History and 4Ps
Founded in 1931 by Ferdinand Porsche as a design and engineering services provides for the automobile industry, Porsche Automobile Holdings SE (Porsche) is one of the largest and most successful global automobile manufacturer, famed for its innovative and stylish designs as well as leading automotive technology/engineering. The company launched Porsche 356, a branded sport car in 1948, after the success of VW Beetle, which it had designed in 1934. With access to Volkswagenwerk’s distribution and organizational infrastructure, Porsche quickly established itself in both Germany and Austria, before finally moving its production activities to its own facilities in Stuttgart. By Ferdinand’s 1951 death, the company had already produced upwards of 500 cars, and his son, Ferry Jr. would see the number reach 10,000 in 1956. The company expanded its production further, and with production reaching 76,000 in 1965, Porsche was set to introduce the 911, 912, 928, and 924.
Porsche expanded further into multiple markets abroad through the 1970s saw the company become publicly listed. Porsche’s successes came to a brief halt in the early 1990s, when the US economy, which was one of its most important markets at the time slowed down. The difficulties ensured that Porsche posted losses in 1993-1995, but with Wendelin Wiedeking as the new CEO and the successful introduction of the affordably priced Boxter in 1996 saw the company return to profitability in 1996. Barely two years later, Ferry Porsche passed on, leaving behind a thriving company with soaring sales both in the US and elsewhere in the world. Its interest for sports utility vehicles had also grown, with the announcement a joint venture with Volkswagen to develop them. In 2003, Porsche’s production had reached 75,000 units, and its offerings included the problem-ridden Porsche Cayenne. In 2005, Porsche and VW produced Porsche Panamera. While Porsche’s reputation for luxury sports cars remains strong, the company is more known for its stakes in other larger automobile and related services providers. Porsche markets its products under the Porsche, Audi, Volkswagen, Bentley, Ducati, Lamborghini, Bugatti, MAN, Scania, KODA, and SEAT brands, with operations across North America, Europe, Asia Pacific, and Latin America. It is also involved in the provision of financing, insurance, banking, mobility, and fleet management services.
Product
While Porsche’s product line has increased and changed over the years, the company’s strength in engineering and insistence on the highest quality products has endured. The Porsche brand is driven by its engineering and design prowess that the company has become renowned for since its 1934’s VW Beetle. The company has built, and takes pride in building sports cars that are technically and stylistically sound, which is why it has been so successful for about a century. Many of its cars have been hugely successful and for some years, the demand actually outstripped the supply for some vehicles. Specialization in luxury sports cars has helped the Porsche brand gain a foothold in key markets across the world, but the company has also diversified the range of its offerings in order to appeal to a larger market. In 2005, for instance, Porsche ventured into the into the SUV market leading to the development of the Panamera, development in a low cost part of Germany, with possible efficiency gains filtering down to the customers. The potential of Porsche venturing into the mass market exists, if the costs of its vehicles can be reduced substantially, and/or the product portfolio is increased to cater for the needs of the middle classes and upper lower classes. The Porsche Cayenne struggled with quality issues and poor customer ratings, but this served as an incentive for the company’s engineering teams to fix defects as well as innovate on a broad range of aspects, with the consequence of pushing the Cayenne to the very top.
Place
Promotion
Porsche provides a broad range of promotion/marketing activities. To begin with, Porsche offers support services including financing assistance and excellent customer support, both before and after the purchase of the vehicles. The Porsche exclusive service allows clients to personalise their cars 100%, which allows the customer to be fully engaged in the development of the vehicle. Similarly, Porsche offers spare parts through VW/Porsche dealerships (as well as through the company’s website) and facilitates the sale of pre-owned Porsches.
Pricing
Porsche puts a premium on quality, as against quantity, and hence the premium pricing strategy. With the average revenues of more than $90,000, Porsche prices its vehicles highly both to match the possible high development costs as well as create an aura of exclusivity for its customers.
SITUATION ANALYSIS
Political
The basis of Porsche’s production plants in Germany and several other countries within the European Union have the consequence of mitigating the political risk associated with the company’s investments, due to the relative political stability in the EU.
Economic
Porsche’s exclusive product portfolio is profitable but still limited both in terms of the range of customers it can attract as well as the markets that the company targets. This, in part, explains Porsche’s excessive reliance on the developed economies in Europe, the US and Asia Pacific. However, Porsche’s acquisition of VW helps cushion the company against adverse movements in the automobile industry, because VW appeals to the mainstream car market, and thus serves as a safety valve for Porsche when the market for luxury, niche market cars falters. Even most importantly, according to MarketLine (2016), the emrging economies have enjoyed faster growth as developed markekts struggled, and have large and fast-expnading markets.
