20130717 FOM Assignment Strategic Review of Porsche AG Stark 313921

Strategic Review of Porsche AG

MBA SS13 D

Master of Business Administration (MBA)

Module: Strategic Corporate Management

Assignment: No. 1

Lecturer: Prof. Dr. Ruud Heijblom

Author: Lars Stark (313921)

2nd

Academic Semester 2013

Dsseldorf, 17 July 2013

Hochschule

fr Oekonomie & Management

University of Applied Sciences

Strategic Review of Porsche AG I

Executive Summary

Porsche is a very successful premium car manufacturer and worldwide considered to be

even the most profitable manufacturer. Achieving an operating margin of over 17% in

the last year is a big achievement in comparison to other car manufacturers. Almost 14

million in sales is another number of Porsches financial success. Those financial fig-

ures are thoroughly analysed in this paper and strategic business improvements are of-

fered to strengthen the financial position of Porsche. Though, Porsche faces some

threats with its current growth strategy. Nonethelss, the company has the necessary re-

cources and capabilities to outwit competitors and new threats on a regular basis. The

management team, the culture of Porsche and its employees have to build a strong unit

to achieve the goals in mind.

Additionally, the following strategic analysis reveals potential improvements and cur-

rent weaknesses, which have to be analysed by Porsche. The external analysis shows the

reader the opportunities and threats, which Porsche faces in the next years. Especially,

certain mega trends may harm Porsches business as customer demand can shift as well

and worldwide crises can decrease sales volume and financial resources.

The current focus differentiation strategy followed by Porsche can be improved, be-

cause the plain increase of car sales by future diversification has to be viewed critically.

Porsche can face a dilution of its brand and even innovation can lack the necessary qual-

ity due to the fact that Porsche has outsourced most of its production. Thus, Porsches

strategy 2018 is very ambitious, but it can be achieved with careful execution and a

strict focus on growth by value creation.

Strategic Review of Porsche AG II

Table of Contents

Executive Summary ........................................................................................................... I

Table of Contents ............................................................................................................. II

List of Abbreviations....................................................................................................... III

List of Figures .................................................................................................................. V

List of Tables................................................................................................................... VI

1. Introduction ................................................................................................................... 1

1.1. Problem Definition and Objectives ............................................................................ 1

1.2. Methodology .............................................................................................................. 1

2. Porsche AG Business Model ...................................................................................... 2

2.1. Corporate History ....................................................................................................... 2

2.2. Vision & Philosophy .................................................................................................. 3

2.3. Business & Mission Statement .................................................................................. 3

2.4. Values ......................................................................................................................... 4

3. Situation Analysis ......................................................................................................... 5

3.1. Macro Environment ................................................................................................... 5

3.2. Microenvironment ...................................................................................................... 7

3.3. Internal Environment - Company Analysis & Value Chain .................................... 18

4. SWOT Analysis .......................................................................................................... 24

4.1. Opportunities ............................................................................................................ 25

4.2. Threats ...................................................................................................................... 25

4.3. Strengths ................................................................................................................... 26

4.4. Weaknesses .............................................................................................................. 26

4.5. SWOT Issue & central problem ............................................................................... 26

5. Porters Generic Strategies .......................................................................................... 27

6. Ansoffs Growth Strategies & Blue Ocean Strategy ................................................... 27

7. Strategic Options Evaluation....................................................................................... 29

8. Results and conclusion ................................................................................................ 30

Appendices ...................................................................................................................... 31

Bibliography .................................................................................................................... 36

ITM-Checklist ................................................................................................................. 47

Strategic Review of Porsche AG III

List of Abbreviations

Euro

ACEA Association des Constructeurs Europens d'Automobiles

ADAC Allgemeiner Deutscher Automobil Club

AG Aktiengesellschaft

AWA Allensbacher Markt- und Werbetrgeranalyse

BMW Bayerische Motoren Werke

BRIC Brazil, Russia, India and China

C.S. Competitive Strength

Cf. Confer

CIA Central Intelligence Agency

CO2

Carbon Dioxide

Dr. Doctor

e.g. Exempli Gratia

EBIT Earnings Before Interest and Tax

EBITDA Earnings Before Interest, Tax, Depreciation and Amortization

EFTA European Free Trade Association

et al. et alii (and others)

EU European Union

GDP Gross Domestic Product

GE General Electric Corporation

I.A. Industry Attractiveness

Ing. Ingenieur

M&A Mergers & Acquisitions

OICA Organisation Internationale des Constructeurs d'Automobiles

p. page

pp. pages

PESTEL Political, Economic, Social, Technological, Environmental and

Legal Factors

PLC Product Life Cycle

ROC Return on Capital

ROS Return on Sales

SE Societas Europaea

Strategic Review of Porsche AG IV

SUV Sport Utility Vehicle

SWOT Strengths, Weaknesses, Opportunities and Threats

VW Volkswagen

Strategic Review of Porsche AG V

List of Figures

Figure 1: Passenger cars Europe sales of selected premium car manufactures ................ 9

Figure 2: Strategic Group Map Premium Price/Brand Strength Level ........................ 12

Figure 3: Strategic Group Map Offer Range/ Quality ................................................. 12

Figure 4: Porsches Direct Competitors .......................................................................... 13

Figure 5: Key Success Factors Premium Car Industry ................................................ 15

Figure 6: Porsches stakeholders, their influence and their impact ................................ 17

Figure 7: GE Matrix Industry Attractiveness & Competitive Strength ....................... 18

Figure 8: Greiner Curve Porsche positioning .............................................................. 20

Figure 9: Porsches Cultural Web ................................................................................... 21

Figure 10: SWOT Porsche .............................................................................................. 25

Figure 11: Strategy Canvas Porsche and BMW ........................................................... 28

Strategic Review of Porsche AG VI

List of Tables

Table 1: Passenger cars World sales ................................................................................. 8

Table 2: Porsche Model Endurance ................................................................................ 19

Table 3: Key Financial Ratios from 2010-2012 .............................................................. 22

Table 4: Porsche Product Data Overview ....................................................................... 23

Table 5: Porsche car deliveries worldwide ..................................................................... 23

Table 6: Evaluation of strategic options.......................................................................... 30

Strategic Review of Porsche AG 1

1. Introduction

1.1. Problem Definition and Objectives

The following analysis is a strategic review of Porsche AG. This strategic analysis is

concerned with the analysis of the core strategy of Porsche, which explains the success-

ful management to achieve a sustainable competitive edge. Porsche has been very suc-

cessful in the last years due to a focus differentiation strategy and due to very competi-

tive brand strength. Thus, it is important to grasp the differences between Porsche and

its competitors. This can be achieved by an analysis of the internal and external enviro-

ment of Porsche which leads to the weak point of Porsche. This weakness of brand dilu-

tion by further growth is described and scrutinized in the strategic analysis. 1

1.2. Methodology

At first, the reader is briefly informed about the history of Porsche. Afterwards, the core

of the Porsche business is reviewed critically concerning the vision, mission and values

of Porsche. The next chapter directly analyses the external opportunities and threats.

Therefore, tools as PESTEL, Porters Five Forces and Strategic Groups are used to gain

an understanding of those industry factors. The next part deals with the internal envi-

ronment of Porsche, including soft and hard information. Especially, the financial data

is scrutinized to examine the weak spots in the financial setup of Porsche. The SWOT

analysis summarizes those points above and provides an insight into the main issue for

Porsche. Furthermore, Porters generic strategies are used to analyse Porsches strategy

and in the next chapter, potential growth strategies are discussed to find potential

growth areas and a new value curve for Porsche. Finally, the execution is shortly ana-

lysed and a conclusion rounds up the strategic review of Porsche AG.

