case study of bmw company

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BMW Marketing Strategy 2024: A Case Study

BMW, the German luxury automobile manufacturer, has been a force to reckon with in the automotive industry since its establishment in 1916. Known for its high-performance vehicles and cutting-edge technology, BMW has successfully positioned itself as a leading brand, captivating the hearts and minds of consumers worldwide. In this case study, we will delve into BMW’s marketing strategy for 2024, exploring its intricate details and the key factors contributing to its success.

Key Takeaways:

• BMW is a renowned German luxury automobile manufacturer.
• The company has a rich history and a strong presence worldwide.
• BMW’s target market comprises affluent professionals, driving enthusiasts, and tech-savvy consumers.
• The brand focuses on delivering premium quality, performance, and style in its products.
• BMW positions itself as a premium brand with a comprehensive promotion strategy and a strong digital presence.

BMW, short for Bayerische Motoren Werke AG, was founded in 1916 as an aircraft engine manufacturer. However, it quickly shifted its focus to producing automobiles and has since become one of the most renowned luxury car manufacturers in the world. The company’s headquarters are located in Munich, Germany, and it operates production facilities in various countries, including Brazil, China, India, the United States, and Mexico.

What sets BMW apart from its competitors is its commitment to quality and innovation. The brand is known for crafting high-quality, luxurious vehicles that offer a perfect blend of style, performance, and cutting-edge technology.

Over the years, BMW has established a rich history of success. The brand has not only produced exquisite cars but has also achieved remarkable victories in racing championships, solidifying its reputation as a leader in the automotive industry.

In addition to its own brand, BMW also owns and produces other well-known names in the automotive world, such as Mini and Rolls-Royce. This diverse portfolio allows BMW to cater to a broad range of consumers with varying preferences and budgets.

BMW’s Target Market

BMW’s target market encompasses a diverse group of affluent professionals, driving enthusiasts, and tech-savvy consumers. The brand has successfully positioned itself as a go-to choice for individuals who highly value both performance and luxury in their vehicles. BMW understands that its target audience seeks not only powerful engines and exceptional handling, but also refined designs and sophisticated features.

In recent years, BMW has further expanded its market reach by introducing electric and hybrid models, attracting environmentally conscious consumers who still desire an exceptional driving experience. By offering a diverse range of vehicles that cater to different segments within its target market, BMW ensures that its marketing efforts resonate effectively with a wide range of consumers.

Affluent Professionals

One of BMW’s key target segments comprises affluent professionals who seek high-quality vehicles that reflect their status and success. These individuals desire the prestige associated with owning a luxury brand like BMW, combined with the performance and technological advancements that the brand offers.

Driving Enthusiasts

BMW’s driving enthusiasts form another crucial segment of its target market. These individuals have a passion for powerful, sporty cars that deliver an exhilarating driving experience. BMW’s reputation as a manufacturer of high-performance vehicles, coupled with its motorsport heritage, appeals directly to these enthusiasts who prioritize speed, handling, and precise engineering.

Tech-Savvy Consumers

In today’s digital age, tech-savvy consumers value the integration of advanced technology in their vehicles. BMW understands this and has made significant advancements in incorporating cutting-edge features and connectivity options in its cars. By offering features such as advanced infotainment systems, mobile app integration, and driver-assist technologies, BMW attracts tech-savvy consumers who prioritize seamless integration of their digital lifestyle with their driving experience.

With a deep understanding of its target market, BMW continues to develop vehicles that cater to the specific desires and needs of these distinct segments. By combining performance, luxury, and technological innovation, BMW maintains its position as a leader in the luxury automobile market.

BMW’s Product Strategy

BMW offers a diverse range of luxury automobiles designed to meet the sophisticated tastes of its discerning customers. The brand’s product strategy focuses on delivering a seamless blend of premium quality, exceptional performance, and captivating style in every vehicle.

BMW’s commitment to excellence is evident in its meticulous attention to detail and use of high-quality materials. The brand continuously pushes the boundaries of innovation to create automobiles that exceed customer expectations. With cutting-edge technology and advanced engineering, BMW vehicles offer a driving experience that is both exhilarating and refined.

Safety, efficiency, and reliability are paramount in BMW’s product strategy. The brand integrates state-of-the-art safety features and advanced driver assistance systems to ensure the well-being of its customers. With a keen focus on reducing emissions and improving fuel efficiency, BMW also offers a wide range of electric and hybrid vehicles, catering to the growing demand for sustainable mobility.

In addition to automobiles, BMW manufactures motorcycles and bicycles for specific markets, catering to niche segments with specialized products. This diverse product portfolio allows BMW to extend its brand reach and cater to the unique preferences of its customers.

The BMW Automobile Lineup

BMW’s product lineup encompasses a wide range of luxurious vehicles, each designed to fulfill specific needs and desires. From elegant sedans and powerful sports cars to versatile SUVs, BMW offers something for every discerning driver.

BMW’s vehicle lineup combines elegance, performance, and advanced technology to provide an unmatched driving experience. Whether it’s the sophistication of the flagship 7 Series or the exhilaration of the M4, BMW vehicles embody the brand’s commitment to exceptional craftsmanship and uncompromising quality.

Through its product strategy, BMW continues to redefine automotive luxury, setting new standards in design, performance, and technology. The brand’s unwavering dedication to innovation ensures that BMW vehicles remain at the forefront of the automotive industry.

BMW’s Price Strategy

BMW is renowned for its position as a premium brand, and its price strategy plays a crucial role in maintaining this image. The prices of BMW cars vary depending on the series and model, allowing customers to choose a vehicle that aligns with their preferences and budget.

The brand’s primary focus is on luxury vehicles, offering a range of high-performance cars that deliver style, comfort, and cutting-edge technology. However, BMW has also recognized the need to broaden its customer base and increase operational reach. To achieve this, the brand has ventured into the realm of budget-friendly automobiles while ensuring they still embody the core BMW values.

By offering a range of price points, BMW aims to cater to a wider audience without compromising the premium image associated with the brand. This strategy allows individuals who appreciate luxury and quality to experience the excellence that BMW stands for, regardless of their budget constraints.

Whether customers opt for a top-of-the-line, high-end BMW or choose a more affordable model, they can expect the same commitment to craftsmanship, performance, and innovation. BMW’s price strategy reinforces its position in the market while providing customers with the freedom to choose a vehicle that suits their needs and aspirations.

Overall, BMW’s price strategy is a testament to its dedication to delivering exceptional quality and value to its customers, regardless of their budget. It is a key component in maintaining the brand’s position as a leading luxury car manufacturer, setting it apart from competitors and ensuring customer satisfaction.

BMW’s Place Strategy

BMW has adopted a strategic approach to its place strategy, which encompasses manufacturing facilities and a network of dealerships worldwide. The brand has established manufacturing plants in key countries such as Germany, Brazil, China, India, the United States, and Mexico. This global presence enables BMW to cater to diverse markets and efficiently produce vehicles for both domestic consumption and international distribution.

Unlike other automotive manufacturers, BMW directly appoints showroom dealers instead of relying on distributors. This approach allows BMW to maintain close relationships with its dealers and provide them with higher margins, ensuring that customers receive a superior buying experience. By cutting out intermediaries, BMW streamlines its distribution channel and maintains control over its brand image.

BMW strategically locates its showrooms in urban areas that align with its target market. This targeted placement facilitates accessibility for potential customers and enhances the brand’s visibility. Placing dealerships in bustling city centers and upscale neighborhoods ensures that BMW’s luxury vehicles are showcased in prime locations, attracting the attention of its target audience.

Showrooms Distribution Breakdown

As the table above illustrates, BMW has a strong presence in Germany, the United States, China, India, and Mexico, with a significant number of showrooms in each country. This strategic distribution allows BMW to maximize its reach and cater to the demands of its target market effectively.

In summary, BMW’s place strategy encompasses a global manufacturing footprint and a direct dealership model. By strategically locating its showrooms in urban areas and fostering strong relationships with dealers, BMW ensures a seamless distribution process, enhances customer experience, and maintains its renowned brand image.

BMW’s Promotion Strategy

BMW employs a comprehensive promotion strategy to maximize its reach and engage its target audience. The brand utilizes various marketing channels , including television and radio advertisements, print ads, and online campaigns. By leveraging these channels, BMW effectively communicates its brand messaging and showcases the unique features and capabilities of its vehicles.

One of the key strengths of BMW’s promotion strategy lies in its visually appealing and memorable commercials. These commercials capture the aesthetics, performance, and technology of BMW vehicles, leaving a lasting impression on viewers. The brand’s creative and captivating advertisements serve as powerful tools in building brand recognition and driving customer interest.

BMW also places great emphasis on customer satisfaction throughout the car-buying process. The brand strives to create memorable experiences for customers by offering exceptional service and personalized attention. This focus on customer satisfaction not only enhances the overall buying experience but also strengthens customer loyalty and generates positive word-of-mouth referrals.

Furthermore, BMW’s promotion strategy extends beyond traditional advertising channels. The brand organizes exclusive events to engage its target audience directly. These events allow BMW enthusiasts and potential customers to experience the brand’s vehicles firsthand, further enhancing brand perception and fostering an emotional connection with the brand.

Another aspect of BMW’s promotion strategy is its utilization of social media platforms. The brand leverages social media campaigns to engage with its target audience and share compelling content. By actively interacting with customers, BMW creates a sense of community and strengthens its brand following.

In addition, BMW collaborates with influencers and celebrities to amplify its brand message and extend its reach to a wider audience. These collaborations enable BMW to tap into the influence and credibility of well-known personalities, reinforcing its brand image and attracting new customers.

The effectiveness of BMW’s promotion strategy can be attributed to its integration of various marketing channels, its focus on customer satisfaction, and its ability to create memorable experiences. By incorporating traditional advertising, exclusive events, social media campaigns, and influencer partnerships, BMW ensures that its promotion strategy reaches and resonates with its target audience, ultimately driving brand awareness and customer engagement.

BMW’s Advertising Campaigns – A Look at the Past and Present

BMW’s advertising campaigns have played a pivotal role in shaping the brand’s image and driving its success. Over the years, the brand has developed iconic and award-winning advertisements that have captured the attention of both automotive enthusiasts and the general public.

One notable advertising campaign by BMW is the “Ultimate Driving Machine” campaign. Launched in the 1970s, this campaign positioned BMW as a brand that prioritizes performance and driving pleasure. The “Ultimate Driving Machine” tagline became synonymous with BMW’s commitment to delivering exhilarating driving experiences.

In recent years, BMW has continued to impress with its advertising campaigns. The brand’s “The Road Home” campaign showcased BMW’s dedication to innovation and high-quality craftsmanship. It highlighted the emotional connection between BMW owners and their vehicles, emphasizing the brand’s long-standing reputation for excellence.

Another standout campaign by BMW is the “Designed for Driving Pleasure” campaign. This campaign focused on the brand’s dedication to designing vehicles that provide unparalleled driving pleasure. It highlighted BMW’s advanced technology, luxurious interiors, and dynamic performance, all aimed at elevating the driving experience.

BMW’s advertising campaigns have consistently captivated audiences by effectively showcasing the brand’s values and attributes. Whether through the “Ultimate Driving Machine,” “The Road Home,” or “Designed for Driving Pleasure,” BMW’s advertising campaigns have left a lasting impact on viewers and solidified its position as a leader in the automotive industry.

Table: Comparison of BMW’s Advertising Campaigns

BMW’s Digital Marketing Strategy

In today’s digital age, BMW understands the significance of digital marketing and recognizes the immense value of having a strong online presence. With its commitment to innovation, BMW has developed an effective digital marketing strategy that allows the brand to engage with its target audience and provide a seamless online experience.

Serving as a Central Hub: The BMW Website

The BMW website serves as a central hub for all things BMW. It provides comprehensive information about the brand’s vehicles, including detailed specifications, features, and customizable options. Customers can easily browse through the available models, compare different variants, and even schedule test drives.

Engaging with the Audience: Social Media Platforms

BMW actively engages with its target audience on various social media platforms, such as Facebook, Instagram, and Twitter. By sharing captivating content, including stunning visuals and engaging videos, BMW showcases its vehicles and captivates the attention of automotive enthusiasts worldwide. The brand also encourages interaction with customers, responding to comments, and even incorporating user-generated content into its social media campaigns.

Utilizing Email Marketing and Mobile Apps

To stay connected with its customers, BMW utilizes email marketing to deliver personalized messages, exclusive offers, and updates on new products and services. Additionally, BMW has developed mobile apps that provide users with a convenient and immersive BMW experience. These apps offer features like vehicle configuration, service scheduling, and even augmented reality experiences that allow customers to interact with BMW models virtually.

Enhancing the Digital Experience: Virtual Showrooms and Augmented Reality

BMW leverages technology to enhance the digital experience for its customers. The brand has created virtual showrooms, enabling customers to explore BMW car models in a dynamic and interactive virtual environment. Moreover, BMW uses augmented reality to provide customers with the opportunity to view and visualize different vehicle models through their smartphones or tablets, allowing for a more immersive and engaging experience.

Reaching a Global Audience: Digital Innovation

BMW’s digital marketing strategy ensures that it reaches a global audience. The brand makes use of search engine optimization (SEO) techniques to improve its online visibility and attract relevant traffic to its website. By employing data analytics and customer insights, BMW continuously adapts its digital strategy to meet changing consumer preferences and demands, ensuring that it remains at the forefront of digital innovation in the automotive industry.

BMW’s Online Presence on Social Media Platforms

BMW’s marketing strategy has played a pivotal role in positioning the brand as a frontrunner in the automotive industry. By focusing on luxury, performance, and innovation, BMW has successfully captured the attention of its target market, which includes affluent professionals, driving enthusiasts, and tech-savvy consumers. The company’s commitment to delivering high-quality products is evident through its emphasis on safety, efficiency, and reliability.

BMW’s pricing strategy, which positions the brand as a premium choice, adds to its desirability and exclusivity. By offering a range of price points, BMW has been able to expand its customer base and maintain its premium brand image. Furthermore, the brand’s distribution strategy, promotion strategy, and digital marketing initiatives have all contributed to enhancing BMW’s brand perception and engaging customers effectively.

Overall, BMW’s marketing strategy serves as a benchmark for excellence in the automotive industry. The brand’s ability to consistently deliver on its promise of luxury, performance, and innovation has solidified its position as a leader in the market. With its strong emphasis on customer satisfaction and its relentless pursuit of technological advancements, BMW continues to set itself apart from its competitors and shape the future of the automotive industry.

