University of Chicago
Type of paper: Thesis/Dissertation Chapter
Porsche strategy through the recent years
Porsche had been successful and profitable for many years, but hit a bump in the early 1990s. Its production became inefficient and wasteful this was fuelled by the fact the U.S. economy was in a recession. The company was actually about to become bankrupt and there were talks of a possible takeover (Stredwick, 2005, pp.67-78). The auto manufacturer was saved by the then newly appointed CEO Wendelin Wiedeking. He made sure that Porsche focused on creating new strengths in lean manufacturing and synchronized engineering. This was after Porsche had been operating for many years as a craftwork company that mainly allowed the engineers to operate on their own and not with the whole production line. This made the engineers relax on making good Porsche car designs and selling better designs to outsiders that later hurt the company. Part of the decision that led to the company making major profits again was to extend Porsche product line which was mainly the sports car production it had focused on for such a long time (Henderson & Reavis, 2012, pp.56-65).
Some of these other products included the Cayenne which is an SUV, it entered the market that was competing with other brands in the SUV market this include Audi, BMW, Mercedes, Land Rover and Volkswagen. This was a risk to be closely associated with Volkswagen which is a brand that produced cars for mass production. Some considered it a sell out and a total dilution of the high standards of the Porsche cars. This car as predicted was not a first time hit but Porsche worked on its designs for three years to produce a better reliable version that was finally a hit. In 2005 it also announced that it would create another car out of its sports car area. This was a luxury sedan named Panamera after a Mexican-long distance car race (Viknesh, 2012, pp.2-6).
Porsche strategy through the recent years
One of the best strategies that Porsche has stuck through the thick and thin is the company’s outside engineering business PEG, which has always focused on selling designs based on the strength of Porsche engineering. Porsche acquired more shares in Volkswagen raising its shares from 31% to 50% in beginning of 2009. This was an official acquisition of the company since they were the majority shareholders. Porsche has been known to carry out hedging as part of its business. In 2008 in it made six times as much in the stock market as it did through selling cars. Its acquisition of Volkswagen was based on its hedging activities. For a period of time market speculators were wondering why Volkswagen shares remained high despite the fact that the company was not performing very well financially. This led to the reveal of the decision of Porsche owning more than 74% of Volkswagen shares. This led to a stock market squeeze that made Volkswagen the most valuable company in the world for a brief period of time with stock increasing to values over 1,000 Euros (Henderson & Reavis, 2012, pp.5-8).
The CEO Wiedeking had a lot to do with the decisions that Porsche has been taking. He has made the company profitable by taking risks and making the hard decisions that led to the creation of new methods and ideas at Porsche. Engineering and design are also part of the major competitive strategies of Porsche. This is one strategy that has seen the company earn billions from it. It includes a team 2,300 engineers in its engineering Research and development. It shares it with outside companies by designing models with the intrinsic core of all its designs being Porsche’s strength. This customer engineering development company is known as the Porsche Engineering Group. It is known as Porsche’s secret ace that enabled it to employ more engineers than if it worked alone. Companies trust it to create models for them since its small size would not allow it to use the technology availed from the models created (Viknesh, 2012, pp.2-8).
These strategies of Porsche seemed to pay off but however secret takeover of Volkswagen led to the split of the Porsche family some opposing while some supporting. Porsche’s hedging and manipulation of the stock market while trying to take over Volkswagen has brought Wendelin Wiedeking and Holger Harter the two former chief and chief financial officer of Porsche under investigation for information based market manipulation. The hedge funds and other business that made major losses during that time are seeking compensation. The failed takeover of Volkswagen was an error on Porsche part. It did so despite the fact that it had SE debts. This failed attempt led to the former Mr Wiedeking leaving the company. This news has negatively impacted the company with its share price dropping by 2percent to 56.93 Euros. Due to the debt and the litigations charges that may be brought against Porsche it has been forced to sell the 50.1 shares acquired in 2008 at an underestimated amount of 4.46 billion Euros. This has ended the seven year takeover with many people thinking Porsche would win out in the end. Volkswagen although held out as it did not cut corners like Porsche was trying to do when it was trying to takeover Volkswagen (BBC News, 2012, N.P).
Despite this Porsche is still making high returns on investment. Even under the Volkswagen umbrella Porsche is still able to make a lot of money. It will continue doing well provided it does not give up its brand in manufacturing its products. Under Volkswagen it will be able to specialize in making many more cars rather than the sports car it is well known for, this will make sure it continues returning high returns on investments. The litigation costs though are going to be a huge burden to the group it hence has learnt its lesson the hard way by being acquired by another company. It therefore is a lesson to all other companies not to manipulate the market for selfish goals that are driven by the directors only (BBC News, 2012, N.P).