1 Cf. Ireland et al. (2013), pp.340-344.


2. Porsche AG Business Model

2.1. Corporate History

Porsche was founded by Ferdinand Porsche in Stuttgart in 1931 and as an engineering

specialist, he was a renowned talent since he had developed disrupting innovations for

the vehicle industry in 1900. These efforts paved the way for a successful start of Por-

sche. The first contracts with major manufactures from Germany comprised the build-

ing of automobiles. Thus, Ferdinand Porsche designed and produced the famous Beetle

from VW in the beginning. He possessed a remarkable talent to create a world-known

company and brand. This was achieved by an extraordinary sense of future develop-

ments, by flexibility regarding the organization and by allowing other persons making

important decisions. In 1946, his son Ferry took slowly over the management responsi-

bility and was fully in charge of the management due to the death of Ferdinand Porsche

in 1951.2 This management change involved the transition from an engineering focused

office into a fully car manufacturing company.3

Later on, Porsche scored many victories in racing events and concerning the consumer

segment, Porsche introduced its world famous 911 sports vehicle in 1963. The company

lived off the revenues of the 911 and its variations in the following years. The diversifi-

cation trend also did not make a stop for Porsche and therefore, the Boxster was pre-

sented as the first middle engine sports vehicle by Porsche in 1996. The Boxster was

very successfully sold from the start of its introduction. Another model, the Cayenne,

hit the scene in 2002 and overfulfilled its profit expectations in comparison to other

Porsche models. In the year 2005, a specific hard-top variation of the Boxster, called the

Cayman, was presented to the public. In 2010, the Panamera was launched as the first

Porsche four-door limousine. All these versions and different vehicles indicate the di-

versification strategy of the Porsche Corporation, which lead to a higher share price and

greater revenues for the shareholders in recent years.4 On the 1

st of August in 2012, the

operating Porsche business unit was integrated into the VW Corporation for a transfer

2 Cf. Ireland et al. (2013), p.336.

3 Cf. Rosengarten and Strmer (2011), p.103.

4 Cf. Ireland et al. (2013), pp.336-337.


fee of 4.5 billion and additionally, a transfer of an equity share regarding the VW AG

to the Porsche SE was made.5

2.2. Vision & Philosophy

Porsches strategic vision follows a growth strategy and is described as Strategy

20186, which refers to the ambition of becoming the most successful manufacturer of

exclusive sports cars in the world7. Therefore, Porsche clearly aims to become the

market leader in the sports automotive industry. This vision involves hard work and

continuous innovations from Porsche. The statement as such is clearly expressed as the

targeted market position is mentioned. Furthermore, the Porsche way with enthusias-

tic customers and as an excellent, social and family-friendly employer8 has to be fol-

lowed to achieve further growth in the future. Porsche also is working hard to achieve

sales of over 200,000 cars which are priced at a premium level. Another aspect of the

Porsche vision comprises the ROC of over 21% and the ROS of over 15% which great

collaborations with business and employer partner could support.9

In the current ADAC AutoMarxX ranking, Porsche achieves a 6th

place concerning

brand image, brand strength and other relevant variables.10

This is an indicator that Por-

sche still has a long way to achieve market leadership as the competition has not less

ambitious aims. Thus, the company vision has to be shared and communicated in the

whole organization.11

2.3. Business & Mission Statement

Porsches overall mission statement reads as follows: Porsche doesnt simply build

sports cars. Porsche is more. Much more. And Porsche is different.12 This mission

statement clearly addresses what Porsche does and how the Porsche brand and products

have to be absorbed. Additionally, it manifests the existence claim of the corporation.

5 Cf. Porsche SE (2013), p.32.

6 Porsche AG (2013b).

7 Porsche Consulting (2013), p.6.

8 Porsche AG (2013b).

9 Cf. Ibid.

10 Cf. Ibid.

11 Cf. Porsche Consulting (2013), p.6.

12 Porsche AG (2013c).


Nonetheless, the statement could be much more detailed in respect to cars and services

offered by Porsche. Even the necessary satisfaction of specific buyer needs is supposed

to be communicated in more detail in the mission statement. Though, Porsches mission

statement can definitely create and fulfil an emotional attachment to the self-set aspira-

tions.13

2.4. Values

The core values of the Porsche AG are formulated in seven principles and those princi-

ples are integrated into the corporate culture of Porsche. This also manifests itself in

relation to the quality of the cars as over 70% of the whole Porsche vehicles are driven

even today. 14

What characterizes those seven principles? The major Porsche principle refers to the

individuality of the brand and the cars. The abbreviation Dr. Ing.15 in the company

name stands for the motivation behind the successful corporation, which reflects the fact

that it seeks to construct exceptional sports vehicles for the customers. The next princi-

ple comprises the idea of intelligent performance. Here, the environment and its chal-

lenges, opportunities and responsibilities are also taken into consideration. Therefore, it

does not amaze the reader that passion plays an important role as well. Hence, the third

principle deals with the passion of the employees. As a company, Porsche has a specific

charisma and this spreads to business partners and customers too. A collaborative ap-

proach fosters innovation and success for Porsche. Its necessary to show excellent per-

formance to achieve success and Porsches fourth principle sets excellence on top. The

excellence idea comprises everything Porsche does and this leads to sustainable success.

The fifth principle addresses another topic that of excitement. Excitement supports the

individuality principle as the customer can choose between many vehicle options and at

the same time the customer can customize his own car to a real individual one. Fur-

thermore, additional services for a Porsche driver add more value and pleasure to the

usual car experience. The next principle deals with Porsches vision and its implemen-

ation. Quality, sustainable investments and innovations are major pillars to work on for

Porsche in the future. The last principle reminds everyone of the Porsche team of the

13

Cf. Thompson et al. (2012), pp.74-75. 14

Cf. Porsche AG (2013d). 15

Ibid, p.4.


history of which the people can be proud of and ray out confidence for the present and

future business.16

3. Situation Analysis

3.1. Macro Environment

The macro environment plays an important role for Porsche due to the fact that the suc-

cess of Porsche depends on the capability to adjust the vehicles and services to the

changing macro environment.17

At first, a brief introduction to the megatrends relevant

to the automotive industry is also necessary.18

Porsche has to take into consideration

five significant megatrends. The shift of development and production to growth markets

is the first megatrend. The second megatrend involves the modularization of automotive

platforms. The increasing importance of embedded electronic task systems marks the

third megatrend followed by a megatrend of low-cost small cars. The last megatrend

refers to the increasing electrification of powertrains. All those megatrends offer multi

opportunities and threats to Porsche. Therefore, Porsche has to consider, analyse and act

in advance to be successful in the future environment.19

The following PESTEL analysis reveals the key drivers and strategically important fac-

tors concerning the external environment of the Porsche AG in Germany and world-

wide.20

The political factors concerning Germany play a minor role due to the stable political

federal republic system.21

Nonetheless, other regions, e.g. North Africa or Middle East,

and their political instability could have negative effects on the prices of raw materials

or trade routes for Porsche vehicles. Even political protectionism could harm Porsche

revenues and earnings in the future.22

16

Cf. Porsche AG (2013e), pp.4-40. 17

Cf. Kotler et al. (2011), p. 210. 18

Cf. Kotler et al. (2007), p.234. 19

Cf. A.T. Kearney (2012), p.6. 20

Cf. Value Based Management.net (2013a). 21

Cf. CIA (2013). 22

Cf. Porsche Consulting (2013), p.125-126.


