Porsche AG Background
Ferdinand Porsche, who was a renowned professor, is the one who started the car manufacturing company as early as 1931. The company initially did not produce any vehicle with its brand but specialized in offering motor vehicle development work and consultancy services to other automobile manufacturing companies.
The company produced its first vehicle in 1934 when the company was contracted by the Germany government to design a car for Germany people. The assignment resulted to the production of the Volkswagen Beetle, which became a very successful model up to date. The designing and production of the Volkswagen Beetle, resulted to designing and production of another successful model in 1939 referred as Porsche 64.
The new car had many components that were similar to those of the Beetle. During World War II, the production of Volkswagen was tailored to reflect the military version of Volkswagen Beetle that was referred as Kubelwagen and Schwimmwagen. Approximately 52,000 and 14,000 of the two models were produced respectively.
During the same period, Porsche also produced various designs of heavy tankers. At the end of World War II, the position of Volkswagen Company changed hands and it started to be managed by the British. Subsequently, a British major Army who was referred as Ivan Hirst replaced Ferdinand as the new chairman of the company board of management.
Ferdinand was arrested in 15th December 1945 for war crimes but was not tried. He was released from prison after 20-months imprisonment. When his father was in prison, his son Ferry Porsche designed another model of vehicle to steer up the company during that challenging moment and also to own a vehicle he desired since he could not get any vehicle in the market which interested him.
The car he designed was regarded as 356 model and he designed its prototype from sawmill. The 356 model is often regarded as the first Porsche model because it was the first model to be marketed by the fledgling company. Porsche then built an assembly plant across the street from Reutter Karosserie which is currently referred as Porschestrasse.
After the World War II, the components of 356 models were in short supply and therefore the automobile used the Volkswagen Beetle components that included the internal combustion engines, the suspension and transmission. The 356 model underwent various modifications namely A, B and C that resulted to replacement of parts of Volkswagen that were being used in early models of 356 by Porsche made parts.
The last models of Porsche 356 were fully powered by Porsche designed engines. In 1964, the Porsche 550 Spider model performed considerably well in motor-racing that leads to the launching of another model that was referred as Porsche 911. This model possessed a rear engine. In 1972, the Porsche company legal form changed from limited partnership to public limited company. The change occurred because Ferry Porshe and his sisters, Louise felt that they did not team up very well as family, which was greatly negatively affecting the smooth running of the company.
The change of the legal form of the company allowed other people who were not members of the Porsche family to become members of the Executive Board of the company. Majority of the Board members consisted of people that were not members of Porsche family. There was another parallel supervisory board that consisted mainly of the members of the Porsche family.
There were no family members that were involved in the operational management of the Porsche Company. The absence of any member of the Porsche family taking part in the management of the Porsche company lead to F.A. Porsche founding his own design company that focused on designing sunglasses, furniture, watches among many more luxuries products.
On the other hand, Ferdinand Piech, who was responsible for designing the racing cars, also founded his own engineering company. He designed five-cylinder-inline diesel engine for Mercedes Benz. The first CEO of Porsche was Dr. Ernst Fuhrman (Phaeton 32).
Current Strategies Employed by Porsche Company
Porsche Company has been successful in establishing a strong brand within German and globally due to its quality and stylish automobiles. It is well known for designing and production of great sports cars for over a period of 50 years. The company has employed a number of strategies so that to enable it succeed in the automobile industry and establish a strong local and international brand.
Product Strategy
The Porsche Company has realized the importance of product differentiations as a competitive strategy in the automobile industry. Porsche Company has therefore been able to design, produce, and launch a new car model every year. Its new models are always characterized by enhanced performance and more desirable special features. This enables the company to meet the demand for all its customers. This includes both its purist Customers as well as those customers that are comfort-oriented. The company has also realized that the young generation commands a great population in the current generation and especially in Asia, Africa and north and South America.
The young generation also makes the greatest population of those people that are actively involved in the economy in majority of these regions. Therefore, young people are economically empowered and thus are good target in the automobile industry. The company has therefore designed and produced special models referred as Boxsters which are positioned below 911 to lure the younger customers. This strategy has greatly boosted the performance of the Porsche Company. Many younger people have opted to purchase Porsche sport cars due to these special designs that are very attractive to the young generation. The Porsche Company has intensively engaged in research work.