Porsche’s steps in forming and implementing Company strategy
The theoretical frame work behind the strategy of Porsche consulting lies in three steps. One is the corporate strategy whereby the company lays a common goal and vision. This are made specific to the customer, finance, employee and market segments of the business. From the corporate strategy the product strategy, core strategy as well as cross-departmental strategy are based on the general corporate strategy. Corporate strategy can include brand strategy and product strategy (Murlis, 2004, pp.4-12). Examples of brand strategy include brand values and an example product strategy includes modular strategy. Core strategies form step two of creating the company’s strategic position. This entails every department doing its part in to ensure that the company’s strategic objectives in customer, finance, employee and market dimensions are met (Roehm & Brady, 2007, pp.6-8). The suitable objectives in core strategies are thus divided into the following sections, sales strategies, production, procurement, development as well as key figures (Fleisher & Bensoussam, 2003, pp.2-8). The third step in forming the company’s strategy includes setting up measures. This are defined for each segments of the corporate strategy, they lead to accomplishment of strategic objectives. These measures set the basis of accomplishing the strategic objectives of Porsche (Porsche Consulting Magazine, 2013, pp.2-4).
For the company to have a good strategy the three steps must be followed to the letter. According to Eberhard Weiblen, President and CEO of Porsche consulting the strategy has to be developed first over a short period of time by a small project team. Further the strategy has to be clear and simple and create an emotional experience in the staff for it to be successful. Porsche has used this strategy and has yielded great results of continued profitability as well as enhancement of an exclusive brand (Cavusgil, et al., 2009, pp.44-56). Due to the steps mentioned above the company has been able to develop a strategy to work on till the year 2018 that defines concrete goals and fields of activity. This dimensions defined include market, employees, finance and customer dimensions. The main strategy is achieving the title of being the most successful manufacturer of sports cars in the world (David, 2007, pp.50-54). The consultants of Porsche consulting are being retained to accompany the development and achievement of Porsche strategy 2018. The main reasons why their company strategy procedures work so well is because they put it to test for a short period of time of six months and see the outcomes (Doole & Lowe, 2004). They also involve their employees as part of the testing face hence leading to the success of the set up procedures later on. Communication of the strategy in place also plays a huge role. This is achieved by companywide-management conferences which are attended by managers at department level (Porsche Consulting Magazine, 2013, pp.2-4).
Reward Management at Porsche
Rewarding management deals with strategies and processes as well as policies being set in place to ensure the employees’ efforts are recognized. Rewarding managers depending on financial performance of the company is based on how well the company is performing financially (McDonald, 2006, pp.78-82). These include figures such as return on investments, profits achieved in the year and other financial estimates used to measure financial performance (Cavusgil, et al., 2009, pp.34-38). However this system of rewarding is not balanced hence Porsche need to change it into a more balanced form of reward system. For the reward system to be viable and to motivate employees it has to factor in other performances that have boosted the company (Calsson, 2004, pp.5-12). These include sales performance and engineering rates of the company as well. Financial performance although important is but one aspect of the whole company’s general health. The other factors that are recognized also lead to high financial performance. High sales will generate more revenue hence boosting the financial performance of the company. Others like engineering levels and prowess of the company will reward engineers who make exceptional advancement in their engineering designs and models. If these models are exceptional they will increase revenue of the company as well as it will be able to sell these designs for a high amount (Murlis, 2004, pp.56-67).
These rewards will motivate the employees, to want to excel in the many purposes in the organization, If the rewards are spread overall other measures and not financial performance only. It will lead to employees being driven to excel in all areas and not financial only. These rewards can be extrinsic as well as intrinsic rewards. Extrinsic rewards refer to promotions, gifts, bonuses and salary raise (Calsson, 2004, pp.3-8). While intrinsic rewards refer to those aimed at ensuring employee satisfaction this include, monogrammed names or plaque, trust, recognition, relationship, feedback and empowerment. Intrinsic rewards are aimed at making employees feel better within the department while extrinsic rewards are based on the performance and activities of the employee to a certain outcome. Porsche recognizes all these and carries out both extrinsic and intrinsic rewarding. The company also tries to find a balance between rewarding an employee extrinsic and intrinsic (Henderson & Reavis, 2012, pp.5-13).
The rewards should be given according to an employee’s personality. Tickets to watch a basketball game has to be given to a person who is a fun and not a stay at home mum who doesn’t like basketball. Porsche also rewards not only individuals but also teams and departments (Alkhafaji, 2003, pp.22-26). The evidence shows that the type of financial rewarding mechanism of Porsche based on financial performance seems to work for the engineering activities since they are still leading in the providing of vehicle designs. However it will have better results if the other reasons for reward other than financial performance are set in place. The engineering department will work extra hard to achieve the reward. The company should consider incorporating motivational theories in rewarding its management (Brooks, 2009, pp.2-6).
The two directors were Wiediking and Holger were purely driven by financial performance that led them to neglect other aspects that make a company successful such honesty and full disclosure. This requires Porsche to change its policy of only rewarding managers on financial performance basis alone. The motivation theories include process and content theories. Content theories therefore require the company to name and research on aspects that make employees to perform efficiently. The company needs to do this so as to know what motivates the employees other than financial performance. The reward system under content theories is more extrinsic they include bonuses. While process theories mainly focus on intrinsic rewards which include self-actualization, respect and recognition. Which boost employee’s confidence and improve job satisfaction of the employees (Stredwick, 2005, pp.4-9).
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