The last aspect sets a connection to economical factors which are very important for

Porsche. Germany is a large economy with highly educated employees, but the financial

crisis also hit Germany and human talents are tougher to convince to join Porsche. Car

manufacturers like Porsche have to innovate steadily to make an impact in the industry.

Germanys GDP growth remains low with an expectation of 0.3% and an expected in-

flation rate of 1.6%.23

Overall, the European areas GDP expectations are relatively low

for 2013 and the GDP growth expectations improve only marginally for 2014.24

Addi-

tionally, Germany has a leading position as an exporter in Europe and this helps Porsche

also as it can distribute the sports vehicles easier.25

The social environment shows an increase in the aging of Germanys population and

this presents further challenges to the Porsche offering. Porsche has to consider and of-

fer concepts for elder people. Therefore, mobility and its realization are sure to offer a

good profit opportunity.26

The customer group of Porsche amounts to approximately 2.3

million people in Germany who are interested in premium products. 27

Furthermore,

those customers can be categorized in a limbic map. Porsche potential and actual cus-

tomers are usually performers and dominant personalities.28

They are also characterised

as people who have the necessary high income to be able to purchase a premium vehi-

cle. The attraction of premium cars will increase over the next years due to strong de-

mand for luxury goods in social successful circles.29

Additionally, the technological factors determine the success and failure of future ex-

pected developments. Hence, e-mobility still lacks the acceptance of the customers due

to low charging times.30

Porsche proactively supports this e-mobility development and

the management of Porsche is confident to achieve the goals set.31

Future developments

like automatic driving and additional electronic systems are still to be refined to be

completely used.32

Even the ambitious target of the federal government for e-cars will

23

Cf. Economywatch.com (2013). 24

Cf. Economist.com (2013a). 25

Cf. CIA (2013). 26

Cf. Pudenz (2013). 27

Cf. AWA (2012), p.18. 28

Cf. Nymphenburg.de (2013). 29

Cf. Economist.com (2013b). 30

Cf. Auto-Medienportal.net (2013). 31

Cf. Porsche AG (2013a), p.64. 32

Cf. Auto-Medienportal.net (2012).


be hardly reached due to the high costs and the low affinity to electronic cars at the pre-

sent situation.33

The ecological factors also constitute an increasing focal point. Therefore, this e-car

development could be strengthened in case the German government demands stronger

emission limits than the EU plans for the future which are supposed to be 95g CO2 per

km until 2020. Environmental challenges and responsibilities grow in customer aware-

ness as well.34

Porsche even integrated these ecological challenges and responsibilities

into the guidelines for corporate governance.35

The legal factors concerning Germany comprise the stable and comprehensible judicial

system, a large freedom for businesses and the corporation-favourable tax system.

Nonetheless, large corporations cannot count on this beneficial tax system for long, be-

cause those existing loopholes of the tax system have to be solved by the government

due to great monetary losses for Germany.36

3.2. Microenvironment

3.2.1. Relevant Market

Porsche addresses the industries for sports cars, SUV and sedans, but it is still mainly a

premium car brand.37

Therefore, the following microenvironment analysis is concerned

with the premium car industry. The geographic region for the analysis spans all over the

world and the scrutiny is not separately limited to Germany. The market data reveals the

positioning of Porsche and the attractiveness of the industry. Thus, a market research of

the overall passenger car industry reveals the following sales figures based on OICA to

be examined in table 1.

33

Cf. Zeit (2012). 34

Cf. Ibid. 35

Cf. Porsche AG (2013a), p.64. 36

Cf. Datamonitor (2011), pp.27-28. 37

Cf. Fuhrmans (2013).


Table 1: Passenger cars World sales

Source: own table38

After the Lehmann shock, the automotive sales decreased very strongly and the luxury

car market even stronger.39

The sales volume numbers show this development excellent-

ly. Germanys passenger car sales decreased by 23.4 and even from 2011 to 2012 the

automotive sales decreased by 2.9% as well. Europes automotive industry showed clear

signs of a depression. Contrary to this development, other regions e.g. BRIC, USA or

Japan offered good sales opportunities. Furthermore, 2012 was a record high for many

luxury car brands.40

Porsche expects a further global growth of the automotive industry,

though with lower growth rates and the market growth expectations for Europe are still

far from normal.41

Figure 1 shows the passenger car sales of some selected premium car manufactures to

provide the reader with an understanding of the market size of the premium car sector in

regard to the whole automotive industry. The selected premium car manufactures

achieved almost 1,900,000 sales of premium cars in 2010 in the Europe zone. The sales

grew to almost 2,000,000 in 2011 and the 2,000,000 sales mark was achieved in 2012.

The growth rate slowed down in period from 2010 to 2012 which underlines Porsches

statement. Nonetheless, Porsche was still able to generate above-average sales growth

rates in this premium niche market.

38

Cf. OICA (2013), pp.1-2. 39

Cf. Wester and Rother (2013). 40

Cf. Doran (2013). 41

Cf. Porsche AG (2013a), p.29.

2010

Change

10/09 in % 2011

Change

11/10 in % 2012

Change

12/12 in %

Europe 16,491,307 -0.7% 17,159,553 4.1% 16,187,240 -5.7%

Europe (EU 27 countries + EFTA) 13,792,051 -4.8% 13,601,051 -1.4% 12,537,514 -7.8%

Westeurope (EU 15 countries + EFTA) 12,984,549 -5.0% 12,815,435 -1.3% 11,773,266 -8.1%

New EU-countries (EU 10 countries) 807,502 -1.3% 785,616 -2.7% 764,248 -2.7%

Germany 2,916,259 -23.4% 3,173,634 8.8% 3,082,504 -2.9%

Russia 1,912,794 30.5% 2,653,688 38.7% 2,755,384 3.8%

USA 5,635,432 4.3% 6,089,403 8.1% 7,241,900 18.9%

Japan 4,203,181 7.6% 3,509,036 -16.5% 4,572,333 30.3%

Brazil 2,644,706 6.9% 2,647,250 0.1% 2,851,540 7.7%

India 2,387,197 31.4% 2,510,313 5.2% 2,773,516 10.5%

China 13,757,794 33.2% 14,472,416 5.2% 15,495,240 7.1%


Figure 1: Passenger cars Europe sales of selected premium car manufactures

Source: own figure42

3.2.2. Porters Five Forces

The following analysis of the competitive implications concerning the premium car in-

dustry will be done with Porters five forces concept.43 This concept provides the reader

with an insight into the competitive forces affecting industry profitability44.