What is BMW?

BMW is a German automobile engine manufacturing company that is known for its luxury automobiles, motorcycles, and bicycles. It was founded in 1916 as an aircraft engine manufacturer and later transitioned into producing automobiles.

Where is BMW headquartered?

BMW is headquartered in Munich, Germany.

What is BMW’s target market?

BMW’s target market consists of affluent professionals, driving enthusiasts, and tech-savvy consumers who value performance and luxury in their vehicles.

What types of vehicles does BMW offer?

BMW offers a range of luxury automobiles, including sedans, sports cars, and SUVs. The brand also manufactures motorcycles and bicycles for certain markets.

How does BMW position its brand?

BMW positions itself as a premium brand, focusing on delivering premium quality, performance, and style in its products. The brand’s pricing reflects its premium positioning.

Where are BMW’s manufacturing facilities located?

BMW has manufacturing facilities in various countries, including Germany, Brazil, China, India, the United States, and Mexico.

What is BMW’s promotion strategy?

BMW utilizes various channels of marketing such as television ads, print ads, and online advertisements to reach its target audience. The brand also focuses on customer satisfaction and creates memorable experiences for customers during the car-buying process.

How does BMW approach digital marketing?

BMW has a strong online presence and actively engages with its audience on social media platforms. The brand utilizes email marketing, mobile apps, virtual showrooms, and augmented reality experiences to enhance the customer’s digital experience.

What is BMW’s marketing strategy?

BMW’s marketing strategy focuses on luxury, performance, and innovation to resonate with its target market. The company’s product strategy emphasizes safety, efficiency, and reliability, while its price strategy positions the brand as a premium choice. BMW’s distribution strategy, promotion strategy, and digital marketing initiatives further strengthen its brand image and customer engagement.

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BMW: Case Study Essay

Searching for BMW case study essay to get inspired? Look no further! This BMW marketing strategy case study analyses the company’s strategic management and the approach to customer segmentation.

Introduction

• Case Summary
• Defining the Issue

Consumer Segmentation

• Marketing Strategy
• Recommendations

BMW is one of the most recognized brands in the world. It is at the echelon of the automobile industry, producing products that are known for a combination of quality, utility, and style. Customer segmentation is a management factor that all companies should consider in their marketing strategy. This case study analysis attempts to examine the BMW brand and its approach to market segmentation to expand its automobile sales.

BMW Case Study Summary

BMW developed into an international automobile company after World War II and achieved tremendous success by the mid-20th century. In 2012, it had international sales exceeding $106 billion (Kotler & Keller, 2016). The BMW is an instantly recognizable symbol, a tribute to the company’s early days as an aircraft manufacturer. Originally, BMW attempted to appeal to baby boomers, producing sports sedans that were luxurious and demonstrated high performance.

This became the 3, 5, and 7 series which were a similar design in different sizes. At the beginning of the 21st century, as consumer needs shifted, BMW began to introduce a wide variety of other vehicles, ranging from premium SUVs to convertibles and roadsters, as well as cheaper compact cars in Series 1. BMW offered options to family-oriented consumers, wealthy conservatives that sought luxury, and those needing bigger cars for outdoor activities, as well as those seeking highly flamboyant vehicles.

BMW Case Study: Defining the Issue

BMW utilizes various advertising tactics and methods but has continued to employ the tagline “The Ultimate Driving Machine” since 1974. It has seen a steady increase in sales in the US and focuses on emphasizing quality rather than status. BMW consumers usually demonstrate loyalty, but the company seeks to attract new customers. The marketing issue for investigation is whether BMW adequately segments the consumer base and how well it employs marketing to each group. BMW’s marketing strategy will be examined, and recommendations provided for potential improvement.

BMW generally uses a mono-segment marketing position that appeals to a single customer segment of relatively wealthy individuals. Most of the automobile lineup which BMW offers consist of luxury vehicles, and even its Series 1 is priced at the higher end of the mid-range sedans. The company simply does not offer budget vehicles that may be appealing to individuals and households with income below the upper-middle class. Despite this, BMW most likely uses a post-hoc segmentation approach which analyzes marketing data after sales to determine its customer clusters and category management. Segmentation is based on consumer preferences, which consists of product evaluation.

In an automobile, this includes aspects such as price, performance, ecological features, and reliability. These help to shape criteria that are used during automobile selection. The preferences are vital in constructing the additive value function which is a major method of determining utility for various customer segments (Liu, Liao, Huang, & Liao, 2018).

As mentioned in the case study, BMW offers a variety of cars that may fulfill the distinct needs of its consumers. Each of the car types it offers such as sedans, SUVs, or roadsters all have several vehicles in the series which gradually increase in price and feature offering. BMW actually segments the premium market by finding a balance between purchasing behavior and marketing mix and responding appropriately to value and consumer trends. However, the brand does not compromise and cater to most segments but adopts a marketing strategy that focuses primarily on a premium target market (Yuying & Qingrun, 2018).

The primary consumers of BMW vehicles are men aged 30-50 with higher levels of income. This segmentation works for BMW as it attempts to maintain its status as a luxury car manufacturer. With BMW combining luxurious superiority with performance and reliability, the company positions itself to appeal to upper-class customers that will appreciate the masterpiece and symbolic nature of its highly technological automobiles. Therefore, BMW establishes a particular value to its product which is reflected in both pricing and marketing strategy.

BMW Marketing Strategy

BMW focuses its marketing efforts primarily on premium segments with the purpose to define luxurious brand identification of its vehicles. The focus on affluent customers in the majority of its marketing for the 3 through 7 series has demonstrated the success of this approach. BMW positions itself as a leader in the industry through innovation. This may range from clean energy engines to complex electronic systems in its cars. The company builds its value and competitive advantage on the innovation concept which is reflected in its global marketing strategy (Dong & Koo, 2018). In other words, the development effort, components, and performance that is input into BMW cars are reflective of its value, justifying such price tags.

The luxury product market continues to demonstrate significant growth year over year, despite any economic downturns in the last decade. Premium vehicles such as BMW base their segmentation and marketing on the concept of scarcity.

Consumers purchasing luxury products are buying into the dream and exceptional quality. BMW takes advantage of this by adopting a “masstige” approach, combining the prestige of its automobiles with mass marketing strategies to achieve a high level of sales. Premium products directly impact the psychological concepts of self-esteem and social recognition. The consumption and possession of premium brands are associated with pleasure and a range of other emotions which consumers pursue as part of increasing or upkeeping their social status (Chandon, Laurent, & Valette-Florence, 2016).

Based on this, BMW began to test a new slogan of “sheer driving pleasure” in limited markets to attempt the transition of marketing focus from performance alone to the emotional appeal of its luxury brand. While the iconic “ultimate driving machine” may be successful, it may be viable for BMW to eventually change its slogan. The current slogan appeals to its primary demographic of wealthy men but fails to capture other market segments such as women, young adults, and those without such great enthusiasm for cars. The emotional marketing approach is closely relatable with individualism, a coveted value for United States consumers.

Emotional paradigms contribute to the cultural entourage and social constructs of a vehicle (Lutz, 2015). By integrating its quality and performance into emotional marketing, BMW can capitalize on its widely known brand and enhance consumer communication. BMW can improve its marketing strategy and adopt new consumer segments by combining emotionally sensual marketing with premium performance. The two concepts are inherently synergistic and would allow for BMW to maintain a leading position in the industry.

BMW Case Study Solution & Recommendations

In addition to using the emotional marketing appeal, BMW should seek to expand its consumer segments. This is particularly important in light of potential economic downturns and expansion into developing countries where average incomes are significantly lower than BMW’s primary markets of North America and Europe. One recommendation would be to expand its lineup to include more budget-oriented cars that maintain a similar level of quality, safety, and performance. This would be in line with BMW transitioning its focus from class to performance as mentioned in the case study.

It would attract a significant market segment from middle-class households who would now be able to afford a BMW automobile which does not sacrifice much in terms of performance, only luxury. However, this decision should be taken into consideration of the long-term commitment of the company since it would dilute the premium status of the BMW brand. Even now, driving one of the cheaper series of BMW is considered far less prestigious than its luxury sedans. Expansion into new segments will present challenges with both advertising and competition.

BMW should keep track of changing consumer trends, diversity, and social opinions, basing its advertisement strategy on appealing to a wide variety of the market, even those that may not be able to afford its cars. The BMW brand image is distinguished and synonymous with prestige, quality, and performance. The company’s further strategy should encompass significant investment into technologies such as clean energy and self-driving cars, and reflect this in their marketing campaigns which position BMW as an innovator in the industry.

BMW is a global automobile brand that produces and sells premium-level vehicles. Its primary consumer segment consists of affluent individuals and the car lineup is designed to meet the demands of this market segment. BMW bases its marketing strategy on innovation and performance, taking advantage of its luxurious brand name to emphasize quality and scarcity. While this marketing strategy has been successful, it may be viable to modify the approach by using emotionally sensible marketing and introducing low-end vehicles with a similar level of quality in order to expand its consumer segments.

Chandon, J.-L., Laurent, G., & Valette-Florence, P. (2016). Pursuing the concept of luxury: Introduction to the JBR special issue on “Luxury marketing from tradition to innovation.” Journal of Business Research, 69 (1), 299-303. Web.

Dong, H. B., & Koo, J. (2018). Conspicuous and inconspicuous luxury consumption: A content analysis of BMW advertisements . Reinvention: An International Journal of Undergraduate Research, 11 (2). Web.

Kotler, P., & Keller, K. L. (2016). Marketing management (15th ed.). London, England: Pearson.

Liu, J., Liao, X., Huang, W., & Liao, X. (2018). Market segmentation: A multiple criteria approach combining preference analysis and segmentation decision. Omega, 83 , 1-13. Web.

Lutz, C. (2015). Marketing car love in an age of fear: An anthropological approach to the emotional life of a world of automobiles. Etnografica, 19 (3), 593-603. Web.

Yuying, A. & Qingrun, R. (2018). Global marketing strategy of BMW . Web.

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How BMW’s strategic pivot made it a global automotive giant

Table of contents, here’s what you’ll learn from bmw's strategy study:.

• How changing industries is not a straightforward endeavor, but staying true to your identity’s core traits will help you achieve it.
• How clarity of vision guides the transformation process and helps you fit in an evolving industry.

The BMW Group – Bayerische Motoren Werke – is a German manufacturer of automobiles that markets its products through the brands BMW, Mini, and Rolls-Royce. It’s among the top 10 biggest car manufacturers in the world by revenue.

The Quandt family owns 50% of the company, specifically Stefan Quandt and Susanne Klatten, while the remaining 50% is publicly traded. Chairman of the Board of Management is Oliver Zipse since 2019.

BMW's market share and key statistics:

• Brand value of $27.6 billion
• Net worth of $52.9 billion as of December 22, 2022
• Annual revenue of $131.6 billion for 2021
• Total number of employees: 118,909
• 2,521,514 deliveries in the automotive segment in 2021

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Humble beginnings: How did BMW start?

BMW was officially founded on March 7, 1916.

It was the result of a merger between Gustav Otto’s company,  Otto Flugmaschinenfabrik  and  Bayerische Flugzeugwerke.  However, the company was combined with Karl Friedrich Rapp’s company  Rapp Motorenwerke  in 1922 and was named  Bayerische Motoren-Werke AG (BMW AG).

Today, BMW is known for its iconic cars and powerful engines. But its first business was aviation.

Aviation: BMW’s first business had people flying

The early twentieth century was a period of constant technological innovation in aviation.

As such, the demand was high and although there were only a handful of manufacturers, the competition was fierce. In the dawn of highly specialized spaces, the competition between companies is essentially a competition between individual inventors and their teams.

BMW had Franz Joseph Popp and Max Friz on its side, two excellent and experienced inventors. However, what set BMW apart from its competitors was the solid financial footing that enabled it to focus on supreme performance and reliability in the design of its aero engines. Instead of focusing on cost reductions and short-term convenience, the company focused on sophisticated engineering solutions and novel manufacturing techniques.

For example, the six-cylinder Type IIIa engine that Friz developed was performing exceptionally well in higher altitudes. In fact, it was so powerful that it gave the German Fokker D.VII fighter such an edge in World War I that it urged the air ministry to make space for its production in the BMW facilities by giving the production of another BMW engine to Opel, a competitor. In addition, once the war was over, Armistice’s fourth clause required Germany to hand over all D.VIIs to the Allies. It was that powerful.

But the Armistice also forbade the production of aero engines, forcing BMW to a complete restructuring.

It’s important to mention that building aircraft technology imbued BMW’s culture with values of extreme performance and technical sophistication that remain today.

BMW’s strategic pivot: how it moved to car manufacturing

The post-war era was tough for manufacturers in Europe since the end of military contracts meant that manufacturers were left with excess capacity, inflation was increasing, and the only available contracts were small and not very profitable.

Frank Popp, who ascended to General Director at BMW, devised a long-term strategy to develop future stability while keeping the company alive. His  strategic plan  was focused on three main pillars:

• Taking smaller manufacturing contracts to keep the cash flowing, like producing railway brakes.
• Modifying BMW’s star Type IIIa engine to a four-cylinder model, which was more appropriate for industrial and agricultural applications. That would allow the further development of the aero engine, despite production restrictions.
• Entering the motorcycle arena and using it as a stepping stone to move into the car market.

The strategy had a twofold intention.

The first was a bet  on the removal of the aero engine production restrictions. Fritz was developing the next generation of the company’s star engine, so once the restrictions were lifted, BMW could resume its position as a pioneer in aircraft technology.

The second was a pivot  with a simultaneous approach to retaining revenue streams. The modified engine proved to be profitable, and Fritz’s ingenuity gave birth to the famous “boxer” engine configuration – a motorcycle engine with innovations for more effective cooling and a higher power output – that brought BMW great success in motorcycle races. 

The brilliance of the strategy was its clarity and its executable nature. It took advantage of the company’s current strengths in engineering knowledge, technological innovations, and credibility to move to adjacent manufacturing markets. A tactic that proved to be quite profitable.

In 1923, the bet paid off. The restrictions were lifted, commercial flying was on the rise, and demand was increasing. BMW faced some competition, but its engines proved superior, consistently breaking records of distance - and height - traveled and sustained the company until its entering the car market.