The researches they conduct help them to identify new models that assist the company to argument its product line so that to avoid it exclusively depending on the cyclic sport cars. The Porsche Company has realized that the tastes and preferences of customers are subject to change due to the ever-changing economies, technology and other dynamics.
Subsequently, the company has thus instituted appropriate mechanism in place to cater for the changes in tastes and preferences of its customers. The Porsche Company has adapted a concept of terminating the unprofitable low-volume models and introducing new models that have been designed in accordance to the results of the market research that enables the firm to identify the needs and likes of its customers.
Production and Cost Reduction Strategies
The Porsche Company management has realized the importance of cutting down its production costs in order to be able to sell its products at a price that is affordable to most of its clients. The pricing strategy is important, especially at the current economy that is characterized by increased inflation and economic recessions.
The Porsche Company had opted to increase the outsourcing of most of its parts like motor management development by Bosch as well as an assembly in Finland. The company has also adapted the concept of production of common parts that are compatible with most of its models. This is a strategy it uses to cut down on its costs of productions.
For instance, the Boxster resembles the 911 model. The company has, in addition, adapted the module assembly from Toyota which has also helped it greatly to increase efficiency in the production process that had tentatively reduced the costs of production greatly. The company has also reduced the costs of production by working with only very few suppliers who are highly efficient.
The Porsche Company had been in the past being characterized by a very bureaucratic management hierarchy that had greatly hindered effective communication. Consequently, the management had resulted to poor performance of the company due to poor sharing of ideas within the company. As a result, the company took appropriate measures to curtail its ineffective communications. It instituted a system that greatly decreased hierarchy in the Porsche Company, which has necessitated communication within the company significantly.
Effective communications have resulted to increased performance of the firm because all departments are able to share their ideas with each other on the best strategies to enhance performance. The sales and marketing department have been able to communicate with the production department effectively and advise the production sector about tastes and preferences of the market in order for the designing and production department to tailor its productions in a manner to address the tastes and preferences of its customers.
The Porsche Company had established close ties with other automobile companies that they do not compete directly. These relationships have helped the firm to learn from each other certain skills that they have employed to establish a competitive edge over their rivals. Some of the companies the Porsche firm has related closely include the Audi, the SUV and VW.
Design Strategies
The Porsche Company has been successful in establishing effective designs such as the Boxster. This design has been able to compete effectively with other similar designs from other brands such as BMW Z4, Mazda RX8 and Mercedes SLK among others.
The Porsche Company has priced its product to give lowest profit margins to enhance its sales in order to help the design model compete healthily with other similar design from other brands. The company has been able to get an overall profit of 10% in a 40% sale. The 911 model is the other Porsche design that competes from those sport cars that are in the 70-150k price range category.
They include models such as Corvette, BMW Z8, Ferrari 360 Spider as well as Mercedes SL. This is the Porsche design model that is priced to offer the highest profit margin of 51% of profits in the overall sale. Cayenne is the third design model that was designed, produced and launched to compete with similar designs from other brands such as Mercedes ML, Lexus and BMW X5.
The design model is positioned in the high-power segment where it faces stiff competition. The fourth design model of the Porsche Company is the Super Sport Car that is often referred as Carrera GT. The car model competes with similar designs from other brands such as Ferrari Enzo, Mercedes SLR, among others.
The major external dynamic forces that are affecting the company
There are various major external dynamic forces that are affecting the Porsche performance. There are some challenges that accompany the integration of the European Union countries. The integration makes Germany products to compete with other products on both prices and quality. Germany was in the past, renowned for its high-quality products. Germany used its quality as its competitive advantage.
The exposure of the Germany’s industries especially the automobile industries to compete in terms of both price and quality is likely to affect the performance of the Germany automobile companies greatly if they will not be shielded from such a competition. Similarly, the existence of European single market that is based on a single currency causes an increased competition within various European Union governments. Stiff competitions can negatively affect the prices of the automobiles. This is the reason why the union should institute appropriate bodies to regulate the pricing of products to facilitate healthy competitions (Weihrich 6).
