Identification
The case focuses on Porsche, a car manufacturing company focusing on luxury and sports cars. Porsche’s 2008 takeover of Volkswagen is part of its strategy to manage competition in the automobile industry, which is highly competitive. However, the successful implementation of this strategy is threatened by its potential effect on other lines of business. As explained in the case, Porsche also provides engineering development services to car manufacturers through the Porsche Engineering Group (PEG). While Porsche was positioned as an independent, niche carmaker, it had success with its clients. Following the takeover of VW, there is a threat that the company’s image in the eyes of customers will shift, thus making them hesitate to use Porsche’s engineering development services. Given the high share of R&D investment in Porsche’s expenses, this could threaten the company’s revenue. Another potential problem associated with the takeover strategy is the possibility for conflict in operations. VW’s R&D team is substantially smaller and less funded, meaning that the two companies use different approaches to R&D. The present report will analyse the information provided in the case and the main scenarios involved to give a set of recommendations.
Analysis and Evaluation
Internal Analysis
The internal analysis focuses on decision-making, operations, and functions within the company that affect its market position and performance. From its foundation, Porsche has been a small car manufacturer targeting the sports cars niche primarily and later expanding on to the luxury cars market. This diversification strategy benefitted Porsche, allowing it to grow its annual production, sales, and revenue. The engineering development services line of business is another example of Porsche’s successful diversification strategy. It is evident from the case that Porsche excels at engineering, which offered the company an opportunity to expand its operations without damaging its primary business. On the whole, the internal situation in Porsche was stable before its takeover of VW.
The acquisition of the majority shares of VW threatened the stability that Porsche enjoyed since it is not clear whether or not the operations of the two companies should merge and to what extent. The integration of R&D functions at the two companies could threaten Porsche’s engineering development services business, although it could also help to leverage quality and operations at VW. The integration itself is also seen as problematic due to the conflicting approach of the two companies to R&D. Hence, the primary internal problem in the case is the collaboration between two companies of different size and from different market niches.
Environmental Analysis
Since there are two primary lines of Porsche’s business considered in the case, it is essential to analyse the environment with respect to both of them. On the macroeconomic level, the global economic crisis of 2008 affected the income of people all over the world, impacting the demand for luxury cars. Still, the decrease in demand provides an opportunity for Porsche to develop its engineering services since car manufacturers are willing to find new solutions to reduce production costs per unit.
With regard to competition, the situation in the automobile industry is not favourable for Porsche’s future development either. As a small manufacturer of sports and luxury cars, Porsche faces competition from a variety of companies, most of which own multiple car brands. In this regard, the takeover of VW was an excellent strategy to protect Porsche against its competitors while supporting future growth. In the engineering development business, Porsche’s competition is moderated by its competitive advantage. While other experienced and profitable car manufacturers focus on keeping their engineering functions in secret, Porsche chose the opposite option because supporting engineering development in different companies could not threaten its performance in a niche market. Still, the competition from independent engineering teams is rather significant, and Porsche’s positioning was crucial to the success of the PEG.
Scenarios and Opportunities
There are two possible scenarios for Porsche based on the information in the case. On the one hand, the company could cease its operations in engineering development services, instead combining the current forces with VW’s R&D department. This would allow the company to achieve better growth in the industry by improving engineering in VW and maintaining the same quality of engineering in Porsche. On the other hand, the company could also keep the engineering and R&D functions separate and continue the PEG operations. This could be risky due to the change in Porsche’s image following the acquisition of VW.
Recommendations and Plan of Action
On the whole, the most beneficial option is for Porsche to cease its PEG operations and focus on developing VW to achieve the same efficiency and quality of operations. At the moment, the restrictions faced by Porsche in engineering development services mean that the company is unlikely to succeed in developing both VW and the PEG. Focusing its efforts on VW by merging R&D and engineering functions would provide a foundation for continuous growth in the automobile industry, thus increasing profitability and sustaining competition in the long term. This option is preferred to continuing the PEG line of business and keeping VW and Porsche’s engineering and design talents separately since it would provide more substantial benefits.
Hence, the proposed plan of action is as follows:
- Assess the current design and engineering capacity of VW
- Evaluate the R&D investment needs of VW by determining areas for improvement
- Use existing talents in the PEG to merge R&D and engineering functions of Porsche and VW
- Establish new administrative processes needed for a large R&D department, including performance monitoring
Following these steps would assist Porsche in yielding maximum benefits from the takeover by improving the quality of VW vehicles and leveraging its global competitive position.