BMW’s challenges during World War II as a car manufacturer

In 1928, BMW entered the car market.

It was a long-standing belief that the company had the capabilities to design and manufacture a car, and its leadership believed that BMW’s long-term survival wasn’t aero engines, but cars.

Its approach was calculated and a few years in the making. The company chose to compete in a smaller, less crowded segment of the market: the small-car segment.

BMW acquired the struggling Automobilwerk Eisenach manufacturer and used its factory to produce the first-ever BMW car under the manufacturer’s brand name: the  Dixi DA1 . It was a variation of the British Austin Motor Company‘s model, the Austin 7. BMW’s engineers improved the model and launched the next generation the following year under the company’s brand name marking the first car designed and manufactured by BMW.

However, the company was far from a car manufacturer at the time.

Its main business was motorcycles. At the start of the 1930s, BMW was known for its powerful engines in the aero industry and its innovative motorcycle designs. The successes in the latter funded the company while honing its engineering capabilities. So, BMW continued developing all three of its business segments – aero engines, cars and motorcycles – with the third one keeping it alive.

But Germany’s austerity had driven all but five German car manufacturers out of business.

In 1933, Adolf Hitler came to power, and things changed.

He revived the industry by providing financial security and certainty, reducing taxation, and building the necessary infrastructures to allow the industry to boom, i.e. highways like the  Autobahn  network. Evidently, Hitler’s intentions behind this investment were the development of engineering capabilities for military superiority and an efficient transportation system. They were in line with his long-term plans that resulted in the horrors of WWII, but nobody could predict that.

So, until WWII started, BMW took advantage of the new market conditions to improve its car engines, expand its target market and develop its first signature car:  the sedan . The car achieved moderate success, capturing 6% of the car market share, beating its number 1 competitor, the Daimler-Benz. BMW managed to make a name as a fashionable car manufacturer.

Soon after that, Hitler’s plans created two challenges for BMW.

The first challenge  was the increased demand for aero engines that took most of BMW’s manufacturing capabilities. With only one car-producing factory, the company was leaving money on the table with its decreased output. Popp’s strategic decision at the time unknowingly saved the company from a certain demise. Instead of opening a new factory, Popp decided to upmarket and aim for the high-end of the market spectrum where margins were better, and the demand couldn’t get out of hand. All three of BMW’s business units were booming until 1940.

The second challenge  was a hostile takeover of the company by Berlin’s dictator. The war was just around the corner. There was no room for commercial manufacturing, only military. Whoever tried to oppose was driven out of the company, including the company’s co-founder Frank Popp. BMW was forcefully transformed into an arms manufacturer and a forced-labor employer.

Once the war ended, the scene was not looking good for BMW. It had multiple facilities bombed, was affected by impossible restrictions imposed by the Allies, and its car factory was left on the wrong side of the Wall.

How BMW survived post-WWII

Good connections between the US Forces and senior BMW managers saved the company from total obliteration and allowed it to remain in business making domestic pots, bicycles and agricultural machinery.

However, the company never completely shredded its previous identity. Old employees returned and the design for a new motorcycle was secretly being developed.

By 1952, BMW had resumed motorcycle and car production. However, none of its products achieved sufficient sales, and by the end of the decade, the company escaped from a near Mercedes-Benz acquisition with the investment of the Quandt brothers. Through a few well-timed and well-seized opportunities, BMW got a hold of great talent and found its breakthrough in the steering wheel of the  BMW 1500 .

Since then, the company has had a steady course to the top accumulating successes in engineering innovation and trend-setting designs that helped the company expand its businesses internationally.

Key Takeaway #1: Accept incoming change and take your expertise with you

When the world changes, clinging to the old status quo is suicide. On the contrary, embracing change without shedding the identity of your company is the best way to adapt.

This is how you can do this:

• Identify what makes your company unique. Do a  SWOT analysis  and a culture inventory (values and accepted behaviors).
• Have clear answers to the following questions: Which strengths and cultural traits can you transfer? What weaknesses and cultural traits must you shed?
• Retain high levels of agility with an iterative approach to execution. Treat your approach as a learning process.

BMW’s current corporate strategy: “We see the future as electric, digital and circular.”

BMW is over 100 years old. It wouldn’t be here today, if it hadn’t demonstrated a powerful  strategic instinct  and a strong,  adaptive  corporate  strategy .

And today, it needs these two more than anything. The landscape of the car industry is going through a transitional phase. The survival of legacy carmakers, like BMW, requires massive transformation and a focused strategy tailored to today’s complex and differentiated external conditions. BMW’s leadership recognizes this fact.

Here are the three conditions that outline BMW’s complex and demanding competitive landscape:

• Increased global competition, including emerging new players in China with potentially global reach.
• Industry-shaping megatrends that take the focus away from traditional car manufacturing traits. Electromobility, connectivity and digitalization have become the new competitive arenas.
• Increased prioritization of sustainability and environmental impact from both buyers and regulatory forces. Followed closely by societal impact.

“BMW Group strategy” is a transformational bet on the future of the industry.

We see the future as electric, digital and circular.

BMW separates its operations into three segments:

• The Automotive segment
• The Motorcycles segment
• The Financial Services segment

And manufactures vehicles under three brands:

• Rolls-Royce

With a quick glance, it’s obvious the company targets the high-end of the market with its offerings ranging from premium to ultra-luxury products. Rolls-Royce is solely ultra-luxury, MINI is premium and BMW products range from premium to ultra-luxury. The company has a unified vision, but each brand will adapt to the company’s vision at a different cadence.

Let’s see how BMW’s corporate strategy tackles the company’s transformation.

Electric Mobility: the competitive landscape and BMW’s strategy

Electric Vehicles (EVs) have been a massively trending category in the last few years, driven by two powerful forces: demand and regulatory requirements. And BMW is committed to becoming one of its major players.

Its goals are to:

• Achieve >30% share of electrified cars in total deliveries by 2025
• Achieve >50% share of electrified cars in total deliveries by 2030

These are ambitious goals and reveal a significant shift in its business focus that requires a massive internal transformation. Success isn’t guaranteed because the space is already crowded and the competition fierce:

• TESLA , the category queen of EVs, defends its top place remarkably well by maintaining its edge in battery engineering and chip design with its in-house expertise.
• Honda partnered with Sony to enter the EV category and Xiaomi announced its plans to build an electric car plant.
• General Motors and Nissan have set their own ambitious goals and brought strong propositions to the market. Ford saw unexpected demand for its F150 all-electric lightning pickup truck, and Toyota promised to offer 30 EV models by 2030.
• Mercedes-Benz made an aggressive move to luxury EVs with its Mercedes-EQ range.
• Alternative, eco-friendly and healthy alternatives are drawing more and more demand.
• China’s investment in infrastructure lowers the barrier of entry for new players and Chinese brands increase their competitiveness.

Not all of these players are direct threats to BMW, but the combined presence shapes the market and the competitive landscape in ways that cannot be ignored. If BMW is to survive and achieve its ambitious goals, it needs to address all of these points with a cohesive and focused strategy.

And so it does.

The company’s strategy in the Electric Vehicles category is aggressive, structured, and developed early. BMW’s approach to its electromobility transformation has three distinct phases:

In the initial phase,  the BMW Group launched the fully electric BMW i3 in 2013, introducing electrification into standard production. The next year came out the BMW i8 with innovative technology and a futuristic design.

In the second and current phase,  the MINI Cooper SE* and BMW iX3* lead the EV offensive. The company aims to have at least one fully electric model in virtually all key model series by 2023. The transformation is supported by developing its in-house competencies and restructuring all of its factories, especially in Germany, to develop the capability of manufacturing EVs. It also incorporates plans for developing a charging ecosystem.

In the third phase,  BMW will launch its fully electric product line-up, the  Neue Klasse . This new line of EVs will be characterized by a complete technology redesign, including redefined tech stack for autonomous driving, a high-performance electric drivetrain generation, and a New Cluster Architecture (NCAR) geared exclusively towards battery electric vehicles. The Neue Klasse line will focus on the concept of circularity (more on this later). Rolls-Royce and BMW’s motorcycle segment will also evolve in the direction of electromobility.

The company’s transition to electric mobility isn’t developed in silos. It’s tied to its digitalization and sustainability initiatives making it cohesive and interdependent.

Tackling digitalization: BMW’s initiatives and transformation

According to BMW’s view, the future of automobiles is highly digitized with increased connectivity.

The company is moving decisively in that direction by focusing its digital transformation strategy on two pillars:

• Initiatives that improve its operations.
• Initiatives for further digitization of its products.

In its operations,  for example, the company implements a  predictive maintenance strategy  to prevent unnecessary production downtimes. It includes the use of sensors, cloud-based data analysis and Artificial Intelligence (AI) to assess the condition of its equipment before they present any flaws. It has also developed a complete online sales process and digital tools to aid customer experience inside the stores.

In its products,  the company is developing appropriate software for all of the engineering aspects of its vehicles and for additional services for its customers. It offers, for example, remote software upgrades and “functions of demand.” Since 2020, the company has been offering the  My BMW  and  MINI  apps. BMW also aims to develop technologies for autonomous driving, i.e.  technologies for automated driving beyond level 3 .

The future of driving is autonomous, and it causes premium and luxury brands, like BMW, to take their attention away from designing the perfect driving experience and directing towards designing a cabin for the perfect cruising experience.

Car mobility turns into a pleasant and sustainable cruise.

Circularity: BMW’s sustainability strategy

The introduction of stringent legislation and regulations regarding environmental impact and responsible governance forces corporations to incorporate sustainability and responsibility into their  strategic planning .

The more prudent companies have developed capabilities to address matters or, at the very least, develop the capacity to adapt to immediate additional regulatory changes rapidly.

So, BMW has set up impressive sustainable goals and mobilizes significant resources to accomplish them. Here are the company’s most important sustainability initiatives:

• Systematic integration of sustainability issues in decision-making. The Board of Management evaluates every topic submitted from the point of view of sustainability.
• Sustainability is built into individual market strategies. A holistic program is developed with centralized measures but combined with local activities in the markets. Best practices are shared within an established international sustainability network.
• Decarbonize the BMW Group’s vehicle fleet by an average of 40% over the entire life cycle (Scopes 1-3) by 2030 compared to 2019.
• Achieve net zero emissions across the entire value chain by 2050.

To achieve these goals, the Group integrates its electric mobility transition with its sustainability strategy. In other words, it changes its entire operational capabilities from product design to product development to product recycling in order to meet its sustainability targets.

But besides demand and regulatory requirements, there is a third force that shapes BMW’s transformation:

The limited availability of high-quality secondary raw materials.

A challenge that heavily impacted the industry in 2021 and is still present. BMW’s answer to that challenge is the concept of  circularity.

The circular economy concept requires a holistic strategic approach and is based on four principles:  Re:think, Re:duce, Re:use and Re:cycle . Its main objective is to create closed material loops that will give the company an alternative source of secondary material. Some highlights of the circularity concept are: 

• The preference for secondary materials by reducing the use of primary raw materials in the automotive value chain. For example, closing material loops in the production chain.
• The implementation of the  Secondary First  approach which stipulates specifications for products, materials, and suppliers.
• Investments in resource-friendly technologies through funding of startups like Lilac Solutions, Boston Metal, and H2 Green Steel that offer materials from total green or eco-friendly production processes.
• Effective resource management, including the reduction of water used in production processes, the reduction of waste generated in its facilities, and the reduction of its emissions of volatile organic compounds (VOC3).

The Group also implements various initiatives to increase its energy efficiency and the amount of energy drawn from renewable sources. However, challenges always occur, and in 2021, the scarcity of semiconductors increased the energy consumption at some of its plants, increasing the YoY absolute consumption of the company.

But the company expects to improve its progress in the following years.

As a testament to its circularity approach, BMW has announced the design of a concept car called  BMW i Vision Circular  that will be made entirely out of recycled material and will be 100% recyclable.

The last part of BMW’s transformation concerns employees and society.

BMW’s employee development, attractiveness, and corporate responsibility

Attracting, retaining and developing talent is crucial for the success of BMW’s transformation.

To become an attractive employer, the company offers the following:

• Above average remuneration packages.
• A variable component dependent on the BMW Group’s overall performance.
• Additional benefits such as Company pension schemes and an attractive range of mobility benefits.
• A diverse range of options for working conditions like flexible working hours, remote working, sabbaticals and additional holidays (with a corresponding reduction in salary)

Its favorable working conditions have earned the company a number of awards and rankings, claiming the top spot against its fellow car manufacturers in multiple prestigious surveys.

To retain the great talent it attracts, the company:

• Conducts an internal employee survey every two years to assess the organization’s performance from within. The last one was in 2021 and demonstrated significant progress in all areas surveyed, and, most importantly, it demonstrated employees' support for integrating sustainability with strategy.
• Encourages employees to submit ideas on matters out of their normal remit and rewards those that generate a positive financial effect for the company with a bonus. In 2021, the company paid € 30.4 million in bonuses.
• Trains its employees. In 2021, BMW launched the largest training initiative in its history that increases the expertise of its workforce in electrics and electronics, data analysis, innovative production technologies, and new working methods.

To further support its transformation needs, the company has also developed internal processes that promote the desired personalities and skills to management positions.

BMW views diversity as a strength and makes considerable effort to embed it into its culture.

• It implements group-wide initiatives to raise awareness throughout the organization, like its annual Diversity Week and the internal communications campaign called  Driven by Diversity .
• It encourages employees to engage and propose their own initiatives while it supports local internal networks and the BMW Group PRIDE group promoting the interests of the LGBT+ community.
• It takes a holistic approach by developing initiatives on five key diversity dimensions: cultural background, age and experience, sexual orientation and identity, physical and mental ability, and gender.
• It has set targets to increase the percentage of women in management positions and in the total workforce of the BMW Group.

The company has a set of KPIs to measure its progress on these fronts and is evaluated externally on the effectiveness of its initiatives.

When it comes to its corporate responsibility, BMW aspires to address concrete needs and achieve a long-term impact by means of its corporate citizenship activities. These activities leverage the company’s expertise and include crisis assistance – e.g. funded rescue services during the 2021 flood disaster in Germany – and developing local educational programs for younger people.