Porsche’s competition lies both in the automobile engineering services as well as in the luxury sports car market. Large services outsourcing players include the UK’s Hawtal Whiting, the US’s Modern Engineering, Inc., and MSX International, Inc., as well as Italy’s Stola. These competitors posted enormous revenues and a substantial customer base, and while they have struggled in the too, they positioning in the fast growing outsourcing market in the US places them at an advantage. While Porsche’s PEG and PES have access to the US market, the potential for further expansion in this, and the emerging economies should be a promising prospect (MarketLine, 2016; Henderson & Reavis, 2009).
Social
The cultural differences between Porsche and its other subsidiaries may be an impediment to the successful collaboration in engineering as well as in the management of the subsidiaries. Long cultural ties between Porsche and VW are a testament to the importance of shared organisational cultures, which make for better internal working and performance. On the contrary, the cultural conflicts in the Daimler-Chrysler merger affected the performance of the resultant company, with consequences on the viability of the partnership. Effectively, while it is important to be sure that the VW and Porsche organizational cultures are compatible, and any indication to the contrary means that the organizational structure should keep the two companies substantially separate. The difficulties already apparent with Audi, for example, bode poorly for the integration of the two companies’ organizational cultures.
Technological
Porsche’s spending in R&D is substantially higher than many other players in the industry, both small and large. Porsche’s R&D division and the Porsche Engineering Group are an important part of the company and its competitiveness, including drawing on hundreds of graduate interns who ensure creativity and innovation. In a highly innovative, fast-changing and competitive automobile industry, innovation is critical to competitiveness, and thus the PEG remains a central pillar to Porsche’s continued competitiveness. Porsche’s model of drawing on the cooperation in the industry, is just as important to ensuring a financially and creatively sustainable approach to technological innovation.
FINANCIAL PERFORMANCE
Porsche has enjoyed excellent financial performance since its 1996 turnaround. In 2007, Porsche posted $9.4 billion in income, with more than 60% of the revenues coming from the company’s trading derivatives. The importance of Porsche’s stakes in VW, Audi, and other leading players in the global automobile industry are critical to Porsche’s future strategy both because they diversify its revenues and thus hedge against risks against any specific product or even company such as the recent emissions scandal facing VW, but perhaps most importantly, Porsche’s presence in these other companies gives it access to a large pool of resources that it can draw on to advance its strategy (Klier & Linn, 2016; Henderson & Reavis, 2009). The fact that upwards of 60% of Porsche’s revenues came from trading derivatives as well as the fact that Porsche’s own revenues are dwarfed by the overall revenues of the other companies in which it has stakes, point to the importance of these assets to Porsche’s income. In 2007, Porsche had become one of the most profitable car manufacturer in the world, in fact, with an average of $91,794 in average revenues, Porsche was the most profitable on a per unit basis. Its average revenues were far more superior compared to its larger competitors, by substantial margins, in an industry where scale economies are thought to be the main source of lower costs and enhanced profitability.
SWOT ANALYIS
Figure 1: Porsche SWOT Analysis
Strengths
The company has enjoyed healthy profitability and revenues, which gives it the required flexibility to invest in research and development, marketing activities, and even survive difficult changes in the strategic environment (MarketLine, 2016; Henderson & Reavis, 2009). By 2007, Porsche was the world’s most profitable automaker on a per unit basis, 5 a feat that was especially impressive considering it produced just over 100,000, and this is a critical advantage that the company needs to utilize to beat down competition (engage in marketing activities and invest in R&D). The company has, and continues to partner with other players from the automotive and other related industries to drive innovations. The Porsche Engineering Services has been effective in working with other players to promote innovation in the industry. The company has availed kits wide-ranging expertise in the creation and production of automobiles not only within Porsche but also across multiple industries. The Porsche Engineering Group has allowed the company to employ more engineers than could have been possible for a relatively small, niche market manufacturer. With its stake in VW, the two companies have been able to create and exploit synergies that benefit both Porsche as well as VW. Other industry players that work with the company in the PEG/PES also benefit from the resultant technological developments. The capital intensity of R&D, particularly due the heavy capital investments required on a continuous basis.
Weaknesses
According to Henderson & Reavis (2009), the automobile production in the US increased by 50% in 1995-2005 and outside engineering services remains a central pillar of the rapid growth in production. For smaller car manufacturers, the pressure of globalization and intensiv competition has forced smaller manufactuerers to turn to the external service providers. However, Porsche sold its PES interests. On the other hand, Porsche’s revenues point to its relatively small size compared to other major players in the industry, particularly those based in the US and Japan. This could possibly speak to the relatively small size of the niche to which Porsche appeals, and the need to expand out of it.