Some of the external factors are tailored in helping the company to strengthen its brands both locally and internationally. One of the external factors that have benefited the company greatly is its ability to establish close ties with other automobile manufacturing firms such as the VW and the Audi.
Close cooperation between the VW and Porsche Company was a strategic move for the company to that helped it to improve its performance greatly. The VW and Porsche Company had a long term relationship that had existed for many years. The Porsche Company is the firm that was designing the automobile for the VW Company. It is the Porsche Company that designed the initial Volkswagen model that later became the VW Beetle.
The Porsche Company and the VW had produced many car models that shared car components and platforms. The two companies also were closely involved in sharing research work and development, which enabled them to enhance their performances to a great extent and establish strong global brands. The two firms had close ties because of the family bonds that existed among the shareholders of the two firms.
This helped the two firms to develop new technologies jointly without any alarm for confidentiality. The Porsche Company was interested in acquisition of the VW Company due to the many synergies that resulted across a number of areas. By acquiring the VC Company, the Porsche Company was to enjoy in sharing the huge costs of electronics that accounted for 30-35% of its development costs.
The Porsche management considered it more economical to spread this cost over more than 2 million cars that the joint venture was deemed to produce over its 100,000 cars it produced. The Porsche Company also realized the benefit of efficient fuel technology it would receive from the VW Company, especially when there were roaming fears for emission regulations that were to be enacted. The ability of the Porsche Company to leverage brand in an effort to expand its product line is very important. This enables the company to sustain high sales of its automobile in the established markets and at the same time, help it to penetrate new markets (Evtimov and Keseel 345).
On the other hand, the Porsche Company witnesses various challenges as it extends its operations within and across borders. One of the company’s major challenges it faces is stiff competitions from companies that offers similar brands. Porsche Company faces a lot of completion from high-powered brands such as Ferrari as well as Mercedes and BMW.
The company has recently witnessed a great decline in of its sales among its core markets. Great declines have been recorded in European regions which have been triggered by slow population growth, especially for the young generation. The Porsche Company has also been highly affected by economic recessions and the prevalent inflations and currency fluctuations.
Porsche structure, culture, and management
The Porsche Company has a strategic corporate culture. The company believes that people are the real engine in the company. The Porsche Company has emphasized its good performance as a result of the competent and highly dedicated workforce it possesses. It highly recognizes its manual work and greatly motivates its workforce to increase its morale to work hard.
The Porsche Company encourages its employees to be creative and courageous. They promote these elements by greatly rewarding those employees who come up with new designs and technologies. It encourages every employee to make the best use of every opportunity that presents itself for his/her own growth and the growth of the organization.
The Porsche Company has invested a lot of money in educating and training its employees in order to enhance productivity. The company is ever devoted in training its future specialist through its well-established program that guarantees long-term quality assurance as well as addressing the socio-political responsibility especially towards the young generation.
The company is known to possess the biggest number of trainees compared to other Germany motor companies. The philosophy in Porsche Company is that of give and take. The company emphasizes most on trust in staff, Originality, independency, highest level of competence as well as teamwork.
The Porsche Company’s structure encourages short communications route in order to promote sharing of ideas and greater integrations of staffs into the organization processes. The company’s structure allows un-bureaucratic cooperation between or among various departments. This ensures that everyone is able to develop individually and also being satisfied with his/her own undertaking in the overall realization of the company’s goal (Henderson and Reavis 78).
How well the current Porsche’s strategy, structure, culture and leadership is responding to the dynamic external environment
In the process of coping with the external dynamics that were affecting the Porsche Company, the CEO Wendelin Wiedeking introduced a different core competence referred as the lean manufacturing. In addition, he synchronized the engineering work in order to enhance efficiency in the company. Initially, Porsche Company had adapted celebration of craft works that had promoted the concept of individual processes rather than collaboration in the overall product line.
The former strategy became a handicap for the company since engineers ignored the need for cross-departmental cooperation on Porsche’s car designs, while at the same time making huge profits for Porsche on outside sales of engineering services. Wendelin introductions of the new strategy that is also commonly used by giant automobile industries such as BMW and Toyota greatly helped to boost the performance of the company significantly (Weihrich 5).