Key Takeaway #2: Bet on a clear and educated vision of the future

There are no strategies that are future-proof. At least, not good ones. When your industry evolves, make sure you’re prepared for the new way of things:

• Increase your sensitivity to market changes and industry trends. Have processes to gather the data, process it and evaluate it.
• Form a hypothesis for the future state of your industry and write it down as clearly as possible. 
• What changes in a fundamental way? For example, the transition from a driving to a cruising experience requires prioritizing different principles.
• Decide who you want to be in that future and what capabilities you need to build today to achieve that.

Why is BMW so successful?

The success of BMW is due to its innovative engineering and design, as well as its demonstrated ability to make sound strategic decisions that help it adapt quickly to market changes.

The company has a long history of innovation that has helped it stand out in the automotive industry, and it is consistently focused on making sure its customers are satisfied with the cars they purchase. Over the years, BMW has evolved into a relationship brand building a loyal – and, dare we say, sometimes hardcore – customer base.

What is BMW’s mission statement?

BMW’s mission statement is “ to become the world's leading provider of premium products and premium services for individual mobility. ”

This vision encompasses the company’s goal of providing the best experience possible in the automotive industry, from the design and engineering of its products to its customer service.

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The case study: How BMW dealt with exchange rate risk

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By Xu Bin and Liu Ying

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The story. BMW Group, owner of the BMW, Mini and Rolls-Royce brands, has been based in Munich since its founding in 1916. But by 2011, only 17 per cent of the cars it sold were bought in Germany.

In recent years, China has become BMW’s fastest-growing market , accounting for 14 per cent of BMW’s global sales volume in 2011. India, Russia and eastern Europe have also become key markets.

The challenge. Despite rising sales revenues, BMW was conscious that its profits were often severely eroded by changes in exchange rates. The company’s own calculations in its annual reports suggest that the negative effect of exchange rates totalled €2.4bn between 2005 and 2009.

BMW did not want to pass on its exchange rate costs to consumers through price increases. Its rival Porsche had done this at the end of the 1980s in the US and sales had plunged.

The strategy. BMW took a two-pronged approach to managing its foreign exchange exposure.

One strategy was to use a “natural hedge” – meaning it would develop ways to spend money in the same currency as where sales were taking place, meaning revenues would also be in the local currency.

However, not all exposure could be offset in this way, so BMW decided it would also use formal financial hedges. To achieve this, BMW set up regional treasury centres in the US, the UK and Singapore.

How the strategy was implemented. The natural hedge strategy was implemented in two ways. The first involved establishing factories in the markets where it sold its products; the second involved making more purchases denominated in the currencies of its main markets.

BMW now has production facilities for cars and components in 13 countries. In 2000, its overseas production volume accounted for 20 per cent of the total. By 2011, it had risen to 44 per cent.

In the 1990s, BMW had become one of the first premium carmakers from overseas to set up a plant in the US – in Spartanburg, South Carolina. In 2008, BMW announced it was investing $750m to expand its Spartanburg plant. This would create 5,000 jobs in the US while cutting 8,100 jobs in Germany.

This also had the effect of shortening the supply chain between Germany and the US market.

The company boosted its purchasing in US dollars generally, especially in the North American Free Trade Agreement region. Its office in Mexico City made $615m of purchases of Mexican auto parts in 2009, expected to rise significantly in following years.

A joint venture with Brilliance China Automotive was set up in Shenyang, China, where half the BMW cars for sale in the country are now manufactured. The carmaker also set up a local office to help its group purchasing department to select competitive suppliers in China. By the end of 2009, Rmb6bn worth of purchases were from local suppliers. Again, this had the effect of shortening supply chains and improving customer service.

At the end of 2010, BMW announced it would invest 1.8bn rupees in its production plant in Chennai, India, and increase production capacity in India from 6,000 to 10,000 units. It also announced plans to increase production in Kaliningrad, Russia.

Meanwhile, the overseas regional treasury centres were instructed to review the exchange rate exposure in their regions on a weekly basis and report it to a group treasurer, part of the group finance operation, in Munich. The group treasurer team then consolidates risk figures globally and recommends actions to mitigate foreign exchange risk.

The lessons. By moving production to foreign markets the company not only reduces its foreign exchange exposure but also benefits from being close to its customers.

In addition, sourcing parts overseas, and therefore closer to its foreign markets, also helps to diversify supply chain risks.

The writers are, respectively, professor of economics and finance and associate dean of research, and a research associate at CEIBS

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Case study: how a construction company reduced subcontractor errors.

A construction company building office complexes in the Midwestern United States had a crippling problem. In their words, “the lists of corrections and incomplete work were getting out of control.”

All the correction items were bombarding their superintendents with non-stop, urgent phone calls, text messages, and emails, and keeping them from managing the construction process.

About a year ago, they implemented FTQ360, a digital quality management system, across all projects to get a handle on the open deficiencies. Every issue (including notes, photos, and risk factors) was recorded in the app on the superintendent’s phone on the jobsite.

All communication to and from the subcontractors was routed through the app. The app even replaced the old tracking spreadsheets, as now everyone had dashboards and listing grids to reference in the software. This digital process upgrade got the deficiency management under control.

About three months after implementation, the construction company used FTQ360 to identify which construction categories were producing the most errors.

They were able to rank each category and found that concrete and framing were producing the most errors, as well as what errors were repeatedly occurring.

Now, after the concrete and framing subcontractors completed, the superintendents were checking the work for those specific errors using checklist inspections in the app. They were preventing those commonly repeating errors from occurring, allowing the following phases in the building process to proceed more smoothly.

Taking the process one step further, the company had the subcontractors perform self-inspections using the app too. They gave the concrete and the framing subcontractors access to perform self-inspections using the same checklist inspection their superintendents were using.

This allowed the subcontractors to ensure their work was 100% complete and correct before leaving the jobsite. The subcontractors were required to take photographs of their completed work, which provided proof that the work was done right.

The building company has been using the FTQ360 app for a year now. In that time, they have reduced avoidable errors by 50%. The superintendents have fewer urgent, time-consuming phone calls, text messages, and emails. The building company is staying on top of open deficiencies, ensuring nothing slips through the cracks.

Overall, the adoption of FTQ360 has been a game-changer, offering a systematic approach to quality management that has transformed their operations and improved project outcomes.

Book a short strategy call with us today to learn how FTQ360 can help you to reduce subcontractor errors.

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The new BMW: business model innovation transforms an automotive leader

Journal of Business Strategy

ISSN : 0275-6668

Article publication date: 6 July 2020

Issue publication date: 7 July 2021

The car no longer serves simply as a means of transport but is at the core of a new concept of mobility. Car manufacturers are seizing opportunities to change the traditional business model of the auto business. Innovation in this business model has become vital to survival in today’s dynamic market conditions. This paper aims to find out what factors motivate and drive business model change and what the resulting business model innovation is.

Design/methodology/approach

This qualitative study is based on a single case, namely, BMW as an illustrative example of an advanced, highly innovative customer-centric service business model (BM). The study adopts a document analysis method to reveal the firm’s BMI process.

First, the study presents a conceptual framework for business model change with the factors –motivators and drivers – that impact on the process of change. BMW’s BMI and its impacting factors are discussed based on this model. The McKinsey 7 s Model framework, the elements of which are strategy, structure, systems, shared values, style, staff and skills is used as an analytical tool to discuss new business model implementation. The study highlights the BM configuration of a traditional car manufacturer, the car as a product and the new car as a service concept.

Originality/value

This study reveals the BMI of BMW’s digital services and its key motivators and drivers. BMW mostly innovates in three key dimensions of the Business model. These are value creation, value delivery and value capture. Most of the elements in these dimensions are innovated.

• Business model innovation

Kukkamalla, P.K. , Bikfalvi, A. and Arbussa, A. (2021), "The new BMW: business model innovation transforms an automotive leader", Journal of Business Strategy , Vol. 42 No. 4, pp. 268-277. https://doi.org/10.1108/JBS-02-2020-0021

Emerald Publishing Limited

Copyright © 2020, Prasanna Kumar Kukkamalla, Andrea Bikfalvi and Anna Arbussa.

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Introduction

Technological innovations, market dynamics and changes in customer preferences have greatly impacted the traditional business model of manufacturing firms. While many firms struggle to generate a substantial profit from product sales, others try to identify opportunities by integrating product-related and value-added services. The days are gone when firms focused solely on product-centric business. A new business strategy known as service integration has evolved in the manufacturing sector. Changes happen at the level of value creation, value delivery and value capture. Any change in these dimensions ultimately results in business model innovation which is defined as an activity or process in which core elements of an enterprise and its business rationale are purposely transformed to achieve operational and strategic advancements.

The innovation in business models is novel and complex in nature, and it connects with various aspects such as corporate strategy, technological capabilities and firms’ innovation processes. Business models are periodically impacted by technological innovations either by creating an opportunity or by taking a risk which will result in competitive advantage or disruption. Business model innovation is often the result of external factors such as competition law, labour market legislation and environmental legislation. The automotive industry has long been applying the traditional model. The value of this kind of model depends on being able to offer more cost-effectiveness, low emission engines and extra safety packs that may include auto-braking and chassis control, among others ( Chrysakis, 2017 ). However, these features no longer create competitive advantages, and they have proved easy to copy. Many car manufacturing firms have lately integrated or are planning to integrate customer services such as mobility services, on-demand services and infotainment services in their core business operations. While practitioners and research communities have paid much attention to business model innovation, an industry-specific model, for example how car manufacturers orchestrate their business model and which elements are impacted by this change, is yet to emerge. To fill this knowledge gap, we narrow down the research on innovation in business models by focusing attention on BMW, considered to be one of the leading industry players for advanced services and a successful business model innovator.

The structure of this article is as follows: first, this study explores the business model literature to outline the factors impacting innovation, and a framework for the business model innovation process is proposed. This framework is then used to discuss each element of the business model related to ConnectedDrive and the corresponding degree of innovation. Last, the paper compares the traditional and service integrated business models, as Figure 1 shows.

The factors behind business model change

A set of factors was synthesised and classified into two groups ( Figure 1 ): motivators (inspire the firm) and drivers (facilitate change).

Change can be triggered by internal factors such as organisational culture, the firm’s aspirations, management support and new revenue channels, or by external factors such as market pressure for innovation and differentiation.

Different factors can facilitate the innovation process, including market-level factors such as information and communication technologies (ICTs), big data, external drivers (globalisation, deregulation), the ability of firms to identify changes, co-development relationships, stakeholder demands, knowledge management infrastructure and management processes.

Dimensions of innovation

Rayna and Striukova (2016) find five dimensions of value in the business model literature: creation, proposition, capture, delivery and communication. This article discusses three of the most relevant values to the case study: creation, delivery and capture.

Value creation

Firms create value for the product and services with their core competencies, key resources, governance, complementary assets and value networks.

Value delivery

This dimension describes how the value created is delivered to customers through distribution channels These elements offer ample opportunity for innovation by addressing the needs of the market segment (for instance, a mobility service that targets short term travel needs), or by introducing a new way to deliver products or services (for instance, Netflix or Amazon Prime).

Value capture

This refers to the firm’s ability to benefit from the value created. It includes the revenue model used to generate cash flow and the cost structure. Value capture also includes profit allocation across the value chain. Innovation may allow a firm to gain market leadership through cost restructuring.

Degree of innovation

Changes in the elements of the business model influence the degree of innovation. Amit and Zott (2012) categorise innovation as radical or incremental. Radical innovation is an innovation with a high degree of novelty, which breaks with what existed previously. John Deere, for example, has revolutionised the farming industry by integrating sensor technology into its tractors. In contrast, incremental innovation has a low degree of novelty, and with less risk and cost than radical innovation. For instance, electric windows, air bags, cup holders and ABS brakes are all examples of the incremental innovations made to cars.

Case background

BMW is one of the leading firms in the automotive industry, not only offering premium vehicles but for many years also providing customer with financial, on-demand and telematics services. The firm's transformation to customer-centric began by introducing telematics services in 1997. For the past 22 years, BMW has not only been offering telematics services, but has become the dominant force in the digital service market. The range of services available for current BMW models includes a personal telephone information service, emergency calls, Google Local Search, traffic information and internet-based services for navigation, communication and infotainment. These services are available in 45 countries, and there are already over 10 million connected BMW vehicles on the world’s roads.

Methodology

For this research, a single case study method was used. The case study research method as described by ( Yin, 2003 ) is a suitable method for obtaining insights into the innovation approach. This study follows the document analysis technique ( Bowen, 2009 ), a systematic procedure for reviewing and evaluating both printed documents and digital material. It is especially applicable to qualitative case studies, which are intensive analyses that produce rich descriptions of a single phenomenon, event, organisation or programme ( Stake, 2000 ; Yin, 1994 ). The data was gathered from BMW press releases, websites, annual reports, company announcements and collaboration announcements.

Factors behind innovation

Motivators..

Three motivators behind BMW’s decision to change its product-centric model to a service model were identified. These are organisational culture, competitive advantage and additional revenue ( Table 1 ). Regarding organisational culture, as a pioneer in the market, BMW always strives to be innovative in its core business activities. With aspirations of being a pioneer in technology and a first mover in the market, in 1997 BMW launched internet services in the car (telematics service). BMW has kept its commitment to offer more customer-centric solutions, expressing its organisational culture in the following ways: “we committed”, “as promised”, “being a first mover” and “technology pioneer”. The integration of services of this kind prompted the start of change in its business model.

The increase in competition from emerging markets and dynamic market conditions has led car manufacturing firms to focus more on innovations. In 1997, the digital service market was in the expansion stage, and there were not many players in the market. BMW used this opportunity to create a competitive advantage for their fleets. Twenty years in telematics services have proved their strategy to be successful, and BMW has kept its leading position in the digital service market. Creating a competitive advantage is one of the reasons behind innovation.

Light vehicle production on a global basis dropped during the 1998 calendar year, falling nearly two per cent to 51.6 million units. This decline, starting in 1997, stemmed from the collapse of the Asia-Pacific region economies where automotive output declined by 11% to 14.5 million units.

To create additional revenue streams, BMW introduced digital services into the market. In-service integration model firms generate revenue by providing customer solutions and creating new revenue channel sources ( Liang et al. , 2017 ). This could have been one possible motivation for BMW to change to a service-based firm. One vice-president described this movement: “We build digital products and services that are meant to help us differentiate our core product, the car, and generate revenue.” These services have been offered for several years, but the firm does not reveal its exact revenue from these services. Information gleaned from the annual reports and the expansion of third-party services in the digital service platform indicate that BMW receives a substantial amount of revenue from these services. Aspirations of additional revenue is obviously one of the factors behind the change.