Opportunities
The success of Porsche’s entry into the SUV market with the Panamera as well as the success of vehicles developed through such collaboration with VW points to the potential of Porsche venturing outside the luxury sports car market. This will further permit Porsche to diversify its revenue sources, and potentially increase its catchment population, with the consequence of ensuring Porsche does not remain a niche market player. If Porsche is wary about expanding its products, it could consider buying stakes in other mass market manufacturers, instead. Further, by catering for the mass markets, Porsche could expand more successfully into the emerging markets, which are characterized by comparably lower but rapidly rising incomes. Ostentatious consumption tendency among the new middle classes in the emergent economies promise a substantial market for Porsche.
Threats
The slump in Porsche’s revenues at the beginning of the 1990s up until 1995 was largely due to the company’s overreliance on the US market, which meant that its revenues were also dependent on the performance of the US economy. Without diversifying its markets, Porsche will be further exposed to similar hits to its performance as major economies struggle, such as it occurred in 2007, following the global economic crisis. The need for diversification is also brought on by the intense competition characteristic of the auto industry in the mature markets such as the US.
STRATEGIC PLAN
Product Diversification
Porsche has a narrow product range, which has been undoubtedly very successful over the past century, and as a consequence the company has been hugely successful. However, the industry has become intensely competitive as perhaps best emphasized by Porsche’s failure to fully capitalize on the engineering services outsourcing in the US. Porsche needs to develop more products, particularly away from its traditional sports car portfolio. Given the success of the Panamera as well as VW Toureg, it is clear that Porsche has a promising opportunity to further expand into these markets. This will help it not only tap into a larger market within the existing income that Porsche already markets to, but perhaps most importantly, the company will be able to attract more customers. Expansion of the product line, along with the exploration of more affordable production technologies towards the possibility of cutting costs with the view of increasing profit margins and/or reducing the prices to increase sales would be attractive.
Expansion of Stakes in VW and other Auto Manufacturers
Porsche’s strategic use of its engineering prowess as well as its small, niche market nature to work with other manufacturers because its partners are not its direct competitors and have the confidence in working with Porsche. Porsche could use its long-established partnerships with other companies, including VW, Audi and Scania, to develop products jointly, in the same way as VW Toureg. Partnership in the development of products will ensure that Porsche insulates itself from possible risks affecting its core products and grow its revenue base. Even most importantly, the company will still maintain its brand integrity.
Expansion into Emerging Markets
Porsche’s reliance on the US and select European markets renders it vulnerable to economic risks specific to these major markets, particularly the US, as perhaps best evidenced by the slump in 1990s. While the company has direct and indirect operations across the world, it needs to intensify further its operations in the emerging economies in Latin America, Asia Pacific and Africa. Other than the fact that these markets promise high growths in demand due to the emergent middle classes, they are also characterized by less intense competition, compared to mature markets such as the US and Germany.
ORGANIZATIONAL STRUCTURE
A horizontal or matrix organizational structure would be most appropriate for Porsche in order to help it achieve its new strategic objectives. To begin with, if the company chooses one or more of the recommended strategic directions above, it will need to work closely with other car manufacturers as well as manage operations across broader geographical regions. If the company is to organizational cultural clashes with its subsidiaries, it needs to keep them as administrative separate entities in the same way it has handled its stakes in VW and Audi, among others. In this way, Porsche would be able to create the required synergies by forging effective partnerships without the disruptive cultural difficulties such as was the case in the Daimler-Chrysler case.
MEASUREs OF SUCCCESS
The success of the strategy will be measured by a number of metrics. If the company implements. If the company implements the product diversification plan, success would be measured by the number of new products produced, and the success of each market on the market (sales). On the other hand, expanded ownership will be measured by the percentage increase in the shares controlled by Porsche in VW and other automotive manufacturers. Lastly, the expansion into other markets will depend on the percentage increase in sales in the emerging markets, including China, South Africa, India, and Brazil.
References
Conneely, J. F. (2010). Strategic Planning and Financial Management. New Directions For Student Services , 132, 51-61.
Funding Universe. (2000). Porsche AG History. International Directory of Company Histories, Vol. 31. St. James Press.
Henderson, R., & Reavis, C. (2009). What’s Driving Porsche? (09-075 ed.). Boston: MITSloan Management.
Klier, T., & Linn, J. (2016). Comparing US and EU Approaches to Regulating Automotive Emissions and Fuel Economy . Resources for the Future Policy Brief, 16(3).
MarketLine. (2016). Toyota Motor Corporation: Company Profile. New York: MarketLine.
Pisano, G. P. (2015). A Normative Theory of Dynamic Capabilities: Connecting Strategy, Know-How, and Competition. Harvard Business School Working Paper 16-036.
Porsche. (2016). About Porsche. Retrieved July 25, 2016, from http://www.porsche.com/middle-east/_ghana_/aboutporsche/overview/strategy2018/
Wu, W., & Lee, Y. (2007). Selecting knowledge management strategies by using the analytic network process. Expert Systems with Applications, 32(3), 841-847.