At first, competitive rivalry in the premium car industry is analysed. Although, it is a

niche market in comparison to the worldwide automotive market, the premium car mar-

ket has lots of competitors and the intensity for achieving a competitive edge is very

high.45

BMW, Mercedes, Audi, Jaguar and Aston Martin are just some main competi-

tors of Porsche. The decreasing customer demand concerning mass automotive further

intensifies competition. Additionally, as long as the financial crisis is not solved in Eu-

42

Cf. ACEA (2013). 43

Cf. Thompson et al. (2012), p.102. 44

Ibid, p.102. 45

Cf. Wordpress (2009).


rope, customers are reluctant to buy lots of cars.46

Furthermore, customers can easily

switch with low costs to other premium car manufacturers, in case they are dissatisfied

with a specific premium car, which increases competitive intensity.47

An indicator for

lower competitive rivalry is customer loyalty and Porsche can build on its strong brand

image to keep customers.48

As a result of the above arguments, rivalry can be assessed

as quite strong in the premium car market.49

Another field of Porters five forces concentrates on the threat of entrance of new com-

petitors. In the premium car segment, its very tough for new entrants as the capital re-

quirements to setup necessary production sites are very high. Furthermore, present

economies of scale, strong brand loyalty and high industry uncertainty lower the threat

of new competitors, although local companies can nevertheless enter quickly, assumed

they have enough capital reserves, expertise and a lot of staying power.50

Additionally, a

new firm has to offer relatively low switching costs to the customers and build a strong

reputation.51

Nonetheless, the further development of e-cars could allow new companies

to enter the premium car segment on a lower cost level which means that Porsche and

other premium competitors have to develop their products further as well.52

In a next step, the potential competition from substitutes is assessed. Customer purchase

decisions depend to a large extent on the pricing of goods and premium cars are not

different in this aspect. Though, premium cars address wealthier customers and that is

why there are not many substitutes besides an airplane as a potential threat.53

Neverthe-

less, this threat by substitutes can be diminished significantly if the premium car has

strong quality characteristics and the brand established a strong foothold in the market.54

Porsche cars have these characteristics and this means that substitute products have a

very low effect on Porsche car sales.55

46

Cf. Sackmann (2013). 47

Cf. Smith (2013). 48

Cf. Forbes Insights (2012), p.14; Cf. Ireland et al. (2013), p.340. 49


Cf. Wordpress (2009). 51

Cf. Smith (2013). 52

Cf.Hlsmann and Colmorn (2011), p.8. 53


Cf. Smith (2013). 55

Cf. Martay (2013).


Furthermore, the bargaining power of suppliers is relatively moderate in the premium

car segment and in case of Porsche, the corporate parent VW even secures better condi-

tions on supply contracts due to the large market power and their own production exper-

tise.56

Therefore, the suppliers power is quite moderate as every premium car manufac-

turer has differentiated car parts and this fact ties the suppliers to Porsche and the other

competitors of Porsche.57

Concerning the power of premium car buyers, it can be assessed as low due to the fact

that those premium cars are highly differentiated and the brand names are an additional

factor which lowers the bargaining power of potential buyers.58

Furthermore, price sen-

sitivity is much less pronounced in the premium car market and this allows Porsche to

charge a premium price.59

The above microanalysis underlines the profitability attractiveness of the premium car

market. Overall, the strongest competitive force refers to the competing force of com-

petitors of Porsche and concluding the level of the other competitive forces, the level of

competitive forces for the premium car industry can be assessed as moderate to strong.

3.2.3. Strategic Group Maps

The following strategic group analysis refers to with the positioning of Porsche and its

competitors in the premium car market. At first, the differentiating competitive varia-

bles for the premium car market have to be defined.60

Here, two strategic group maps

are distinguished. The first strategic group map is concerned with the price/brand

strength level and the second strategic group map exmines the range of offer/quality

level. These strategic group maps are supposed to provide a better understanding of

close and distant competitors of Porsche.

56


Cf. Smith (2013). 58


Cf. Martay (2013). 60

Cf. Thompson et al. (2012), pp.125-126.


Figure 2: Strategic Group Map Premium Price/Brand Strength Level


Three strategic groups have to be distinguished in case of the first strategic group map.

Porsche is positioned in group 1 with BMW, Daimler(Mercedes) and Rolls-Royce.

These companies possess a strong brand and offer an almost moderate premium pricing.

Group 2 even overlaps partly with group 1. Porsche could target to move higher up to

strengthen the own market position. This involves that Porsche has to invest even more

into the own brand marketing. Additionally, the pricing strategy has to be scrutinized to

be able to demand higher premium prices.

Figure 3: Strategic Group Map Offer Range/ Quality


The second strategic group map reveals more diversified groups in relation to the range

of cars and the quality of those cars. Porsche forms a strategic group with Jaguar Land

61

Cf. Companies Annual Reports(2012); Cf. Rankingthebrands.com (2013). 62

Cf. Companies Annual Reports(2012).

Pre

miu

m P

rice

Brand Strength

Lo

w

H

igh

Weak Strong

Group 2Audi

Jaguar Land RoverAston Martin

Group 1Porsche

BMWDaimler

Rolls-Royce

Group 3Lamborghini

Ferrari

Group 4Maserati

Off

er

Ran

ge

Quality

Na

rro

w

W

ide

Low High

Group 1BMW

Daimler

Group 2Audi

Group 3Aston Martin

Jaguar Land RoverPorsche

Group 4Ferrari

MaseratiBentley

Rolls-Royce

Group 5Tesla

Lamborghini


Rover and Aston Martin in regard to a slightly better than moderate quality and a slight-

ly worse than middle range of offered cars. Nevertheless, Porsche can improve the qual-

ity even further, although they show a high level of quality thinking in the engineering

department.63

Furthermore, Porsche makes an effort to broaden the range of offered cars

which is a very good strategic decision.

3.2.4. Competitive Intelligence

Porsche has to compete with Aston Martin, Jaguar Land Rover, Rolls-Royce, Daim-

ler(Mercedes), Audi and BMW in a more direct way than with other car manufacturers

due to the strategic group map analysis from above. Those main competitors are shown

in figure 4 and those competitors strengths are analysed in the appendix 1. Regarding

the competitors performances, the following analysis will examine the financial

strength, the current company situation in the market and strategic moves of the com-

petitors.64

Figure 4: Porsches Direct Competitors


Aston Martin had problems to finance the growth strategy at the end of 2012 due to the

ongoing financial crisis, but they have found an investor with the Investindustrial Cor-

poration in 2013. This allows Aston Martin to improve their range of products, because

they have to grow else they could be an acquisition target for a larger corporation. In

2012, they achieved an EBITDA of 81.6 million Euros and 3,800 Aston Martin cars

were sold.66

63

Cf. Porsche AG (2013f). 64


Cf. Company Websites(2013). 66

Cf. Autonews.com (2013); Cf. PRNewswire (2013).


Jaguar Land Rover achieved an EBITDA of 2.8 billion Euros in 2012 and the retail vol-

ume amounted to 375k sold cars.67

The company was very successful due to ongoing

capital investments in the products offered. Additionally, their strategic plan is aimed at

investing more capital in manufacturing facilities and the product development to be

able to offer more new cars.68

Mercedes-Benz has lost ground in the automotive competition due to wrong strategic

decisions. The pressure from shareholders let them focus on short-term success, alt-

hough a long-term strategy is necessary for success in the automotive industry.69

None-

theless, the new 2020 strategy targets a wider range of cars offered to customers and a

better product quality overall.70

Mercedes-Benz sold over 1.3 million cars in 2012

which meant a growth by 4.7%.71

Mercedes-Benz did not achieve the EBIT from 2011

and only achieved an EBIT of 4.4 billion Euros in 2012, though they reached higher car

sales, production and revenue figures.72

Audi had a very successful year 2012 and even acquired with Ducati another premium

manufacturer. Regarding Audis long-term strategy, it is planned to increase the produc-

tion capabilities and new car models are also planned for 2013 and beyond. The finan-

cials look very good for Audi, as they sold over 1.45 million cars in 2012 and the oper-

ating income increased to 5.4 billion Euros.73

BMW is the mother corporation for Rolls-Royce and the following statements concen-

trate on both businesses. BMW achieved an operating income of over 12.1 billion Euros

in 2012 and sold over 1.8 million cars overall.74

The BMW segment sold 1.5 millions

cars and Rolls-Royce reached sales of 3,575 cars. Concerning the strategy, BMW wants

to have an equal distribution of sales worldwide and hold its leading position in the

premium segment.75

67

Cf. Jaguar Land Rover (2013), p.5. 68

Cf. Automotiveworld.com (2013); Cf. Macalister (2013). 69

Cf. Hawranek (2012a). 70

Cf. Hawranek (2012b). 71

Cf. Daimler (2013a). 72

Cf. Daimler (2013b). 73

Cf. Audi MediaServices (2013). 74

Cf. 4-traders.com (2013). 75

Cf. BMW Group (2013).