Regarding the drivers that facilitated the change, BMW relied on technology integration, collaborations, dynamic capabilities and knowledge process activities. IT (information technology) firms have expanded their business into the automotive industry landscape, offering customer services such as parking payments and in-vehicle services. With their dominant technological knowledge and market power, they disrupt the business model of the automotive industry. In this competitive situation, instead of competing with each other, BMW teamed up with these firms. A board member commented on this move: “We cannot offer clients the perfect experience without help from one of these technology companies. Two worlds are colliding here. Our world focused on hardware and our experience in making complex products, and the world of information technology, which is intruding more and more into our life”.

Given that the telematics service business seemed to be taking off, BMW escalated the service integration process by making collaborative agreements with various stakeholders such as technological firms and telecommunications providers. Instead of developing the technology itself, the company opted for a collaborative strategy to access a partner’s service and to provide an opportunity to integrate services as third-party service suppliers. For example, the firm has developed central engine control units through cooperation with partners such as Bosch and Siemens.

To sum up, the firm’s key motivation behind these collaborations was not simply to integrate the partner's services but to select only innovative technology and widely accepted solutions in the market such as on-demand music and navigation services.

With regard to dynamic capabilities, in an online interview Ian Robertson, member of the Management Board BMW AG, pointed out that “We are one of the world’s, if not the, most successful automotive companies and we are rapidly becoming a technology company”. In line with this vision, BMW has developed new capabilities such as the ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments. In 2001, the BMW Group Launched VIA 2.0 (The Virtual Innovation Agency), the online platform for people with ideas. All ideas, concepts and patents for new technologies that could be used by the BMW Group in its products and services in the short, medium and long term can be submitted online.

Effective knowledge process activities accelerate the change process. These activities include the capture, transformation and use of knowledge to design new services ( Ansari et al. , 2012 ). BMW generates a huge amount of data about vehicle conditions, drivers’ behaviour, and user service preference through the digital service platform. This data is processed by the firm and/or supply chain partner to design and develop new services. These (data collecting) processing activities serve BMW’s legitimate interest in meeting the high standards placed by customers on existing products and services and being capable of satisfying customers' future wishes through the development of new products and services (Data protection, BMW). BMW has associated with leading technology centres in Europe, Japan and the USA, immediately entering all the knowledge and information gained into a central Intranet system made available to all associates to promote new ideas and networked thinking.

Traditional business model vs service business model

Press notes and media announcements made by BMW were analysed to present the two models. One is the traditional model (Car as a product) and the other is a new model (Car as a service). The first still exists in the company and the new model is being built for ConnectedDrive services ( Table 2 ). Analysis of the business model reveals different views, one traditional and the other new.

In the traditional model, value creation is based on the firm’s resources, capabilities and activities. Sometimes key resources are acquired from the supply chain network, but within the automotive business landscape. Meanwhile, in the new model, value comes from integration technology (established in the market or new to the market), knowledge process activities (customer knowledge) and collaborations (mostly IT firms).

In the traditional model, the firm uses dealer networks and their own distribution channel to deliver the product (car). The customer segment is mostly people who love luxury products, fuel-efficiency and design. However, in the new model, BMW uses its own network (store and online) to deliver services. BMW mainly targets people who love digital services. In the traditional model, BMW generates income through the sale of products and spare parts. Other basic services like maintenance and insurance also contribute a substantial amount of revenue. Most of the cost structure in the traditional model involves R&D, production, sales and marketing and training. In the new model, BMW has created various pricing models to generate revenue such as Freemium and Subscription mode (bundle and flexible). They invest money in activities such as service design, technology acquisition and knowledge management.

Implementation of a new business model

The study explored BMW’s new business model implantation process through McKinsey's 7S Framework ( Waterman et al. , 1980 ). The model is often used as an organisational analysis tool to assess and monitor changes in the internal environment of the firm. The findings are discussed through seven aspects of BMW that align for the successful integration of digital services and expansion of ConnectedDrive services: structure, strategy, systems, skills, style, staff and shared values ( Figure 2 ).

This defines how a firm is organised for transformation. The automobile industry has expanded into a digital service ecosystem. External factors such as the evolution of digital services, customer preferences and market trends have led BMW to focus on digital services. BMW introduced these services in 2008, and they have gradually expanded over the years. The company continually monitors these service adaptabilities in the market and improves them based on customer reviews and feedback. This observation emphasises the fact that for effective transformation a firm needs to focus on external elements such as market trends and customer preferences. Firms also need to focus on customer complaints, reviews and feedback to improve service quality.

Strategy is the way a firm aims to improve its position through better value for its customers. BMW adopted technologies that are well accepted in the market and integrated into their service portfolio. Chesbrough and Schwartz (2007) argue that firms can innovate the business model by establishing co-development relationships with different stakeholders. Along with their own digital services, after collaborations. BMW started third-party services in a digital service network. The reason behind these third-party service integrations was that customers like technologies such as apply play, on-demand music and navigation services while driving. BMW set up its own digital platform to deliver its services to customers who can acquire them through the website and the App Store. The results showed that BMW adopted a collaborative strategy with established IT firms.

Systems are defined as all the procedures, both formal and informal, that make the organisation perform better. BMW’s digital services emerged from the innovation of elements in the business model. Innovation started with changing the key activities of the firm. BMW set up a 24/7 customer service centre to answer all enquiries related to ConnectedDrive services, where customers can interact with the service provider through social media. In March 2019, the firm also introduced an intelligent personal assistant to help drivers with driving-related issues. These kinds of activities lead to generating customer information and related knowledge. In addition, BMW also involves customers in early customer service designing processes. This innovative step enables a more collaborative relationship with customers as a way of meeting customer expectations.

In 2014, BMW appointed Dieter May as senior Vice-President for digital products and services to lead the way in staff. At that time, he had had 23 years’ experience in global high-tech companies, spanning mobile products, large-scale cloud-based consumer services and semiconductor technology. BMW also invited creative ideas for products and services through the “Virtual Innovation Agency”. The company associated with selected people for service development, and with several research units and start-ups for new service developments, for instance offering industrial PhDs where researchers develop products and services for BMW. A general manager of product and channel development at BMW Group UK commented: “BMW opened its doors to external entrepreneurs to partner with them to support our innovation plan. This way we develop new services that tackle the changing customer needs we are seeing, and they help us find new ways to capitalise on new technologies”. This observation showed that for an effective transformation a firm should take advantage of experienced personnel and associate with creative minds.

Style refers to how management acts in achieving the organisation’s mission within the cultural context of the firm. BMW is one of the first movers in the digital services market, striving to be a market leader and pioneer in the digital service business. A general manager of product and channel development at BMW commented: “You need to learn to get from idea to implementation quickly. It’s something we strive to do. And BMW’s commitment to innovation across our business is coming from the very top of the company – our executive team see this as a key part of their strategy for the business”. Another factor observed in this study is that BMW clearly defined its transformation and new image in the market. The vice-president of digital services and business models commented: “The BMW Group is working to shift from a traditional luxury auto manufacturer and service provider to a technology company, with automated driving, digital connectivity, mobility services and electrification as some of the central pillars of our new strategy”. The results show that the firm needs support and cooperation for transformation, and they must have a clear vision of where this transformation is leading.

Skills are the organisation’s dominant attributes, competencies and capabilities. BMW established the capabilities required for digital services, which include sensing, identifying and assessing emerging opportunities. Establishing these capabilities is completely new in the automotive industry. First, the company hired experienced people to lead the digital services business. It then associated with established IT firms and other firms to acquire know-how technology and competences. For instance, BMW acquired analytical capabilities by teaming with IBM. IBM’s cloud platform Bluemix gives developers access to BMW’s entire service catalogue and its ecosystem partners to build and operate innovative new service offerings. The general manager of IBM explained this collaboration: “The concept of a neutral server fosters innovation by establishing a single point of contact for multiple parties to access vehicle data from various manufacturers, thereby reducing integration cost whilst ensuring fair competition”. The results showed that BMW acquired skills and competencies from IT partners. Some competencies are co-developed with partners. To sum up, for effective new business model implementation a firm needs to develop and acquire skills and capabilities.

Shared value

Shared value is defined as the norms and standards that guide a firm’s action, or the core vision of the firm. Creating a digital environment for drivers is the core vision of ConnectedDrive services. The vice President of Digital Products and Services expressed this vision as: “We build digital products and services that are meant to help us differentiate our core product, the car, and generate revenue. These digital services also provide us with channels and touch points that allow us to now have a direct relationship with the customer on the sales side and talk to the customer directly”. BMW’s mission for ConnectedDrive services is to establish better customer relationships and new revenue streams.

The aim of the present study is twofold: first, to examine a business model innovation framework with influencing factors and to contrast it with empirical evidence. This goal was achieved by presenting a conceptual framework and applying it as an analytical tool to describe BMW’s model development. Second, this research showed how BMW innovates each element in the model dimensions, which were then categorised into various degrees of innovation. The study also showed how BMW orchestrates innovation for digital services. To effectively adopt changes in the business model, the firm must first clearly understand what motivates this transformation. The firm should focus on factors such as market dynamics and other external forces that influence business landscapes. However, the firm should be aware that these forces can create an advantage or risk. Motivation alone is not enough to change the model, but the firm should find drivers that facilitate this transformation. The firm must have the support of these drivers to create an efficient model.

Market dynamics have changed dramatically, and the firm needs to develop dynamic capabilities to shape business activities according to demand. Firms cannot create value through their products or services alone but rather need to collaborate with other stakeholders to create a value constellation, as suggested by Haggège et al. (2017) . By adopting the latest technology, constant service-integration and customer knowledge can transform business activities to be more efficient and effective.

This paper has some limitations. The first one is that it develops a conceptual framework with the factors that emerged from the literature and are validated with a signal case study. The second limitation is that the study depends solely on secondary data. Regarding future research directions, this study recommends that research communities validate the proposed framework in a different context and with multiple case studies. The key element category presented in this study should be expanded further through empirical analysis.

The business model literature focuses on the impacts and benefits in general, proposing strategies for innovation. However, context-specific studies are yet to be uncovered. As a result, empirical illustrations of business model innovation in the automotive industry are lacking. This study contributes by highlighting the issue through presenting the business model of BMW for digital services. The results of this study can help managers to understand how innovation in business models may be orchestrated and what elements they need to focus on.

Acknowledgments

An earlier version of this article has been presented at the 4th International Conference on New Business Models “New Business Models for Sustainable Entrepreneurship, Innovation, and Transformation”, ESCP Europe Berlin, 1-3 July 2019, Berlin, Germany. The corresponding author would like to express his gratitude to the Department of Business Administration and Product Design, University of Girona (Spain) for financial support for the conference. The corresponding author would also like to thank his colleagues in the Centre for Research on Operation, Projects and Services (CROPS), Tampere University, and colleagues in the Department of Business Administration and Product Design, the University of Girona for their thoughtful and valuable comments.

Framework of analysis

Illustration of business model Implementation through McKinsey 7 s model

Factors behind business model innovation

Comparison of business model components – car as a product vs car as a service

Source: Author’s own elaboration

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Corresponding author

About the authors.

Prasanna Kumar Kukkamalla is based at the Department of Organization, Business Management, and Product Design, University of Girona, Girona, Spain. He is a Doctoral Candidate at the Department of Organization, Business Management and Product Design, University of Girona, Spain. His research interests focus on business model, organisational transformation, servitisation and service design.

Andrea Bikfalvi is based at the Department of Business Administration and Product Design, University of Girona, Girona, Spain. She is teaching and a Research Staff, ‘Serra Húnter Fellow’ since 2018 at the University of Girona in Spain. During her trajectory, she conducted several research projects for the regional Government of Catalonia, Spain, as well as a series of EU projects. She visited and actively collaborates with researchers in relevant research centres and Higher Education Institutions in Germany, Finland, Croatia, Portugal, etc. Her main research interest is in holistic approaches of innovation in all types of organisations – mainly, but not limited to – public administration, private enterprises and education. Her expertise is in strategy, organisational innovation and business model configuration.

Anna Arbussa is based at the Department of Business Administration and Product Design, University of Girona, Girona, Spain. She is an Associate Professor at the Department of Business Administration and Product Design of the University of Girona. She received her PhD from the same institution in 2001. She has worked on various European projects on electronic payments systems and published articles in the field of technological innovation and technology management. She is currently also working on public health management and on human resources management.

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The role of civil society in monitoring IMF agreements

Geoff Dubrow

Governments are the sole parties that negotiate with the International Monetary Fund, which provides financial assistance to countries in or at high risk of debt distress. Because of this, unpopular deals often lack legitimacy in the eyes of citizens. 

But, active and inclusive civil society oversight can significantly enhance the legitimacy, transparency, and effectiveness of IMF programmes. 

This not only guards against the disenfranchisement of the populace but also ensures that the burdens and benefits of economic adjustments are equitably shared. 

This paper examines case studies from Kenya, Sri Lanka, and the Caribbean. The experiences from the Caribbean, where governments have been willing to formally incorporate CSO input into IMF programme creation and evaluation, demonstrate the positive impact of formal CSO representatives in oversight mechanisms, leading to increased public trust and consistent adherence to fiscal discipline. Conversely, the experience from Kenya and Sri Lanka, where CSO engagement was blocked, highlight the challenges faced by CSOs when excluded from meaningful participation in the negotiation and implementation of IMF agreements. 

The cases discussed signal a clear imperative for a structured collaboration between governments, international financial institutions, and civil society. Such collaborations ensure that economic reforms are not only technically sound but also democratically legitimised and aligned with the social and economic realities of the country.