Porter’s factor determinant of regional advantages is closely intertwined to a regional strength to industrial production. The reason why German automobiles are very competitive is because of the concentration of various successful automobile manufacturing industries in one area, especially in the cities of Munich, Regensburg as well as Stuttgart.
Most of the Europeans largest automobile companies such as Mercedes, BMW and Porsche are situated in these regions. Locating the Porsche Company in these regions is a very effective strategy that the Porsche Company has ensured as a competitive strategy to increase the performance of the company in order to address the firm’s external dynamics.
Another very strategic opportunity for the Porsche Automobile Company is the establishment of European Commission. The establishment of this integration has necessitated the growth of German automobile industries, especially the Porsche automobile. The Commission has enabled the adaption of a common currency which has greatly addressed the issue of currency depressions, especially within the Europeans region.
The depression of the currencies in the Europeans nations was initially affecting the sales of the Porsche automobiles greatly. The establishment of the European Union has, in addition, enabled the integration in telecommunication among the union’s members. This integration in telecommunication has boosted the Porsche automobile by enhancing communications in Porsche Company. Improved communications translate to improved performance because the flow of ideas from one department to the other is improved.
The existence of good communication also means that the company is now at a better position to communicate with its supplies and other organizations they relate with in their daily operations. Those companies that supply them with the needed components are able to relate more efficiently, thus cutting down the costs of productions greatly that translates to increased performances.
On the other hand, the establishment of the European Commission means that the movements of goods across the nations are also increased. This increases mobility of automobile across borders exposing the Porsche automobile to more competitions. The Porsche automobile faces stiff competition from other automobiles manufacturing companies. The acquisition strategy adapted by the Porsche Company has enabled the company to establish a competitive edge over its rival companies.
The acquisition of the VW and Audi companies helped the Porsche Company to increase its market share in the automobile market. Increased production helped the company to enjoy the economies of scale, which help it in reducing the costs of production. In addition, Porsche Company enjoys the synergy that accompanies such acquisition ventures.
Some of the advantages that the company has been able to receive as a result of the acquisition are the ability to produce automobiles that are more efficient in consumption of energies. The Porsche Company has been able to acquire this technology from the VW employees that are well knowledgeable in production of vehicles that are efficient in the consumption of energy.
Efficiency in the consumption of energies has enabled the Porsche automobile compete healthily in the automobile industry since the cars it produces consumes lesser fuel and thus are more economical to use. This has enabled the company to argument is sales greatly because more people are willing to buy Porsche vehicles since they consume lesser fuels. The VW ability to produce vehicles that are fuel-efficient meant that the cars they produce do not pollute the environmental adversely. This meant that Porsche is able to operate within the emission limits set by the environmental bodies (Benson 234).
Conclusion
The Porsche Company is an example of a successful firm that has succeeded in establishing a local brand in Germany and globally. The company uses the strength of its quality as its competitive advantage. The company has used various strategies such as acquisition to remain competitive. The company strategic culture and management that recognizes and rewards its workforce has also greatly boosted the performance of the Porsche Company.
Recommendations
- Porsche Company should establish learning institutions to educate and train its employees.
- The company should identify strategic companies it can acquire or merge with in U.S., Asia or Africa to increase its sales in these regions.
- The company should adapt more economical costs of productions in order to allow the company’s models to compete well with rival brands both in pricing and quality.
Works Cited
Benson, Charles. Porsche Automobile Holding SE. New York: Prentice Hall. 2007.
Evtimov, Andrey and Keseel, Hans. Should Porsche Build a Sedan as a Forth Product Line? London: Cambridge University Press.2001.
Henderson, Rebecca and Reavis, Cate. What’s Driving Porsche? New York: Prentice Hall.2004
Phaeton, James. Volkswagen’s High-Luxury Sedan Sails into the U.S. Premium America, Inc. London: Cambridge University Press. 2008.
Weihrich, Heinz. Analyzing the Competitive Advantages and Disadvantages of Germany Industries. New York: Prentice Hall. 1999