3.2.5. Key Success Factors

The key success factors for the premium car industry decide on leadership positions,

acquisition targets and plainly, profit or loss is determined by those factors.76

As the

above findings have revealed, the line for success in the premium car market is thin.

The critical success factors are shown in figure 5.

Figure 5: Key Success Factors Premium Car Industry


The first key success factor is concerned with the brand attractiveness and the innova-

tion capability. The car manufacturers have to offer innovations every year, especially

better quality, better design and new innovative features are demanded from the cus-

tomers. These innovative developments have to be advertised to the public. Porsche and

sports car racing are building a connection which fosters the innovative brand success.

The second critical success factor deals with the internal talent management. For Por-

sche and the competitors it is necessary to keep excellent employees else the competi-

tion may benefit from the knowledge and excellence of those employees. The limitation

of supply gains center stage in the next key success factor. The target for every premium

car manufacturer is to increase sales continually over the full product life cycle. There-

fore, the premium car manufacturer maintains its exclusive position in the mind of the

76


Cf. Rosengarten and Strmer (2011), p.179.


customer. In case of Porsche cars, it becomes obvious that Porsche management does

not allow discounts in first place. The fourth success factor is concerned with the sup-

plier cooperations. The suppliers are an important brick to innovate fast and successful.

Porsche and all other competitors have to ensure satisfaction of their suppliers as the

suppliers have an important share on the value added of the cars manufactured. The last

key success factor involves the cost-efficient and flexible production capabilities of

premium car manufacturers. A flexible human resources management and a successful

manufacturing strategy, in case of modular production, are essential.78

Some competitors failed to implement those key success factors and this lead to a de-

cline of their revenues and profits. Shortcomings in those aspects are a sure way to lose

the status of a premium brand.79

If premium car manufacturers neglect essential devel-

opment and quality aspects, they are certain to lose market shares. Especially, price dis-

counts can have negative effects on the premium status as it was the case for Jaguar in

2003.80

3.2.6. Stakeholder Analysis

The stakeholder analysis provides an insight into the relationsships and importance of

specific stakeholders in regard to Porsche. Therefore, the following analysis declares the

stakeholders and their positioning. Afterwards those Porsche stakeholders are grouped

in regard to their power influence and their level of interest. At the end, the strategic

impact of the Porsche stakeholders is discussed.81

Porsches stakeholders, their influence and their impact are shown in figure 6. It be-

comes obvious that VW is the most influential stakefolder for Porsche. The suppliers

and labor unions have a very strong influence on Porsche too. Porsche has to inform

VW on everything as they are the main stakeholder. The suppliers are so much integrat-

ed into the production process that Porsche has to do more than just to satisfy their

needs. Labor unions have to be dealt with successfully, because Porsche does not want

to risk strikes and other monetary risk in regard to the labor force.

78

Cf. Rosengarten and Strmer (2011), pp.179-193. 79


Cf. Rosengarten and Strmer (2011), pp.166-169. 81

Cf. Kert and Asum (2008), pp.154-157.


Figure 6: Porsches stakeholders, their influence and their impact

Source: own figure

3.2.7. GE Matrix

Based on the industry attractiveness evaluation and the analysis of the key success fac-

tors and their characteristics for Porsche, the GE Matrix for Porsche can be examined in

figure 7 and the evaluation numbers in the appendix 2. The three-by-three matrix82

reveals that Porsche is supposed to build the own market position even further and in-

vest more capital. The market conditions for Europe seem to decrease significantly over

the next years and Porsche may be even more influenced by this industry development

due to their strategic moves to expand the product offers.83

82

Porter (2004b), p.365. 83

Cf. Hintze (2013).


Figure 7: GE Matrix Industry Attractiveness & Competitive Strength


3.3. Internal Environment - Company Analysis & Value Chain

3.3.1. Soft Information

3.3.1.1. Product Life Cycle Overview

The management of Porsche has spoken out the product development targets until 2018

and it has become clear that Porsche wants to achieve sales of more than 200,000 cars

worldwide and every year one new Porsche has to be introduced to the market.85

Por-

sches product life cycle strategy is targeted on a long-life expectancy of Porsche vehi-

cles and the usual life cycle of a vehicle is about seven years.86

Therefore, Porsche plans

to update its current offerings of five models which will lead to seven models and this

supports the life cycle strategy plan.87

Additionally, life-long vehicles are definitely a

competitive advantage in regard to better quality characteristics and Porsche achieves

this longevity by constantly offering value added services to the customers.88

As can be

seen in table 2, the car model introduction and updates are based on the strategic long

product life cycle idea of Porsche. 89

84

Cf. Value Based Management.net (2013b). 85

Cf. Hamprecht (2011). 86

Cf. ACEA (2009). 87

Cf. Focus Online (2011). 88

Cf. Porsche AG (2013g). 89

Cf. Porsche AG (2013h).

00

20

40

60

80

100

00 20 40 60 80 100

I.A

. In

dex

C.S. Index


Table 2: Porsche Model Endurance

Source: own table 90

One could grade those automotive models to certain product life cycles, but Porsche

thinks and acts strategically on a longer scale. Therefore, the following PLC assessment

has to be seen with critical eyes. The Boxster model is currently in the maturity stage,

the Cayman model can be assessed to be in the growth stage, the 911 model is in the

maturity stage, the Panamera model is still in the early growth stage and the Cayenne

model is in the maturity stage.91

3.3.1.2. Company Life Cycle

Porsches company lifecycle determination leads to the result that Porsche is situated in

the maturity stage. Figure 8 shows the positioning of Porsche on the Greiner curve. The

Greiner curve describes the growth and crisis stages a company enters over a company

lifecycle. Porsche is assessed to be in phase five which involves that further growth has

to be aligned to present and potential collaborations with VW and other automotive

companies. Thus, it is important that the Porsche management acts proactively to secure

90

Cf. Porsche AG (2013h). 91

Cf. Porter (2004b), p. 158.

Model Type 1st Last PLC Stage

Boxster Roadster 1996 2012 Maturity

Cayman Coupe 2005 2013 Growth

911 Coupe / Cabriolet 1963 2013 Maturity

Panamera Gran Turismo 2009 2011 Growth

Cayenne SUV 2002 2013 Growth

Release


a long-term sustainable growth and this means that Porsche has to seek stronger ties and

collaborations with partners.92

Figure 8: Greiner Curve Porsche positioning

Source: based on: http://www.mindtools.com/pages/article/newLDR_87.htm

3.3.1.3. Culture, Organization and Management Style

Porsches culture is based on the company values mentioned in chapter 2.4. The culture

is shaped by Porsches employees. The employees are supported with further training

possibilities, they are given responsibility and they are practically forced to be creative.

