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BMW and Distinctive Innovation Capability

 

In developing the future business model the capabilities have to be
developed and decided. But, even with the introduction of the Internet
and a whole new range of capability requirements, those that a company
already has, its key strengths, will still be important and often will form
the bedrock of future distinctive capabilities.

BMW was the major aircraft engine manufacturer in Germany at the
end of World War Two. With their factory in the Soviet sector and the
ruination of Germany all around them their future seemed anything
but secure.
While German industry recovered and manufacturers such as
Mercedes-Benz started to re-establish their ranges and distribution
network, BMW floundered. It produced bubble cars, which lasted briefly
as a fad in Europe, and unattractive saloon cars.
In 1959 BMW was on the verge of bankruptcy and it seemed likely
that it would be acquired by Mercedes-Benz. At this stage the Quandt
family took control and arranged for an injection of funds to carry the
company forward.
In 1962 BMW launched the 1500 and established a new segment in
the car market, the quality production saloon. The 1500 was a small to
medium-sized car with a sporty appeal. To the young European
executive class it signaled the new age of business success and recogni-
tion. It was not Mercedes or VW, Rolls-Royce or Fiat, but its own
expression of success and lifestyle.
The car was technically excellent, with good performance and
handling. It was built on a production line but by a workforce with
technical skills, the same skills that had built the aircraft engines for
the Luftwaffe. The distinctive capability of combining technical design
and production skills with high volume quality car manufacture aimed
at a new market segment gave BMW its competitive advantage.
The reputation for engineering excellence and reliability, combined
with sporty performance and distinctive styling, soon earned BMW a
strong following.
BMW built on this foundation to become one of the great success
stories of the second half of the 20th century. From its established
engineering and technical base it moved back into aero engines, which
built on its technical knowledge and skills. It built a new factory in
South Carolina to help with the development of the US market,
especially with the new SUV, the X5.
At this stage BMW decided that instead of remaining ‘the ultimate
driving machine’, its advertising byline and a superb description of its
distinctive capability, it announced it was a supplier of mobility. Makers
of invalid chairs are suppliers of mobility, together with Ford, Chrysler
and Toyota. BMW decided to acquire Rover, a British car manufacturer
that had been in decline for 30 years, from being the largest UK
manufacturer to having a small market share, surviving only because
of support from the British Government.
‘Size thinking’ drove this acquisition. This is the ‘if we are bigger we
are better’ syndrome. For some companies this works, and there are
genuine synergies and benefits from growing through acquisition. BMW
did not have expertise in acquiring a company like Rover, in either size
or market position. The plan was to move Rover up market, closer to
BMW’s own positioning, probably as a competitor to Audi. To do this
it would have to sort out the huge problems at Rover.
BMW’s distinctive capabilities lay in its engineering and technical
excellence, which derive from its German engineering heritage, and in
its brand. How would these be deployed in turning round a company
that had been in 30 years of decline and had tried to reinvent itself at
least three times and failed? The answer is they were not. BMW manage-
ment, inheritors of one of the century’s great success stories, decided
to follow a management fad on having to be the right size, a big size,
and forgot the distinctive capabilities that had made them strong and
delivered competitive advantage. The result has been the loss of several
billion Deutschmarks and a huge sapping of energy and confidence.

 

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