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The Digital Transformation of Kroger: Remaking the Grocery Business

By: Kannan Ramaswamy, William Youngdahl, Kelly Molera

The grocery industry was going through a major transformation as a consequence of three major trends - the increasing use of ecommerce and online shopping, the intense rivalry from the hard…

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The grocery industry was going through a major transformation as a consequence of three major trends - the increasing use of ecommerce and online shopping, the intense rivalry from the hard discounters such as Aldi and Lidl who threatened the already modest margins of the national chains such as Safeway, Kroger, and Wal*Mart, and changing customer demands that emphasized convenience, ubiquity, and variety. It was against that backdrop that Rodney McMullen, CEO of Kroger, initiated the Restock Kroger campaign, a strategic initiative that aimed to digitally transform the entire grocery business. Slated to cost $9b, the initiative was launched in 2017 with four fundamental aims - "redefine the grocery customer experience, expand partnerships to create customer value, develop talent and, living our purpose" . The campaign to transform the company was announced just a few months after Amazon had entered the grocery business with its game-changing acquisition of Whole Foods. The case study follows the execution of the Restock Kroger initiative as it unfolded and highlights the crucial decisions that the company made in its digital transformation journey. In doing so, it offers a snapshot of the partnerships that Kroger has built to gain momentum in the digital realm, how it has tried to leverage modern digital technologies (e.g., AI, big data, predictive analytics) to not only improve the efficiency of its store operations but also to provide superior customer service. As the case closes, the company's business was being challenged by the COVID-19 pandemic as well as the rapid transformation strategies that were deployed by its major rivals such as Walmart and Amazon. Thus, the case offers a good platform to explore the process of digital transformation, aligning the strategy of transformation with the customer journey, and balancing the pressures to maintain some of the elements of the legacy retail model while ushering in radically new solutions online.

Learning Objectives

The case lends itself to discussions of a broad spectrum of themes that are tightly connected to strategy formulation and execution, digital transformation, management of change, revitalizing the sources of competitive advantage, and the broader issues pertaining to the impact of digitalization in the grocery retail business. The case is quite effective in graduate programs as well as executive education programs that focus on issues related to competitive strategy, digital transformation, and change management. The specific teaching objectives include: (a) To provide insights into an industry that is being significantly impacted by modern digital technologies and how organizations within the industry choose to respond to the changes (b) To draw lessons in the creation and execution of digital transformation strategies that cut across the entire organization and its stakeholders (i.e., business models, functions, target audiences) (c) To identify the types of challenges that companies typically face when they undertake transformations in general and digital transformations in particular

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BMW’s Decarbonization Strategy: Sustainable for the Environment and the Bottom Line

Can BMW convince stakeholders that its strategy is good for the environment and the company’s financial performance?

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In mid-2022, automakers, consumers, regulators, and investors were focusing on the transition from internal combustion engine (ICE) vehicles to electric vehicles (EV). While this would reduce tail-pipe emissions, it ignored the fact that the production of EVs—and especially their batteries—increases emissions in the supply chain.

Many automakers were announcing deadlines by which they would stop selling ICE vehicles altogether, buoyed by investment analysts and favorable press. But BMW decided to focus on lifecycle emissions and pursued a flexible powertrain strategy by offering vehicles with several options: gasoline and diesel-fueled ICE, plug-in hybrid electric vehicles, and battery electric vehicles. That approach received a frostier reception in the stock market.

Harvard Business School assistant professor Shirley Lu discusses how BMW plans to convince stakeholders that its strategy is good for both the environment and the company’s financial performance in the case, “ Driving Decarbonization at BMW .”

BRIAN KENNY: On April 3, 2020, a woman in Punjab, India posted a photo of the Himalayas on Twitter, taken from her rooftop – and it went viral. The photo itself was unremarkable. It became a sensation because that particular view simply hadn’t existed before that day, which came three weeks after the city was effectively shut down by COVID. Three weeks was all it took to wipe away the cloak of air pollution that obscured the iconic mountain range. The same phenomenon was taking place around the world as photos revealing deep blue skies emerged from the likes of Beijing, Rio, and LA. Scientists say that CO2 emissions dropped by as much as 7% in that period, the largest drop in history and the kind of impact we could expect if say, half of the drivers in the world converted to electric vehicles. But that of course is a big if. Today on Cold Call , we’ve invited Professor Shirley Lu to discuss the case entitled, “Driving Decarbonization at BMW.” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Podcast Network. Shirley Lu conducts research in the area of corporate social responsibility disclosure with a focus on topics related to climate change and gender diversity. Thank you for joining me today, Shirley.

SHIRLEY LU: Thank you for having me.

BRIAN KENNY: We’re going to touch on a couple of those topics today. So this is perfectly timely, and I think this case for me was super eye-opening in a lot of ways. I mean, I don’t have an electric vehicle. I’ve thought about getting one. And there’s some complications with electric vehicles that I think we’re going to get into and that BMW has certainly considered as they move down this path towards decarbonization. And they are sort of a bit of an outlier in terms of their competitors in this space. So I think it’s going to be really interesting for people to hear you talk about that. So thanks for writing the case and thanks for being here to talk about it. Why don’t we just get started right away here. If you want to begin by telling us what the central issue is in the case and what your question is to start the conversation in the classroom.

SHIRLEY LU: Absolutely. I see this case as a decarbonization 101 case for the students, where they learn the basics of carbon accounting, carbon management, but also strategies that today a lot of companies are facing this transition to a low carbon economy. So, I go in the classroom and start by saying that one of those industries is the automobile industry that is facing tremendous amount of pressure coming from regulators, investors. And they’re really focusing on this transition from internal combustion engines. I’ll call that ICE, to electrical vehicles, EVs, which really focuses on the tailpipe emissions. And so, our question for the student and the cold call is: why is BMW focusing on emissions across the entire value chain? So that will start from the supply chain to their own production and then to the use phase tailpipe emissions.

BRIAN KENNY: Now, I teased a little bit in the introduction about your areas of research. We always are interested in what motivates faculty to drill into a particular topic. I’m wondering why you decided to write this case.

SHIRLEY LU: Yes. First of all, I want to highlight this is also a joint work with two other amazing professors here, George Serafeim and Mike Toffel. And they were both kind of experts in decarbonization and thus great research there. So I definitely learned a lot from this process. And this is my first case. So, my hope is both to learn the art of case writing, but also that to do research in a climate space, I think the practice is moving very fast. So for example, the best practices, the challenges. In particular, I’m curious about the credibility of environmental disclosure. All of these are better learned in practice as opposed to having a lot of archival data. And so that’s why for me it’s really important to early on in the career to see how companies are actually doing these carbon accounting and management.

BRIAN KENNY: This is a pretty ambitious one and Mike and George are great. They’ve both been on the show and this is as good a time as any for me to plug Mike’s podcast Climate Rising, Mike Toffel is the host of that, cases like this are the kinds of conversations that he’s having with leaders in this field all the time. So, that’s awesome. Let’s talk about BMW. Everybody knows BMW. They make really nice expensive fast cars. You don’t necessarily think about them as a maker of EVs per se. You think about that stick shift on the floor and the sort of racing vibe that you get. Can you talk a little bit about their history as an automotive maker and the culture within the company?

SHIRLEY LU: BMW was founded in 1916 in Munich, Germany. And initially they actually produced aircraft engines and gradually moving to automobile engines and then automobile cars. And I think they’re best known for being the ultimate driving machine by having really strong engines.

BRIAN KENNY It’s great marketing right there, the ultimate driving machine.

SHIRLEY LU: And hence that transition to EV will be interesting. And two things I want to highlight about that culture when we visited a company. The first one that really comes off a lot when we talked to the employees there is this belief of under promise and over deliver. And so whenever they make a promise, they’ll make sure they deliver it, and if not, they’d rather not make the promise. And for example, when you look at EV, they talk about their driving range. So, when BMW releases a driving range and then someone independent goes in and test it, it’s actually probably longer than the one they listed. Whereas the other companies, it may be the opposite.

BRIAN KENNY: That’s pretty smart actually on their part, I think.

SHIRLEY LU: And then the second part about their culture is they’re very metric target driven, very quantitative. So, they set clear targets. And what’s interesting is everyone in the company owns a bit of that target. What we see is everyone knows the overarching target. So, down to every engineer, when they designed one component for the car, they have a part of that target. So, when I meant target, I mean the decarbonization target. They focused on sustainability starting way back in 1970s, but that’s when they first hire an environmental officer for the purpose of complying with environmental regulations. And then in 2000 is when they defined sustainability as part of their overarching strategy. And starting in 2007, that’s when they started developing the first battery electrical vehicle inside of the company. And that’s a time when there’s no mass produced BEV on the market, before the times of Tesla. And then in 2013 is when they release that EV, which is I3 model. And what’s fascinating is they try to have a EV that has the lowest emissions across the entire value chain, that even the door, they say if you compost a door, you put it on the ground, it will be composted.

BRIAN KENNY: I’ve seen the I3 and the I4, and some of them are a complete departure from what you would expect to see from BMW. So I’m wondering when they introduced these models, how were they viewed? How were they received by people?

SHIRLEY LU: It is quite divided. So, there are some that find it very revolutionary. It’s very different from their traditional cars. It’s very beautiful. To me, it looks a little cute even.

BRIAN KENNY: Right.

SHIRLEY LU: But on the other hand, you also have some critics saying that the market’s simply not ready. And they say it’s because they came up with an I3 so early in the game that’s why right now they’re a laggard in the EV game.

BRIAN KENNY: Okay. And who else are they competing with in this space? Who else is introducing models like this?

SHIRLEY LU: There are two types of players. First of all, you have the newer startups type company like Tesla and like XPeng or NIO in China that are all producing only electrical vehicles. But at the same time, a lot of the traditional automobile companies like Mercedes, like Ford, GM, they’re also facing this transition and pushing out their version of BEVs, battery electrical vehicles.

BRIAN KENNY: So, several of their competitors have already put a stake in the ground about when they’re planning to go completely cut away from ICE vehicles and go completely electric. Is that right?

SHIRLEY LU: Yes. For example, Mercedes say they will be ready to go all electric at the end of the decade where market conditions allow. And also at COP26, a lot of companies including Ford, Mercedes, General Motors, they signed a declaration to essentially ban ICE by 2040. And that’s no later than 2035 in the leading markets.

BRIAN KENNY: But BMW has not put that stake in the ground.

SHIRLEY LU: Exactly. So BMW is not making that statement, and instead they’re focusing on having a flexible powertrain strategy. So, by that, it means if you’re a customer and you want a particular type of car, you should be able to choose having an electrical battery inside or an internal combustion engine inside. So, you should leave that option to customers. And part of that reason is customers have different driving habits. So, some may be using a car for professional reasons, some may be using for leisure, for commute, some may in rural, some maybe in urban areas. And there’s this concern from the customer that the battery power cannot last for such a high range. And they call that a range anxiety, as one potential-

BRIAN KENNY: I have range anxiety. That’s one of the reasons why I haven’t made the move to the electric vehicle.

SHIRLEY LU: Exactly. And also the lack of charging infrastructure that when you go into oil station, you can just charge quite instantly. For EV, you have to charge for half an hour at the moment, the current technology. So, it’s adding that pressure. But what’s interesting here is in reality, the average driving distance is not that long for a trip. In the US for example, the average daily driving is less than 30 miles, but an EV’s range can go up to 300 miles.

BRIAN KENNY: Right. So, you’re saying that my anxiety is unwarranted as most people’s anxiety is probably unwarranted.

SHIRLEY LU: But again, it depends on the use case.

BRIAN KENNY: Yeah, yeah. And I would imagine that this strategy that they have pursued, I mean it makes sense to the extent that they’re able to meet the needs of the customer regardless of whether they’re looking for an electric vehicle or a combustion vehicle. But it’s got to be taxing on them as an organization because now they have two manufacturing processes, they have two sets of suppliers. It’s got to be complicated. So I can imagine that Mercedes and the other firms that have put this stake in the ground are saying, We’re converting everything because it’s just going to be a more fluid process for us.

SHIRLEY LU: Part of the reason for staying flexible, I think also relates to their experience with two other major trends in the automobile industry. So, you may have heard the three major trends are automation, ride sharing, and electrification. And with the first two, BMW invested in technology that relates to ride sharing and automation driving. The technology of the market is not quite there yet and end up they have to write off these investments. And so when it comes to the electrification, they’re also being very careful with the timing that they’ll keep it flexible. And again, relating back to their culture of not trying to overpromise. So that’s why I think partly they’re not going to give a date by which we’re going to ban internal combustion engine before they’re certain they can do that.

BRIAN KENNY: So, what’s the regulatory environment look like around EVs?

SHIRLEY LU: There is a lot of regulations coming out, and I think they’re the catalyst for this transition from internal combustion engine to EVs. For example, the EU parliament approved the ban of selling new ICE, new combustion engine by 2035.

BRIAN KENNY: Okay.

SHIRLEY LU: California also announced similar rules and other states like Massachusetts and New York are considering following. So the regulatory environment, I think it’s another big push. That’s why a lot of companies are also using those dates. 2035. That’s when we are going to also ban ICE.

BRIAN KENNY: Okay. So that puts a lot of pressure on BMW to put a date out there to put a stake in the ground. Are they suffering any consequences from not actually taking that step?

SHIRLEY LU: Yes and no. So, on the yes side, there are media articles that are calling them the EV laggard. And there’s even a social impact investor that comes out and say they are the Blackberry of the automobile industry. But on the other hand, potentially no. Because the more sophisticated analysts or investors may be able to see that BMW is still investing a lot in the EV technology. And even if you look at their actual sales of EV, it is higher than some of their traditional competitors.

BRIAN KENNY: And for those who remember Blackberries, by the way, they were really good, and they’re making a comeback. I think people are…

SHIRLEY LU: Really?

BRIAN KENNY: Yeah. Yeah. They’re pining for those again. Those and flip phones, who knew? Let’s talk about what exactly they’re measuring and reporting on within the EV cars themselves. And I think that begins with the GHG, the greenhouse gas protocol. Can you just describe as succinctly as possible, because I know it’s a very complicated measure, what exactly are they looking at with GHG?

SHIRLEY LU: Yes. And that’s what we hope the students can learn from that. The current way they measure carbon is through the greenhouse gas protocol and they divide greenhouse gases into three buckets. And first of all, there’s more than one greenhouse gas. They will aggregate everything in terms of a carbon equivalent in terms of the global warming potentials. So let’s call that carbon for now, carbon equivalent. So they separate those into three buckets. Scope one, two, and three. Scope one is the company’s direct emissions. So, for example, BMW burns certain fossil fuel for their paint shop. And so, that’ll be scope one direct emissions. Scope two is the electricity they purchase, and that has some emissions associated with that. Scope three is everything else. So for BMW, scope one and two is in total only 1% of their total emissions. Scope three, everything else can be separated into the supply chain and the use phase. Supply chain is around 15%, whereas the use phase is 80% of emissions.

BRIAN KENNY: Okay. And is that the use of the actual customer in the vehicle itself?