Thus, staff is challenged and promoted to reach the goals set by Porsche and the indi-

vidual employee. Furthermore, communication and decisions are made on short routes

in a rather flat organization where every employee is a member of a big team.93

Thus,

the leadership style of the Porsche management team can mainly be evaluated as di-

rective and achievement-oriented.94

Figure 9 shows the cultural web concerning the

above thoughts and it illustrates the cultural understanding of Porsche.

92

Cf. Mindtools.com (2013). 93

Cf. Porsche AG (2013i). 94

Cf. 12manage.com (2013); Cf. Sddeutsche.de (2013).


Figure 9: Porsches Cultural Web


3.3.2. Hard Information

3.3.2.1. Financial Data

Porsches key financial data reveals the financial strength, resources and capabilities to

achieve better profits every year. The balance sheet, the income statement and the cash

flow statement can be examined in the appendices 3-5. The following analysis concen-

trates on key financial ratios which are shown in table 3. Current ratio and working

capital positions have to be improved to strengthen the liquidity position of Porsche.

Additionally, the leverage ratios indicate a weak equity position in relation to the debt

position on the balance sheet. The profitability ratios show a very profitable situation

regarding the operating business of Porsche.96

An operating profit margin of more than

17% is a really superb margin for an automotive manufacturer. The activity ratios are

95

Cf. Themanagement.de (2013). 96

Cf. Porsche AG (2013n).


also ok, although those numbers can be improved as well. Regarding the internal cash

flow, Porsche has a strong position here to finance potential new business projects.

Table 3: Key Financial Ratios from 2010-2012


3.3.2.2. Product Data, Margins, Revenues & Profits

The product offering of Porsche is expanding now even more and regarding the cars,

their margins, their revenues and profits, the reader can explore the data in table 4. Por-

sche achieved a significant increase of cars sold and if Porsche continues to grow like in

2012 it is possible to reach the goal of 200,000 cars sold until 2018. Especially, the

Cayenne is sold very well and beyond expectations of Porsche. The revenues and profits

achieved an increase of 26.9% and 19.3%. Hence, Porsche can claim a profit of 17,289

97

Cf. Porsche AG (2013a), pp.131-135; Cf. Porsche AG (2013j), pp.107-111.

Porsche AGKey Financial Ratios

million

Year 2012 2011 *2010

Liquidity Ratios

Current Ratio 0.69 0.73 0.59

Working Capital -2,142 -1,727 -2,474

Leverage Ratios

Debt-to-assets-ratio 0.66 0.68 0.67

Debt-to-equity ratio 1.94 2.09 1.99

Long-term debt-to-equity ratio 1.06 1.18 1.08

Profitability Ratios

Gross profit margin 45.4% 43.3% 45.0%

Operating profit margin 17.6% 18.7% 18.3%

Net profit margin 13.3% 13.4% 13.0%

Return on invested capital 11.6% 9.6% 3.6%

Activity Ratios

Days of inventory 55.67 56.23 134.28

Inventory turnover 6.56 6.49 2.72

Other important measures of financial

performance

Internal cash flow 2,954 2,331 842

*Year 2010: August to December only

considered - Income Statement und Cash Flow


Euro per car in 2012. In comparison to other premium car manufacturers, these are

astonishing profit and margin numbers. Audi achieved a margin of 11.2% per car, mak-

ing it 3,721 Euro per car. BMW reached a margin of 10.9% and could earn a profit of

4,132 Euro per car in 2012. As a premium brand, Porsche can ask for a higher average

price which amounted to over 95,000 Euro in 2012.98

Table 4: Porsche Product Data Overview


The premium car deliveries are differentiated on regions in table 5.

Table 5: Porsche car deliveries worldwide


98

Cf. Handelsblatt.com (2013). 99

Cf. Porsche AG (2013a), p.21; Cf. Porsche AG (2013j), p.15. 100

Cf. Porsche AG (2012); Cf. Porsche AG (2013l).

Cars Sold

Model Variants 2012 2011 % 2012 2011 % 2012 2011 % 2012 2011 %

141,075 118,868 18.7%

13,865 2,439 2,04526.9% 17,289 17,20410,928

31.4%

8.2%

24.8%

-7.3%

Cayenne 8 74,763 59,898

911 12 25,457 19,377

Panamera 8 29,030 26,840

12,753

Revenues

(in million)

Profits

(in million)

Profit per car

(in )

19.3% 0.5%

Boxster /

Cayman4 11,825

Porsche AGCar Deliveries

Year 2012 2011 2010

World 141,075 118,868 97,273

Europe 49,639 43,748 37,509

Germany 17,487 14,959 13,211

America 41,060 34,350 27,357

USA 35,043 29,023 25,321

Asia-Pacific 50,376 40,770 29,838

China 31,205 24,340 14,785


Europe Porsche car deliveries could only grow by 13.5% in 2012 and all other regions

grew by more than 16.5% in comparison to 2011. Especially, China and USA could

mark significant growth with more than 20% each. Thus, Porsche should strive to de-

velop its business in these regions and seek more innovations in difficult environments

like Europe.101

3.3.2.3. Value Chain

The value chain for Porsche explains the relevant company activities to create a sustain-

able strategic competitive advantage.102

Porsches value chain is characterized by a low

vertical range of manufacture and this is underlined by the fact that Porsches suppliers

take over 80% of the manufacturing process. Nonetheless, certain core competencies are

still done by Porsche which include the design of the vehicle concept comprising the

engine production and development and the corresponding marketing. Furthermore, the

supplier network is managed, controlled and developed by Porsche.103

In appendix 6,

the value chain and fit between VW and Porsche is shown. Both companies have to im-

prove and secure the strategic fit due to their corporate connection and dependence.104

4. SWOT Analysis

The following SWOT analysis combines the before mentioned industry attractiveness

variables and company aspects regarding Porsche and its competitors. It will provide the

basis for the strategic direction development in the next chapter. Thus, it is of great im-

portance to differentiate between the scope and the influence of certain SWOT variables

on strategic decisions. The internal factors are used for the analysis concerning the

weaknesses and strengths, the external factors concerning the opportunities and

threats.105

Figure 10 displays the strengths and weaknesses concerning Porsche. It also

shows the opportunities and threats for Porsche.

101

Cf. Porsche AG (2012); Cf. Porsche AG (2013l). 102

Cf. Porter (2004), p.33. 103

Cf. Pfitzer and Pannes (2013). 104


Cf. Johnson et al. (2011), pp.157-158.


Figure 10: SWOT Porsche

Source: own figure

4.1. Opportunities

Porsche is confronted with lots of great opportunities for growth in the next years,

though it must act already today to outsmart competitors in the future. The external en-

vironment analysis above reveals that Porsche has to make investments regarding e-

mobility and mobility for elder people. The strong demand from BRIC countries even

offers opportunities for much stronger growth. Furthermore, the strong demand for SUV

can be used by Porsche in case Porsche strengthens its market position in this automo-

tive segment.106

As life expectations and needs change for many people, sportive cars

can be a much more needed product.

4.2. Threats

Porsche must face the threats from external factors with measures to secure and improve

the own competitive strength. Potential threats for Porsche include the increasing im-

pact of growth markets in regard to development and production issues.107

Another

threat for Porsche is the increasing demand for low-cost small cars. An intense competi-

tion, low GDP growth rates and political instability can further damage the operating

margins of Porsche in the future. Additionally, rising raw materials and a change in the

tax systems can have tremendeous effects on the profit formula. Suppliers will become

106

Cf. KPMG (2013), p.3. 107

Cf. Ibid, p.4.

