(A) – Porters 5 competitive forces
Competition in industry
Porsche managed to avoid a take over by industry giants General Motors, Chrysler and Ford, unlike other rival brands Jaguar, Ferrari, Lamborghini, and Lotus.
How the public perceives a product and distinguishes it from competitors, allowed Porsche to be able to sustain a competitive advantage.
Threat of new entrants into the industry
Within the industry that Porsche operates, the economies of scale make it difficult along with the high capital requirements which are needed to set up a new business. Also, with strict licensing and legal requirements, all these factors make the threat of new entrants into the industry weak.
However, with only a few retail outlets selling this type of product, it is easy to get a new product on the shelf, making the threat of new entrants into the industry strong.
Bargaining power of suppliers
The number of suppliers in the industry in which Porsche operates is large, therefore Porsche can purchase its raw materials from suppliers at a low cost and can use multiple suppliers within the supply chain, switching its suppliers as switching costs are low.
This makes the bargaining power of the supplier weak.
Bargaining power of customers
The buyer has fewer firms to choose from within the industry and the product differentiation is high meaning the buyer has less choice; this makes the bargaining power of the buyers in this industry weak.
Threat of substitute products
Porsche operates in an industry where there are very few substitutes available. The few substitutes that are available are also of a high quality but are more expensive. The other firms operating in a comparative basis sell at a lower price than any substitutes or Porsche, meaning buyers are less likely to switch.
This mean that the threat of substitute products is weak.
(B) SWOT Analysis
Strengths and weakness are frequently internally related, while
opportunities and threats commonly focus on the external environment.
- Strengths: characteristics of the business or project that give it an advantage over others.
Product innovation, expansion, high level of customer satisfaction, strong dealer community and training
- Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others.
Lack of choice, limited success outside its core business, more investment in technology required,
- Opportunities: elements in the environment that the business or project could exploit to its advantage.
New environmental policies, new customers from online channels, economic uplift and increased customer spending, lower transportation costs
- Threats: elements in the environment that could cause trouble for the business or project.
Intense competition eg- , foreign exchange, supply of new products is not regular, imitation, counterfeit and lower quality products,
(C)- PESTEL Analysis
A PESTEL analysis can provide a valuable insight into the challenges that a company in the industry will face.
- Political factors relate to decision taken by the government, including tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability of a country. Contract law dictates what Porsche is or is not allowed to do and this can change by country. Is (IP) intellectual property protected?.
- Economic factors are macroeconomic and will greatly affect how the business of Porsche operate and make decisions and these will include economic growth, exchange rates, inflation rate, and interest rates.
For example, interest rates affect a firm's cost of capital and exchange rates can affect the costs of exporting goods and the supply and price of imported goods in an economy.
- Social factors that affect or impact Porsche are directly related to the society that Porsche operates in. It involves the demand for a company's products and how that company operates and includes the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.
- Technological factors include aspects like R&D activity, automation, technology incentives and the rate of technological change. These can determine barriers to entry for Porsche and its potential competitor’s. Porsche needs to monitor new technology in the industry, and regard the level of urgency required to respond to the innovation, by either matching or finding and alternative.
- Environmental factors and environmental aspects such as weather and climate change, may affect an industries growing awareness of the potential impacts in how it is affecting the way companies operate and the products they offer.
Weather conditions may significantly impact the ability of Porsche to manage transportation of the finished product or its resources. Climate change may render some products useless. Waste products may incur pollution fines or quotas creating a financial strain on Porsche.
- Legal factors include discrimination law, consumer law, employment law, health and safety law, IP laws and data protection laws. These factors can affect how Porsche as a company operates, its costs, and the demand for its products.
D – VIRN Analysis
The VIRN/VIRO analysis of Porsche takes each of its internal resources and assesses whether they provide sustained competitive advantage or whether the resources can be improved on to provide more of a competitive advantage.
The recourses are summarised to see if they offer sustainable competitive advantage, have any unused competitive advantage, temporary competitive advantage, competitive parity or competitive disadvantage.
Valuable: It involves value creating strategies for Porsche which can help the company outperform its competitors or reduce its weakness by improving its effectiveness and increase in efficiencies.
e.g. – financial resources, product differentiation, Porsche’s employees, Porsche patents, distribution network, outsourced engineering (PEG)
Rare: It includes all of Porsche resources which are rare and not be available to the competitor.
e.g. – strong financial resources, Porsche employees – highly trained and highly skilled, Porsche patents – not easily available, distribution network
Imperfectly Imitable: It means that the value of that particular resource belonging to Porsche would be governed by only them and others can’t duplicate the resource for its use.
e.g. – the financial resources of Porsche are costly to imitate, having been acquired by the company over a number or years, patents of Porsche are very difficult to imitate, and it is legally not allowed to be imitated.
Non-substitutable: Meaning that the resources cannot be substituted by any other available resources.
e.g.- financial resources of Porsche are used to invest, making use of opportunities and combatting threats, Porsche patents can be used for a competitive advantage and also as a sustainable competitive advantage if sold before the patent expires.