SHIRLEY LU: The use phase, exactly. That will be when the customers drive the car. And then the tailpipe emissions, that’s also being considered on BMW’s books.

BRIAN KENNY: Where are they focusing their decarbonization efforts? What are they looking at?

SHIRLEY LU: And that is back to our cold call question. Yeah, they look at the full value chain. So they set a science-based target, which are targets that can align with the scenario to limit the global temperature rise to 1.5 degrees. And so for them, the target is by 2030, per car, the scope one and two emissions, they want to reduce it by 80%. So that is quite ambitious. And part of the reason is, this is their own emissions. They need to own it, and really show they’re making a sincere effort. Scope three supply chain is 22% reduction. But in reality, to achieve that, it’s much harder. The reason is by converting to electrical vehicle, you’re having the battery. The battery increases your supply chain emissions by around 50%. So in total, for them, a true reduction of 22% really feels like a 70% reduction. And finally, scope three use phase, which is the driving. And that’s more depends on the car they sell that one they hope to reduce by 50%.

BRIAN KENNY: So, they are putting targets against all of these. And as you said, they’re ambitious targets, which flies a little bit in the face of their under-promise and over-deliver strategy. But what are some of the issues that they’ve run into as they try to make these goals?

SHIRLEY LU: Exactly. I think initially when they first set the targets, they are quite reasonable. And there will be surprises they learn afterwards that made it harder to achieve potentially. And I think it’s not unique to BMW. A lot of companies, they set a target, but how to achieve it? It’s a learning process. In the case of BMW. Let me share three surprises they had-

SHIRLEY LU: … that are challenges. The first one is realizing a lot of the decarbonization opportunities are not readily available everywhere. So when they think about changing to solar and wind power, but not all the plants have the same amount of sunlight or wind. And so, when they plant at a high level and then realizing at the local level, it is not fully available. The second is some of the processes turn out to be more expensive. So, for example, electrification is a major step towards decarbonization because if you electrify all of your process, you don’t need to burn fossil fuel anymore. So that lowers emission, and then you can then move into using renewable energy to really transition to closer to almost zero emissions. But for them, they realized that to electrify for example the paint shop, that will mean they have to stop the operation and really rebuild the facility. And that is more costly than they initially thought. Whereas if they build a new facility with the new technology and become electrified to begin with, that is actually cheaper and that’s what they’re going for as well.

BRIAN KENNY: Okay. So scopes one and two are somewhat within their control, but difficult nonetheless. Scope three is really hard because now they start to dive into the supply chain. How deep are they going into the supply chain?

SHIRLEY LU: Very deep. Ideally, it’s all of the supply chain.

BRIAN KENNY: Wow.

SHIRLEY LU: But then as you imagine some of them four or five tiers down their supply chain, how are they going to get the measurements? And that speaks to one issue in the carbon accounting for scope three supply chain, which is this issue of primary versus secondary data. Ideally you get primary data, which is the real number that contributes to the tire, to the steel that you acquired. But then, because they don’t have such detailed information right now, they will use industry averages. So for example, steel produced in this region under this method as an average emissions of this number. And that’s what they’ll use on their books. And you can imagine the problem with this is, well then you are not compensating for firms that are greener.

BRIAN KENNY: The case goes into the Catena-X approach. How does that help them in this focus on phase three?

SHIRLEY LU: This is an industry effort that they are one of the pioneers in it. The idea is to build almost something like a blockchain for emissions data, where within the automobile industry, all of the suppliers will put their information on that chain. And Catena-X, actually the “Catena” stands for chain in Greek. And so, it’s the idea that if they all put in their data, then they can have this primary data. But you can imagine the challenge, it’s also how do you coordinate with everyone in the industry?

BRIAN KENNY: There’s also a big emphasis on recycling within the automotive space. The case goes into some of the complications of using recycled batteries in just recycled materials in general. Can you talk a little bit about that?

SHIRLEY LU: And that’s actually the third surprise that I wanted to mention earlier with recycling. The surprises with recycling is that it’s difficult to have a closed loop. So some of the materials like aluminum, you need a higher quality for automobile industry, you need higher purity, let’s say purity. Whereas for Coca-Cola can you also need aluminum, but that’s of a lower quality. And the issue is some of the cars being recycled, the aluminum were used to produce Coca-Cola cans. So, you actually lose that same purity of aluminum, which are not going back into the automobile industry. So, these are some of the issues, how can you get back the material? So the same with battery. The battery is even more important to have recycling because of the rare minerals that is of limited supply. And so, who can really keep the battery to their own company, to their own production can really dominate the market. And one thing they mentioned that’s interesting is in China, the requirement is that whoever produces the battery, the company, so if BMW sells a car with a battery, BMW has to recycle that battery. Whereas in the rest of the world, there’s no such a regulation. So the question becomes who gets those recycled batteries?

BRIAN KENNY: I was really surprised to read in the case that there are ICE vehicles in the BMW line that have lower emissions than some of their EVs, which made me say, “Well, why are they doing this at all?” Because that throws up a big red flag. But maybe you can talk a little bit about why an ICE vehicle would have lower emissions than a smaller size EV.

SHIRLEY LU: And that really depends on a few factors.

SHIRLEY LU: That is actually one of the major exercises we have the students do in class. We share an Excel file with them with all the emissions numbers and ask them to tweak certain assumptions. And in particular, we ask them to tweak where the battery’s being produced, what is the local grids emissions and how long do you drive the car for? And these factors, let me highlight two key things here. So, the first one is the transition from ICE to EV is a trade-off where you lower your tailpipe emissions, but you increase the emissions from the battery. So, with ICE, you are kind of creating emissions as you drive. With the electrical vehicles, you don’t see the emissions, but you charge them using the local electricity. So, the emissions of your local electricity will determine how much emissions that process creates.

BRIAN KENNY: Very interesting.

SHIRLEY LU: And that really varies by region. So the emissions of the local grid in China, for example, is three times that of EU and twice as much as in the US. And so, in certain combinations where you don’t drive long distances, you are in a local grid with very high emissions and battery produced in regions with high emissions, there is that potential that the EV is actually dirtier than an internal combustion engine. And the other question we also ask students is, what about outside of the model? Are there some things we’re not capturing just by looking at one car scenario? And one factor is, imagine if all the cars convert to EV, let’s say right now, there’s not enough renewable energy or clean energy such that you may need to actually end up firing up more coal plants and that is higher emissions.

BRIAN KENNY: Yeah. This is part of it, the whole tension around sustainability. And we talk about this in other cases that we discuss on the show as well. This has been a really interesting conversation, Shirley. If there’s one thing you want listeners to remember about the BMW case, what would it be?

SHIRLEY LU: The measurement. You need to measure emissions because you can’t manage what you don’t measure. And with the better measurements, it helps you make better decisions. And one thing we want to highlight is emissions across the entire value chain. Sometimes by focusing on one type of emission, you end up increasing another emission. So it’s important to see the full picture. And one final thing, what I really am grateful for, is BMW for sharing with us all of their experience. And our hope, or my hope, is that some of the students who learn this will one day go into their own company and this case can show them once you have the measures, you can start making better decisions.

BRIAN KENNY: Shirley Lu, thank you so much for joining me on Cold Call.

SHIRLEY LU: Thank you.

BRIAN KENNY: If you enjoy Cold Call , you might like our other podcasts, After Hours , Climate Rising , Deep Purpose , IdeaCast, Managing the Future of Work , Skydeck , and Women at Work . Find them on Apple, Spotify, or wherever you listen. And if you could take a minute to rate and review us, we’d be grateful. If you have any suggestions or just want to say hello, we want to hear from you. Email us at [email protected] . Thanks again for joining us. I’m your host, Brian Kenny, and you’ve been listening to Cold Call , an official podcast of Harvard Business School and part of the HBR podcast network.

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Driving Decarbonization at BMW

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About The Authors

George Serafeim

Michael W. Toffel

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• December 2022
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Driving Decarbonization at BMW - Video Supplement

• November 2022 (Revised October 2023)
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Driving Decarbonization at BMW – Student Spreadsheet Supplement

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Driving Decarbonization at BMW – Instructor Spreadsheet Supplement

• Driving Decarbonization at BMW - Video Supplement  By: Shirley Lu, George Serafeim and Michael W. Toffel
• Driving Decarbonization at BMW  By: Shirley Lu, George Serafeim and Michael W. Toffel
• Driving Decarbonization at BMW – Student Spreadsheet Supplement  By: Shirley Lu, George Serafeim and Michael W. Toffel
• Driving Decarbonization at BMW – Instructor Spreadsheet Supplement  By: Shirley Lu, George Serafeim and Michael W. Toffel

Sustainability in semiconductor operations: Toward net-zero production

Climate change is creating many life-threatening disruptions, including extreme weather, rising sea levels, and droughts. Faced with irrefutable evidence of global warming, almost 200 countries have committed to the 2016 Paris Agreement, a treaty that calls for accelerated decarbonization. This agreement is designed to limit the mean rise in temperature to 1.5 degrees Celsius from preindustrial levels to mitigate or prevent some of the most dangerous effects of climate change.

About the authors

This article is a collaborative effort by Ondrej Burkacky , Sebastian Göke, Mark Nikolka, Mark Patel , and Peter Spiller , representing views from McKinsey’s Semiconductors Practice.

While some semiconductor companies have created ambitious targets for reducing their emissions  and remaining on a 1.5°C pathway, many others have been less ambitious. The pressure to act may soon increase, however, since businesses across industries are now scrutinizing emissions along their entire supply chain—and in many cases, semiconductor companies will account for a substantial amount of them. Already, some of the semiconductor industry’s most important end customers, including Apple, Google, and Microsoft, have committed to reaching net-zero emissions for their full value chain and set aggressive timelines for achieving their goals.

Some semiconductor companies have responded by setting their own emissions goals. For instance, Infineon plans to reduce greenhouse-gas (GHG) emissions by 70 percent by 2025, compared with its 2019 baseline, and aspires to reach carbon neutrality for emissions directly under its control by the end of 2030. Intel recently committed to net-zero GHG emissions in its global operations by 2040 and has targeted achieving 100 percent use of renewable electricity as an interim milestone in 2030. Several semiconductor players have also committed to science-based targets, including STMicroelectronics, NXP, and UMC. Over the next few months or years, more semiconductor companies are expected to commit to ambitious and actionable emissions targets.

Achieving substantial emission reductions will require collaboration with peers and suppliers, as well as new technologies, innovative thinking, and the complete engagement of fabs. To help companies move forward, we reviewed the current state of greenhouse-gas emissions within the semiconductor sector and collected best practices for abatement. Our analysis allowed us to identify both short- and long-term solutions along the entire semiconductor value chain. This article focuses on scope 1 and 2 emissions, which are the ones that semiconductor fabs can directly control .

Achieving substantial emission reductions will require collaboration with peers and suppliers, as well as new technologies, innovative thinking, and the complete engagement of fabs.

Major sources of emissions from fabs

With about 80 percent of semiconductor manufacturing emissions falling into either scope 1 or scope 2 categories, fabs control a large portion of their GHG profile (Exhibit 1). 1 Scope 1 emissions are those from direct or controlled sources; scope 2 emissions are from generation of purchased electricity, steam, heating, and cooling equipment; scope 3 upstream emissions include all other indirect emissions in a company’s value chain; and scope 3 downstream emissions are related to the use of products containing semiconductors. Scope 2 emissions, which represent the highest proportion of GHG from semiconductor companies, are linked to the energy required to run their extensive production facilities. The sources of these emissions include the following:

• tool fleets containing hundreds of manufacturing tools, such as lithography equipment, ion implanters, and high-temperature furnaces
• large clean rooms requiring climate and humidity control with overpressure and particle filtration
• extensive subfab facilities for gas abatement, exhaust pumps, water chillers, and water purification

As the node size of chips continues to shrink, energy requirements at production facilities are expected to rise significantly.

Scope 1 emissions, which also significantly add to fabs’ GHG emission profile, arise from process gases used during wafer etching, chamber cleaning, and other tasks. These gases, which include PFCs, HFCs, NF3, and N20, have high global-warming potential (GWP); they rise as node size shrinks. 2 Perfluorocarbons, hydrofluorocarbons, nitrogen trifluoride, and nitrous oxide. Scope 1 emissions may also arise from high-GWP heat transfer fluids that may leak into the atmosphere when fabs use them in chillers to control wafer temperature during manufacturing processes.

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Additional emissions may come from upstream scope 3 sources, such as suppliers, chemicals and raw materials, or from transportation to customer facilities. These upstream emissions generally account for only about 20 percent of fabs’ GHG profile, however.

Semiconductor companies also generate downstream scope 3 emissions, which are related to use of products containing semiconductors. These vary significantly by use case. For instance, handheld devices with low power consumption during intermittent usage will have much lower emissions than data centers that operate 24/7. As will be discussed in a later article, product design influences scope 3 emissions, giving fabs little control over them during operations.

Critical levers for emissions improvement

To help fabs achieve substantial emissions reductions and accelerate decarbonization, we identified three areas that need immediate attention, as well as relevant improvement levers.

Decreasing energy consumption

Levers for reducing energy consumption are often directly aligned with other operational targets, such as cost reduction, making them easier to achieve. The many options available can be grouped into two major categories. The first group focuses on reducing tool-related energy consumption—for instance, by upgrading and replacing tools with more energy-efficient ones, implementing smart control systems to enable coupling and regulation of facilities and tools. The second group encompasses activities that involve reducing facility-related energy consumption though various measures, such as exclusive sourcing and use of energy from renewable sources, greater energy efficiency of buildings, and replacing existing lighting in fabs with LED fixtures.

To identify the greatest opportunities for decreasing energy consumption, fabs could look at benchmark-based targets and sources of energy loss. They could also review existing levers for energy reduction by tool and facility type. For instance, fabs might discover that they can improve energy consumption in clean rooms by reducing air pressure, increasing humidity, limiting air exchange in unused areas, or eliminating leaks in air-supply lines.

When optimizing process recipes, equipment engineers typically focus on overall equipment effectiveness (OEE) and give little attention to tool-fleet energy consumption. New incentives, such as rewards for creating energy-efficient recipes, might help change this mindset. Fabs can also help decrease GHG emissions during operation by encouraging experts to share their knowledge of and experience with energy efficiency, using the same tools and mechanisms they employ when sharing strategies for optimizing OEE. To boost their odds of succeeding, fabs can include additional stakeholders in their power-consumption efforts, focusing on external tool suppliers that might be able to modify their equipment to increase efficiency, or those that offer retrofits or energy-saving options for new tools.