- strong premium car brand strength - narrow offer range - high quality cars - low vertical range of manufacture - strong market power with parent VW - weak liquidity position - success and team-oriented culture - flat organization - outstanding revenues and profits - superb innovation and design expertise

- strong value added services

- long-term strategy

- strong collaborations

- cost-efficient and flexible production

- modularization of automotive platforms - shift of development and production to growth markets

- increasing demand for e-mobility - increasing demand for low-cost small cars

- mobility concepts for elder people - political instability and protectionism worldwide

- strong demand from BRIC countries - low GDP growth rates worldwide

- rising buyer demand for SUV - changes to the current tax system

- expansion of sportive cars demand - intense competition

- increase in bargaining power of suppliers

- rising raw material prices

- disruptive e-technology developments

- dilution of Porsche brand image


more powerful in the future and this cuts the profit potential of Porsche even more. The

development of e-mobility will fasten in the next years and pose another threat to Por-

sche. Furthermore, Porsches brand strength is threatened to dilute further if Porsche

targets the mass market even more.

4.3. Strengths

Porsche can count on lots of internal strengths which are the basis for future success.

Especially, the brand power is of enormous importance to financial success. A long-

term strategy and high-quality standards can improve this outstanding brand strength

even more.108

Porsches cost-efficient and flexible production with its superb innovation

and design knowledge adds to the strength of Porsche. The parent VW even improves

Porsches position, because you can compete on another level as a member of a strong

conglomerate. Strong value-added services and a team-oriented culture are necessary

for such a strong business performance and Porsche has command over this capability.

4.4. Weaknesses

On the weak side, it can be summarized that Porsche still has a narrow product line,

although it strives to broaden the offering. Another weakness is the low vertical range of

manufacture which can backfire in certain cases. On the financial side, Porsche has to

improve its liquidity position to be very healthy on the financial position. VW may def-

initely help here to secure financial stability and add financial strength on the equity

position.

4.5. SWOT Issue & central problem

The above SWOT analysis has revealed the main issues and challenges for Porsche in

the future. It is also necessary to state the most important points of the SWOT and their

impact on strategic actions. 109

An intensive competition forces Porsche to innovate at

an even faster pace than today and a low vertical range of manufacture may be inter-

preted as a weakness in case the suppliers are not on par with Porsche in regard to inno-

vation. Nonetheless, the strong Porsche brand helps to perform excellently in the BRIC

108

Cf. Rosengarten and Strmer (2011), p.233. 109



countries where strong growth for premium cars is a reality. Thus, Porsche has to

strengthen its innovation capabilities and avoid brand dilution by tightening its diversi-

fication efforts.110

5. Porters Generic Strategies

The following analysis deals with Porters generic strategies in the automotive sector

and their differentiating implementation. The generic strategies determine whether a

company can compete with success and create value for the clients. Additionally, the

competitive edge to be achieved is dependent on a low cost or on a differentiating strat-

egy.111

Porsche pursues a focus differentiation strategy.112 This focused differentiation

strategy is based on the core competencies and the value-added actions to improve the

brand strength of Porsche.113

Porsche concentrates its effort on the premium car seg-

ment and they do it with such a high quality and cost efficiency that they are evaluated

as the most profitable car manufacturing company over the world.114

Thus, Porsche can

definitely match the premium customer demands and gain an outstanding profit from

the operating business. Porsche acts in a market niche regarding the premium car seg-

ment and the addressed premium buyers are also willing to pay a premium on a Porsche

car due to its brand image and excellent quality. Though, there are risks involved with

Porsches strategy. Competitors could found a brand and create superb cars which

would match and overtake the market position of Porsche. Additionally, customer de-

mands and needs could change over time as well and then other competitors may profit

from this customer shift.115

6. Ansoffs Growth Strategies & Blue Ocean Strategy

Ansoffs growth matrix can reveal potential opportunities for Porsches further business

growth. Product and market dimension are differentiated and evaluated in the Ansoff

matrix. Porsche is supposed to concentrate on the three cells concerning market penetra-

110

Cf. Kloo (2013). 111


Stonehouse et al. (2004), p.180. 113

Cf. Stonehouse et al. (2004), p.180. 114

Cf. Dw.de (2013). 115



tion, product and market development.116

Regarding the GE matrix from above, Porsche

has to invest and follow a growth strategy, which is also supported by Ansoffs growth

strategies market penetration, product and market development. Thus, Porsche strives to

develop the product base even further and this strategy has to be executed with care due

to the issue of potential brand dilution.117

Therefore, Porsches strategy 2018 becomes

understandable. Strategy 2018 strives to create value for the customers, the employees

and other stakeholders. Porsches aims to increase the customer loyalty to improve the

brand image and to attract even more premium car buyers.118

Nonetheless, Porsche has

to innovate constantly and even create a blue-ocean to earn future above-average prof-

its. This could be achieved by a further development of the exclusive flagship store idea

of Porsche. Those exclusive stores allow customers to personalize their cars and in the

future they could provide a full Porsche experience as the customer could enjoy the Por-

sche drive in 3D reality.119

Furthermore, Porsche has to improve its quality and brand

strength which leads to the creation of a blue ocean, because no competitor has set posi-

tion on such a high level yet.120

The strategy canvas for Porsche and BMW can be ob-

served in figure 11. It provides an insight of the status of certain competitive key factors

and it offers a potential value curve improvement to create a blue ocean.121

Figure 11: Strategy Canvas Porsche and BMW


116

Cf. Krakauer et al. (2010), pp.5-6. 117


Cf. Porsche AG (2013b). 119

Cf. Porsche AG (2013m). 120

Cf. Krakauer et al. (2010), pp.13-14. 121

Cf. Blueoceanstrategy.com (2012a) 122

Cf. Ibid.


7. Strategic Options Evaluation

Following the above strategic growth strategy, it is essential for Porsche to improve the

own market position even further. This can be achieved by going onto the offensive

towards main competitors. It makes sense for Porsche to constantly innovate its cars and

value-added services to secure a sustainable competitive edge over its rivals.123

Furthermore, Porsche is supposed to increase vertical backward integration as such,

because else the threat to lose innovation power by a weak supplier is always a variable

to think about. The outsourcing of main capabilities can backfire if Porsche does not

keep the main business activities.124

A potential solution for the issues involved with the above actions could be strategically

strong partnerships where potential partners can benefit from synergy effects. Therefore,

Porsche should seek strong partners in India or China, both strong growth markets for

the time ahead. Especially, Porsche could need an alliance in India to increase sales

much faster.125

Additionally, those alliances will help Porsche to gain necessary market

knowledge and have access to essential networks.126

Table 6 shows the strategic options for Porsche and the specific evaluation on suitabil-

ity, feasibility and acceptability. It is necessary to consider all strategic options for Por-

sche and assess them on the above mentioned criteria. In a next step those preferable

strategies are ranked. The internal development strategy is the best choice for Porsche to

improve internal capabilities and increase the competitive strength of Porsche. In second

position, the product development strategy has to be expanded and the last good strate-

gic choice comprises more market penetration by Porsches cars. This will allow Por-

sche to increase the overall market share and improve the competitive position in a very

competitive environment.127

123


Cf. Ibid, pp.231-236. 125

Cf. Porsche AG (2013k). 126


Cf. Johnson et al. (2011), pp.456-459.