E – STRATEGY CLOCK
Value \ Price
High added value
Mediocre added value
\ | /
Low added value
Increased price & low value
“Bowman's Strategy Clock is a model used in marketing to analyse the competitive position of a company in comparison to the offerings of competitors.
Bowman considers competitive advantage in relation to cost advantage or differentiation advantage.
Bowman's Strategy Clock represents eight possible strategies in four quadrants defined by the axes of price and perceived added value. “
Position 1: Low Price/Low Value This is where a company will find themselves if their products have little differentiated features, so they end up selling on price alone. This is not a position that Porsche finds itself in.
Position 2: Low Price A company in this position will drive the prices downwards and look for high volume to counteract low margins. Over time they look to become the powerful force in the marketplace.
Position 3: Hybrid (moderate price/moderate differentiation) This approach combines a low-cost approach with an emphasis on differentiation with the aim of giving customers more value for their money.
Position 4: Differentiation The aim is to offer customers high perceived-value and either increase their price for higher margins or keep prices lower for increased market share. Branding is an important element with differentiation strategies as the company wants its name to be synonymous with quality. Porsche is an example of a company taking this position.
Position 5: Focused Differentiation Porsche pursues a focused differentiation strategy aiming to offer higher perceived value at a substantial price premium. Consumers buy in this category based on perceived value alone.
Position 6: Increased Price/Standard Product This is where a company increases its price without any increase in quality. If the price increase is accepted the company will experience increased profits, if it is not accepted their market share declines until they lower the price or add value.
Position 7: High Price/Low Value This is a classic monopoly pricing position where companies can charge what they like with no concern about added value where they have no competition. In a market economy monopoly these companies do not tend to last.
Position 8: Low Value/Standard Price If a company has a low value product the price will have to be low to encourage customers to buy it. Any company that pursues this strategy is bound to fail.
F - ANSOFFS GROWTH MATRIX
“The Ansoff Matrix is a strategic planning tool that provides a framework to help executives, senior managers, and marketers devise strategies for future growth”.
Companies like Porsche use growth strategies to understand how to further penetrate into existing markets and how the customer base can be grown through the market or with new product development.
The combination of the three main strategy streams of- cost, differentiation and focus set the basis for Porsche’s intensive growth strategies.
These growth strategies are entered into the Ansoff’s Growth Matrix grid, which includes four dimensions- market penetration, product development, market development and diversification.
The choice of each growth strategy is dependent on the level of competition, target market characteristics and unique organisational growth objectives.
The main aim of Porsche is to maximise profitability and increase market share to ensure long-term business growth and the success of Porsche lies in its ability to choose the right combination of the intensive growth strategies.
Market Penetration – is the primary intensive growth strategy of Ansoff growth matrix and it encourages sales growth within the current customer base by focusing on an existing product.
e.g.- lowering of prices and use of different marketing and promotional incentives to push the sales of the existing customer market. The increased sales and brand awareness that is gained with high market penetration is also used as a tool to offer new products to new and existing customers and markets.
Product Development – is the secondary intensive growth strategy of Ansoff growth matrix, which Porsche uses regarding the development of new products or the modification of current line products to make them new to a current customer base. Porsche manages to successfully introduce new products by assessing the customer needs on a continuing basis.
e.g. to increase R&D investments for new product development, it allows the organisation to minimise costs and use existing infrastructure to launch new products,
Market Development - is the third intensive growth strategy of Ansoff growth matrix, the main objective of this strategy for Porsche is to explore and enter new markets.
e.g. affordable prices and strong brand name are some of the reasons behind the worldwide presence of Porsche, on-going investment in R&D, the ability to minimise costs by the introduction of Lean, developing new distribution channels, creating new market segments by charging varying prices, developing new product dimensions, considering new geographic areas
Diversification - is the fourth intensive growth strategy of the Ansoff matrix and involves entering new markets with new products.
This strategy can also be divided into related diversification – which is risker and involves launching completely new products in new markets with no prior experience and unrelated diversification – uses the company’s existing knowledge and recourses to extend its portfolio. e.g. expansion with effective acquisition, utilisation of brand awareness and strength, investing in green business practices,
What are the main strategic issues facing Porsche?
Porsche like all companies in all sectors of manufacturing, face unique challenges that they must address in order to create long-lasting success.
Some of the main strategic issues facing Porsche would be Overcapacity, Sustainability, Globalisation, Urbanisation and Attracting Talent.
1 - Overcapacity. Automobile manufacturing experiences ups and downs like all industries. Overcapacity occurs when a manufacturer has already invested the resources such as payroll and materials, into building a certain quantity of a product, only to discover that they do not need to produce as much as they had planned for.
The result is an over-expenditure that can damage cash flow and result in waste.
To combat any over-expenditure, Porsche introduced lean manufacturing and followed its team concepts and processes. They also developed the Porsche Engineering Group (PEG) which provided lucrative out-sourced engineering services to clients from a variety of industries.