Optimizing energy supply

To ensure that sufficient power is always available, fabs often source their electricity from a combination of on-grid and off-grid sources. Most off-grid power comes from fab-owned fossil fuel power plants. Over the short term, fabs can significantly reduce the energy consumption of these plants by pursuing efficiency improvements or switching to alternative fuels such as biogas or green hydrogen. They can generate further gains by developing new off-grid power sources that rely on green technologies, such as photovoltaics, fuel cells, and battery energy storage systems. But these supplies often only complement, rather than replace, a fab’s long-standing on-grid sources.

For on-grid power, fabs may be able to reduce consumption by purchasing renewable electricity from utilities through green premium energy offerings, although the offerings vary widely by region. In Europe and the United States, for instance, renewable on-grid sourcing is readily available and accounts for up to 31 percent of grid energy; in many parts of Asia, however, renewable on-grid sourcing can be challenging because of limited availability (Exhibit 2).

Access to renewable energy may be a major factor as companies decide where they should build new fabs—something that is becoming more common as they try to increase capacity to alleviate the chip shortage.

Reducing process-gas emissions

Process gases can significantly increase global warming (Exhibit 3). Their emissions will vary based on a fab’s age and the sophistication of its abatement technology, but all facilities face some common challenges. Four levers, which are at different stages of maturity, may help reduce process-gas related emissions. Because of economic constraints and other issues, some fabs may not be able to apply some of these levers widely until the technology improves.

Process improvements. Fabs can reduce emissions by adjusting process parameters, such as temperature and chamber pressure. Process engineers often overlook this lever and instead focus solely on yield during optimization efforts, partly because they lack the knowledge and operational experience required to identify strategies for reducing GHG emissions. Similarly, the suppliers involved in daily tool operations and maintenance may prioritize cost and uptime targets over energy savings. If fabs address knowledge gaps and collaborate more closely with tool suppliers, they may improve emissions—for instance, by simultaneously optimizing yield and energy consumption during cleaning protocols.

Use of alternative chemistries. Fabs can sometimes lower emissions by switching to chemicals that have a lower environmental impact. However, they often encounter obstacles when attempting to use these chemistries; for example, it can be difficult to get suppliers on board with their plans. In addition, developing new solutions is both costly and time consuming, as is the process for qualifying new chemicals on existing processes and tools.

To address these roadblocks, fabs could emphasize that GHG reduction is a top priority when communicating with suppliers and note that they want to explore new solutions, including green-chemistry approaches. Fabs could then work closely with their partners to develop a path forward. For instance, fabs and suppliers could jointly create road maps for process-gas substitutions or codevelop alternatives. But even with this push, fabs must temper their short-term expectations about GHG improvement because few green solutions are now viable alternatives to current gases. (While fabs have already implemented some major improvements, such as increased use of NF3, many other shifts, including the replacement of NF3 with F2 or ozone, are still nascent.) Over the long term, fabs could see more gains if they continue encouraging suppliers to explore new solutions.

Strategies to lead in the semiconductor world

Gas abatement. Gas abatement will be the main lever to address emissions from process gases over the short to midterm, and this will remain the case until alternative gases with fewer emissions are available, or until gas recycling is widely adopted. Fabs that want to increase gas abatement can select from multiple options, including point-of-use (POU) systems for individual production tools, point-of-area (POA) systems, and central abatement systems. As they roll out and install new systems, fabs must balance the trade-offs related to cost, impact on operations, destruction and removal efficiency (DRE), and timing. Further adoption will also require suppliers to provide innovative technical solutions to do the following:

• Address space constraints, especially in older, 200-millimeter fabs with limited subfab space (for instance, by providing integrated solutions with a smaller footprint).
• Keep by-products, such as nitrogen oxides and carbon monoxide, low while increasing DRE.
• Prevent downtime of production tools during installation and maintenance of abatement systems.
• Enable regular system qualification, without affecting production, to achieve and report higher DREs.

Gas recycling. Fabs can capture unutilized process gases and by-products through various means, such as membrane separation, cryogenic recovery, adsorption, and desorption. They can then refine them into pure process gases that can be used again, potentially reducing process-gas emissions. For this lever to become economically viable, researchers will need to address major challenges related to the separation of process-gas outflows and purification.

Putting GHG emission reduction on the agenda

To help the semiconductor industry meet the critical challenge of reducing GHG emissions, fabs can take four steps to accelerate their decarbonization efforts:

• Create transparency about their scope 1, 2, and 3 (upstream) emissions.
• Set near-term and long-term emission targets.
• Consolidate existing ideas and estimate their expected costs and impact. This will involve defining a portfolio of innovative technologies to be developed jointly with external partners over the next few years.
• Generate an abatement cost curve to serve as a road map for short-, mid-, and long-term decarbonization efforts.

The abatement cost curve can help fabs identify all potential areas for GHG reduction, as well as associated implementation costs and savings. Fabs should first implement the levers that would result in a net cost reduction, and then move to those with net abatement costs that are close to zero and those that will be costly until regulations change or other advances make implementation less expensive. Exhibit 4 shows an example abatement cost curve for a typical fab.

As they embark on their net-zero programs, semiconductor companies will benefit from internal collaboration among staff from R&D, operations, supply chain, and other functions. Among other advantages, such efforts will help ensure that they implement key elements of the decarbonization program simultaneously. External engagement is also essential, since no single company can reach its GHG goals without partners, such as industry peers, suppliers, and customers.

Successfully reducing emissions to remain on the 1.5°C pathway will require both commitment and endurance. While short-term goals are important, semiconductor companies ultimately want to reduce their emissions by about 50 percent within ten years. Within fab operations, many processes or tools may need to be replaced by greener alternatives, some of which are still in the early stages of development. With global warming reaching a critical point, fabs should accelerate their current decarbonization plans and consider developing other green initiatives.

Ondrej Burkacky is a senior partner in McKinsey’s Munich office, where Mark Nikolka is a senior associate; Sebastian Göke is an associate partner in the Berlin office; Mark Patel is a senior partner in the Bay Area office; and Peter Spiller is a partner in the Frankfurt office.

This article was edited by Eileen Hannigan, a senior editor based in the Waltham, Massachusetts, office.

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Case study: Löfbergs Finding the Right Blend with RELEX Solutions

Standardized.

forecasting

stock levels

costly spot market purchases

One of the largest producers of coffee in the Nordics

Karlstad, Sweden

Striking the Balance: Löfbergs’ Supply Chain Dilemma

Sweden is a nation of coffee-lovers. Coffee drinking is part of the culture, and the average Swede gets through four cups per day. Löfbergs, with their characteristic purple and yellow branding, is synonymous with coffee tradition in Sweden. The family-owned company has been operating from a base in Karlstad since the early 1900s.  

A passion for good coffee, as well as a commitment to sustainability and fairness has served the Löfberg family well. Today the company is one of the largest coffee producers in the Nordics, and among the world’s largest importers of organic and fair-trade coffee.  

The majority of Löfbergs coffee is still roasted and packaged in Karlstad. From here, it is shipped across Scandinavia, to the Baltics, the UK and more recently, Canada.  

 Löfbergs serves a broad spectrum of customers – from major retailers and national restaurant chains, to small, independent cafés. Many expect next-day delivery. The company buys directly from growers’ cooperatives and coffee retailers in the Equatorial belt and ships the beans back to Sweden – a journey that typically takes eight weeks. Löfbergs needs to be able to meet demand, but at the same time, doesn’t want to over-purchase. If they don’t get it right, their purchasers end up having to buy from the spot market, which is a lot more expensive.  

Löfbergs, facing the complex challenge of meeting next-day customer service expectations while dealing with long procurement lead times and a delicate roasting production process, recognized the crucial need for a clear and accurate demand plan. This plan was essential to maintain a balance between stock levels and service. 

Originally, the company relied on manual spreadsheets for forecasting, looking back three months, projecting this average into the future, and adjusting based on knowledge and intuition. This approach, however, limited their ability to plan over a longer time horizon. The delay in obtaining accurate demand information presented significant challenges. The company aimed to introduce more standardization in forecasting and to access more reliable information earlier in the planning process. 

Revamping Production Planning: Löfbergs’ Transformation Journey 

Löfbergs began looking at better and more efficient ways to respond to the ever-changing demand for their coffee. In their search for a forecasting tool, the team recognized that the production side of the business also lacked adequate planning.  

The planning functionality of the company’s Materials Requirement Planning (MRP) system initially didn’t consider production capacity, which was a significant limitation. The available plans would only indicate the quantities to buy and produce, but not address critical details of how, where, and when. The introduction of the RELEX supply chain optimizing tool marked a substantial improvement. It provided the needed functionality, allowing the company to quickly generate optimized production plans. These plans are now more comprehensive, taking into account the most current forecasts and order situations, while also respecting the plant’s capacity and existing load. 

Achieving Precision: Löfbergs’ Enhanced Forecasting Process 

The key component of Löfbergs’ solution lies in the implementation of the RELEX demand planning tool. With this tool, the company has established a standardized forecasting process across their operations. The Demand Forecaster has enabled Löfbergs to create a statistical forecast that significantly surpasses the quality of their previous methods. This improvement has led to greater confidence in the baseline forecast, reducing the reliance on manual adjustments of numbers. 

Forecasting now operates at a three-to-four-month time horizon and Löfbergs uses the forecast daily to guide production planning, procurement and delivery. The company is able to operate with much lower stock levels across the supply chain because they have more confidence in the forecasts.  

The company emphasizes that using the same plan and tool for adjustments has greatly improved their ability to communicate changes across the business. The team now has a deeper awareness and understanding of the forecasting process and the importance of accuracy in forecasts. With more reliable demand plans, they are better positioned to serve customers with lower stock levels, plan sourcing more effectively for better prices, and avoid costly spot market purchases. 

The decision to partner with RELEX was influenced by their proven expertise in the field. The company found that RELEX offered more than just software; they provided valuable know-how and a deep understanding of the complexities of supply chain planning. Additionally, the expertise of RELEX in integrating with ERP systems, such as the Movex solution used by the company, played a significant role in facilitating the implementation process and enhancing the effectiveness of the solution overall. 

The results

Increased trust.

in the baseline forecast

Improved sourcing

for better prices

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BMW’s Competitive Strategies & Growth Strategies

BMW’s competitive strategies are implemented with growth strategies that empower the business to achieve and retain a leading position in the industry, especially in the market for premium automobiles. The company’s position against other automakers is supported with generic competitive strategies for products that are differentiated from other vehicles. For profitable performance, BMW’s growth strategies address and exploit growth opportunities in the global automotive market. These growth strategies account for technological innovation trends in the automotive industry. Also, BMW’s competitive strategies integrate innovative technology that matches market demand and target customers’ preferred automobile and motorcycle functions and qualities.

Bayerische Motoren Werke/Bavarian Motor Works (BMW) succeeds as a result of the effectiveness of its generic competitive strategies that ensure profitability despite strong competitors. The company’s intensive growth strategies also improve sales revenues in regional car markets. The combination of these competitive strategies and growth strategies contributes to the realization of goals based on BMW’s mission statement and vision statement .

BMW’s Competitive Strategies

BMW’s competitive strategy of differentiation is a primary factor influencing business success in the global market. In Michael Porter’s model, the goal of differentiation is to develop competitive advantages through features or qualities that make the company’s vehicles different or unique, relative to competing automobiles and motorcycles. This generic competitive strategy moves BMW’s business organization to develop products that are different from those of competitors, such as Tesla , Toyota , Ford , General Motors , and other automakers, as well as motorcycle manufacturers, like Harley-Davidson . These firms participate in a competitive industry environment, which the Five Forces analysis of BMW characterizes as a market involving innovation for people’s transportation requirements and preferences. Through differentiation as a competitive strategy, BMW ensures that its automobiles and motorcycles attract buyers and generate profits that further the company’s development through its growth strategies.

Cost leadership is implemented as another one of BMW’s generic strategies for competitive advantage. This competitive strategy aims for cost effectiveness in car design and manufacturing to support the company’s flexibility in other strategies, such as pricing strategies. For example, this generic competitive strategy pushes for cost-reduction measures in production processes to make the company more flexible and competitive against other car manufacturers. Economies of scale and the other competitive advantages examined in the SWOT analysis of BMW reflect capabilities that enable cost-leadership implementations. Considering the low costs related to this competitive strategy, BMW’s premium branding relies more on differentiation than cost leadership to ensure competitive advantages.

BMW’s Growth Strategies

BMW’s growth strategy of product development involves producing mobility products that address current market demand and customer expectations. Through new products, this intensive growth strategy has the goal of generating more automobile and motorcycle sales. For example, new innovative products can attract buyers who are interested in replacing their old cars with new and more advanced electric or hybrid BMW vehicles. In implementing this intensive growth strategy, strategic management decisions consider social and technological trends, like the ones assessed in the PESTLE/PESTEL analysis of BMW , to determine the product qualities and features that need to be developed. The competitive strategy of differentiation leads to decisions for product uniqueness and other differentiating qualities as vehicle specifications in this growth strategy of product development.

Market penetration is a growth strategy that helps BMW achieve its industry leadership goals. Based on the Ansoff Matrix, this intensive growth strategy involves selling more of the same automotive products to the same target markets. The company implements market penetration through dealerships and other arrangements. The strategies and tactics in BMW’s marketing mix (4Ps) are applied for this growth strategy, especially for penetrating developing markets where the company has a weak presence or weak sales performance. However, this intensive strategy for growth has become challenging because of the technological innovation and market aggressiveness of competing automakers.

Considerations for BMW’s Competitive Strategies & Growth Strategies

Successfully implementing BMW’s growth strategies and competitive strategies involves management and leadership that consider related variables regarding the business organization and its industry and markets. Some aspects of the automaker’s organization need to develop or adapt to ensure this strategic success. For example, the business divisions for strategic management in BMW’s organizational structure (company structure) need to align with the requirements of the intensive growth strategy of market penetration. Also, BMW’s operations management needs measures that enable innovation processes for the generic competitive strategy of differentiation. On the other hand, the competitive strategy of cost leadership depends on cost-effective measures applied through the company’s operations management. Similarly, BMW’s growth strategy of product development involves operations management support for innovative technology and automobile design.

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