehouse. Presently, Porsche logistics manages a portion of its picking and packaging operations through its warehouses and rest of the operations are outsourced to the specialised service providers (Ludwig, 2010).
Diverse Market Segment- Company has diversified its business into various markets by launching Sedans, and SUVs. Since, Porsche has largest market of export in US; SUV has started dominating the road.
7.1.4. Marketing and Sales
Strong brand image- Porsche has built a strong image of its brand among its consumers through its continuous efforts. It is important to maintain the brand image to meet the competitive challenges in the global business environment in order to operate successfully.
Consulting- The company has a consulting group which is named as Porsche Consulting Group. It offers services of vehicle designing to the corporate customers and manufacturers.
7.2. Support activities
7.2.1. Firm Infrastructure
Production plant- Porsche owns the world’s largest and best car factory, which is located in Germany. This factor has significantly helped the company to achieve the goodwill in the high-performance segment of sports cars. However, it has expanded its business to all other automobile segments such as trucks, sedans, and SUVs, etc.
7.2.2. Human Resource
Trained and expert employees- Porsche possesses the adequately trained and expert employees who confirms that the quality, service, and design received by the consumers of the company is all perfect.
7.2.3. Technology Development
Volkswagen Resource- Every brand of the Volkswagen umbrella share their resource with each other. Volkswagen Company has perfect technology development in the industry of automobile which is attained by Porsche.
7.2.4. Procurement
Volkswagen Umbrella- Under this umbrella, all automobile brands shares their knowledge which made the Porsche consumers have more amenities from the Volkswagen.
8. VRIO analysis
VRIO framework is said to be the most analytical standard that has been established by J.B. Barney as it is broadly utilized for assessing the capabilities and resources of a business. This framework is used to assess the main capabilities and resources of the company with four dimensions: Value, Rareness, Inimicality, and Organisation (Barney & Clifford, 2010).
The framework helps the company in framing the rare capabilities and resources that can offer a competitive advantage in the short run rather than framing the capabilities and resources that inimitable and planned to provide a long-term competitive advantage (Peng, 2010).
The framework of VRIO of Porsche
|
Capabilities/Resources |
Value |
Rare
|
Inimitable |
Organised |
Result |
|
Global brand |
Yes |
Yes |
Temporary competitive advantage |
||
|
Corporate structure |
Yes |
Yes |
Yes |
Unused competitive advantage |
|
|
Internship program |
Yes |
Yes |
Yes |
Yes |
Sustainable competitive advantage |
|
Research and Development |
Yes |
Yes |
Yes |
Yes |
Sustainable competitive advantage |
|
Lean manufacturing |
Yes |
Competitive parity |
|||
|
High operating margin |
Yes |
Yes |
Temporary competitive advantage |
||
|
Synchronized engineering |
Yes |
Competitive parity |
|||
|
Engineering Group of Porsche |
Yes |
Yes |
Yes |
Yes |
Sustainable competitive advantage |
|
Luxury sports cars |
Yes |
Yes |
Yes |
Unused competitive advantage |
|
|
Quality of product |
Yes |
Yes |
Temporary competitive advantage |
||
|
Partnership with other OEM’s |
Yes |
Yes |
Yes |
Yes |
Sustainable competitive advantage |
With the help of VRIO framework the major strategic capabilities and resources have been recognized that offers the company a competitive advantage. These capabilities are: R&D, a partnership with other OEM’s, Internship Program, and engineering service.
9. Recommendations
From the above analysis, it can be recommended that Porsche needs to have efficient alternatives so that justifiable competitive distinction can be attained it in the current scenario of the market. Besides this, it needs to focus and invest more in the research and development of the segment of hybrid cars because of the fact that CAFÉ has already put the conditions that Porsche cannot decrease the mileage per gallon by the year 2020.
Porsche is functioning under the Volkswagen brand and due to this fact it has lost its opportunity to operate alone. Porsche is following the global strategy since its initial years, and has always kept its quality and standards on the topmost priority throughout the course of its business. Porsche must maintain its strategy as it is enabling the company to achieve cost effectiveness.
10. Conclusion
It can now be stated that Porsche is the key player of car manufacturing market. Also, it is a leading organisation in the sports car segment and offers excellent facilities to its customers. However, it is not focused on the hybrid car segment. From the above report, it can be recommended to the company that it must further increase its investment in this segment. The report has been prepared to examine the process of strategic management of Porsche Company. The porter five force analysis of Porsche has shown that company is enjoying various opportunities in the market due to its brand recognition at the high scale. Also, it has shown that the company is facing various challenges in the market due to intense competition in the global business world.
11. References
Bhasin, H. (2018). SWOT analysis of Porsche.
Bonab, A.F. (2017). The Development Of Competitive Advantages Of Brand In The Automotive Industry. Journal of Internet Banking and Commerce, 22(S8), 1-15.
Department Of Transportation. (2017). National Highway Traffic Safety Administration.
Fern Fort University. (2018). Porsche SWOT Analysis / Matrix.
Hunt 120. (2013). Porter’s 5 Forces Of Auto Industry.
Hussler, C., & Pe´nin, J. (2012). Strategic management and the economics of the firm. Journal of Strategy and Management, 5(4), 372-380.
Kiwi Design. (2017). Polarity Map.
Kurz, H. (2017). Porsche SWOT Analysis.
LaMarco, N. (2018). Six Strategic Business Objectives.
Mayrhofer, U., & Colovic, A. (2012). Optimising the Global Value Chain: An Analysis of the Automobile Industry.
MBA Skool. (2018). Porsche SWOT Analysis, USP & Competitors.
Peng, M.W. (2010). Global Business. 2nd edn. U.S: Cengage Learning.
Porsche. (2018). Company.
Porsche. (2018). Porsche Company profile.
Porsche. (2018). Porsche Strategy 2025.
Pratap, A. (2018). PESTEL/PESTLE Analysis of Volkswagen AG.
Pratap, A. (2018). Sources of Competitive Advantage in the Automobiles Industry.
Professional Academy. (2018). MARKETING THEORIES – PESTEL ANALYSIS.
Rastislav, R., & Silvia, L. (2015). Strategic Management of Business Performance Based on Innovations and Information Support in Specific Conditions of Slovakia. Journal of Competitiveness, 7(1), 3-21.
Research Methodology. (2018). Value Chain Analysis.
Porter, M.E. (2008). Competitive Strategy: Techniques for Analyzing Industries and Competitors. 3rd edn. U.S: Simon and Schuster.
Porter, M.E. (2008). Competitive Advantage: Creating and Sustaining Superior Performance. 4th edn. U.S: Simon and Schuster.
Barney, J., & Clifford, T.G. (2010) What I Didn’t Learn in Business School: How Strategy Works in the Real World. 1st edn. U.S: Harvard Business Review Press.
Ludwig, C. (2010). Porsche balances in-and outsourced logistics.
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