2-Sustainability. Consumers are increasingly concerned about sustainability. Porsche just like other manufacturers, must strive to create more eco-friendly cars and to be more efficient in production.
The driving force that led Porsche to secure its partnership with VW, was the ability to scale and crate synergies across a number of areas, and being able to spread investments and costs over 2 million cars instead of just Porsches 100,000 will make a big difference in sustainability and costs for customers.
3-Globalisation. Increased global competition means lower market prices for many vehicles: once again, most solutions call for increased efficiency in order to offset a lower margin of profit.
4-Urbanisation. Modern consumers have a different set of criteria for their cars, many of which are related to urbanisation. They include smaller vehicles, better manoeuvrability, and increased fuel mileage, lower costs.
5-Attracting talent. As the automobile industry continues changing, manufacturers will need to continue attracting the best and the brightest talent in order to adapt to the times. Engineering and design were considered to be the hallmark of Porsches competitive advantage, and along with 2,300 PEG engineers were 600 graduate student interns who worked along side Porsches staff engineers and the top interns (10%) were offered full-time jobs, becoming highly skilled and knowledgeable.
What strategic options should they consider and why?
Sustainability strategy and sustainability management
Porsche will want to be a sustainable sports car manufacturer in a premium segment. Stakeholders will also expect Porsche to strive for economic, social and ecological goals as equally. Sustainability will then become a central significance of Porsche and safeguarding its competitiveness.
The issue of sustainability is to be firmly embedded throughout the company and broken down into four core actions areas,
- Business & Customers
- Product Responsibility
- Environment & Energy
- Employees & Society
All activities relating to sustainability, and all strategic considerations and aims are structured around these four areas. e.g.
- “For Porsche, education is the key to sustainable development.
Therefore, the company offers its trainees and staff an exceptionally diverse programme of vocational and professional training, giving every single employee the opportunity to engage in training tailored to their needs
- Creating jobs and respecting human rights along the entire supply chain are prerequisites for value-creating, sustainable growth
- innovative products and services, and the theme of mobility of the future is a top priority
- to actively contribute to the sustainable development of cities by providing smart solutions. Resource-efficient production processes and products, as well as technological and social innovation, are the key factors for the company in this regard.
- constantly developing efficient, environmentally compatible production processes.
- reducing fuel consumption and developing innovative drive systems. The conservation of raw materials and energy is another huge priority
- Stakeholder communication and dialogue, the open and transparent exchange of information, its goal of engaging in exchange that benefits all stakeholders, stepping up its dialogue activities to improve stakeholder relations.
- proactive exchange with employees.”
What strategy should they follow?
“Shaping the future of the sportscar – this is the theme of Strategy 2025. At the heart of the strategy is our future product portfolio. The sportscar of the future will blend the history and values of the Porsche brand with innovative technologies, while at the same time ensuring sustainability. In achieving this, topics such as electromobility, digitalisation and connectivity will play an important role. Embracing these topics will allow us to shape the exclusive and sporty mobility of tomorrow. Nevertheless, with all the innovations and modifications in front of us, one thing remains constant: Anything that carries the Porsche crest will also feature the excellent quality that is synonymous with Porsche.
The company's main objective is to achieve value-generating growth. Only by achieving such growth can we make sustainable investments in innovative technologies, new products, and most importantly, in our team here at Porsche.
With this approach we are already on our way towards rethinking sporty mobility. We want to excite customers with our products and services. We are also aiming to consolidate our reputation as an excellent employer and business partner that fulfils its social and environmental responsibilities. And the return needs to be sufficient too.
We have everything we need to achieve our objectives: vehicles that will take your breath away and a team that is passionate about its work.”
What challenges might they encounter in seeking to implement this strategy?
The Learning Challenge
There may be a sense of urgency in tackling sustainability issues, but there is a need to balance learning with action, taking a step back to assess the bigger picture, determine options and understand goals. Moving too quickly without thoughtful reflection and the correct information can create learning challenges, resulting in wasted time and resources.
The Development Challenge
Porsche being a sustainability leader must focus on encouraging employees, but also developing their skills so that they can do what needs to get done. Any development strategy requires the attention to know what to do but also why it needs to be done so that people change, and the mission is accomplished.
The Reconciliation Challenge
Pursuing sustainability, Porsche must break down old behaviours, stop old habits, and instil new practices
How Porsche as a sustainability leader handles that conflict will determine whether, the sustainability problem is solved, and whether the relationship can be rebuilt.
The Impact Challenge
Sustainability leaders like Porsche need to be constantly balancing between focusing on the task and focusing on the people, and a clear understanding of what success looks like for the project is equally important so that the task is completed with excellence.
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In-text: (Whittington et al., 2017)
Your Bibliography: Whittington, R., Johnson, G., Scholes, K., Angwin, D. and Regnér, P. (2017). Exploring strategy. Harlow [etc.]: Pearson.
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