Table 6: Evaluation of strategic options


8. Results and conclusion

This strategic review has revealed the strengths, weaknesses, opportunities and threats

concerning Porsches future successful development. VW and Porsche have a strong

future ahead if they follow a compelling route to success. This route to success entails

that Porsche avoids a dilution of its brand strength and that it invests more capital into

innovations. This will strengthen the current focus differentiation strategy and it will

lead to more growth if Porsche also invests in the above two main aspects concerning

branding and innovation. Especially, declining car demand in certain regions has to be

countered with a strong quality car by Porsche. Furthermore, Porsche has to evaluate the

necessity to continue weak models with declining sales as this practice may have a neg-

ative effect on the Porsche brand. The strategy execution demands from Porsche a thor-

ough understanding of the strategic route. Therefore, its necessary that Porsche has

access to highly qualified people, that the organizational configuration is capable to

fulfill the strategic needs and that Porsche has the capabilities to achieve the strategic

and financial targets.129

If Porsche succeeds in adjusting its current strategy, Porsche has

a very profit-yielding future ahead.

128

Cf. Johnson et al. (2011), pp.456-459. 129


Evaluation Criteria

Strategic Options

- - - - - - - -

++ ++ ++ ++

+++ +++ +++ +++

+/- +/- + +

+ + +/- +

+/- +/- +/- +/-

+ +/- +/- +

++++ ++++ ++++ ++++

Result

Market development

Diversification

M&A

Alliances

Market penetration III

Internal development I

Suitability Feasibility Acceptability

Consolidation

Product development II


Appendices

Appendix 1: Competitive Strength Assessment

Source: own table130

Appendix 2: GE Matrix Assessment Ratings


130



Weight Rating Product

45 0.3 13.5

10 0.9 9.0

5 0.8 4.0

20 0.9 18.0

20 0.6 12.0

100

Industry

A ttract iveness

( I.A .) Index 56.5

Weight Rating Product

20 0.9 18.0

20 0.6 12.0

5 0.6 3.0

25 0.8 20.0

30 0.8 24.0

100C o mp Strength

(C .S.) Index 77.0

This company is in a relatively good competitive position.

Competitive Strength Matrix (C. S.)

limitation of supply below demand

strong cooperation with best suppliers

cost-efficient and flexible production

This index indicates that this industry is 'middle of the road' in terms of attractiveness.

Key Success Factors

innovative and attractive brand

strong talent management

Industry Attractiveness Matrix (I. A.)

low threat of subtitutes

low bargaining power of buyers

low bargaining power of suppliers

Factors

low competition

high entry barriers


Appendix 3: Balance Sheet Data from 2010-2012


132

Cf. Porsche AG (2013a), p.133; Cf. Porsche AG (2013j), p.109.

Porsche AGBalance Sheet

million

Year 2012 2011 2010

Assets

Intangible assets 2,179 1,757 1,255

Property, plant and equipment 3,310 2,850 2,433

Financial assets 208 130 141

Leased assets 1,386 1,207 1,129

Receivables from financial services 1,088 1,207 1,375

Other receivables and assets 9,675 9,470 9,599

Income tax assets 32 39 46

Securities 0 9 9

Deferred tax assets 158 283 325

Non-current assets 18,036 16,952 16,312

Inventories 1,239 1,051 834

Trade receivables 333 284 242

Receivables from financial services 615 663 607

Other receivables and assets 1,323 1,593 1,108

Income tax assets 37 42 56

Securities 54 99 86

Cash and cash equivalents 1,065 884 670

Current assets 4,666 4,616 3,603

Total assets 22,702 21,568 19,915

Equity and liabilities

Subscribed capital 45 45 45

Capital reserves 5,806 5,806 5,806

Retained earnings 1,881 1,123 803

Equity 7,732 6,974 6,654

Provisions for pensions and similar obligations 1,042 990 922

Other provisions 745 677 605

Deferred tax liabilities 459 340 269

Financial liabilities 5,528 5,679 4,988

Other liabilities 388 562 400

Income tax liabilities 0 3 0

Non-current liabilities 8,162 8,251 7,184

Income tax provisions 45 41 30

Other provisions 1,151 995 732

Financial liabilities 1,484 2,098 3,296

Trade payables 1,278 1,032 761

Other liabilities 2,836 2,148 1,241

Income tax liabilities 14 29 17

Current liabilities 6,808 6,343 6,077

Total liabilities 22,702 21,568 19,915


Appendix 4: Income Statement Data from 2010-2012


133

Cf. Porsche AG (2013a), p.131; Cf. Porsche AG (2013j), p.107.

Porsche AGIncome Statement

million

Year 2012 2011 *2010

Revenue 13,865 10,928 3,867

Changes in inventories and own work capitalized 1,016 1,095 258

Total operating performance 14,881 12,023 4,125

Other operating income 537 657 263

Cost of materials -8,124 -6,822 -2,267

Personnel expenses -1,648 -1,349 -511

Amortization of intangible assets and

depreciation of property, plant and equipment and

leased assets -1,114 -871 -338

Other operating expenses -2,093 -1,593 -566

Profit before financial result 2,439 2,045 706

Finance costs -258 -323 -154

Other financial result 467 386 170

Financial result 209 63 16

Profit before tax 2,648 2,108 722

Income tax -808 -648 -218

Profit after tax 1,840 1,460 504

thereof profit attributable to non-controlling

interests 36 29 9

thereof profit attributable to shareholders 1,804 1,431 495

Profit transferred to Porsche Zwischenholding

GmbH -1,312 -871 -330

*Year 2010: August to December only considered


Appendix 5: Cash Flow Statement Data from 2010-2012


134

Cf. Porsche AG (2013a), pp.134-135; Cf. Porsche AG (2013j), pp.110-111.

Porsche AGCash Flow Statement

million

Year 2012 2011 *2010

Profit after tax 1,840 1,460 504

Amortization and depreciation 1,114 871 338

Change in pension provisions 53 68 34

Cash flow 3,007 2,399 876

Change in other provisions 293 328 1

Income tax expense 658 439 161

Change in deferred taxes 150 209 57

Other non-cash expenses and income -301 -303 -180

Gain/loss from disposal of intangible assets and

property, plant and equipment -106 -104 -28

Change in inventories, trade receivables an other

assets -447 -233 -53

Change in trade payables and other

liabilities(without tax provisions and other

provisions) 285 358 261

Income taxes paid -512 -477 -138

Income taxes received 8 28 11

Change in leased assets -473 -273 -177

Change in receivables from financial services 130 151 146

Cash flow from operating activities 2,692 2,522 937

Cash received from disposal of intangible assets

and property, plant and equipment 264 216 64

Cash paid for the acquisition of subsidiaries less

cash funds received 0 -16 0

Cash paid for investments in intangible assets

and property, plant and equipment -1,873 -1,678 -480

Cash paid for investments in financial assets -13 0 0

Change in investments in securities and loans 53 -13 -13

Cash flow from investing activities -1,569 -1,491 -429

Capital transactions with non-controlling interests -44 -30 -2

Cash paid to shareholders -207 -310 -537

Cash paid for loans -1,554 -1,753 -45

Cash received for loans borrowed 1,798 2,434 308

Cash paid for bonds -814 -1,141 0

Change in other financial liabilities -139 -109 103

Cash flow from financing activities -960 -909 -173

Change in cash funds 163 122 335

Exchange-rate related change in cash funds -3 51 -1

Cash funds as of 1 January 2011 and 1 August

2010 777 604 270

Cash funds as of 31 December 2011 and 31

December 2010 937 777 604

Checks, cash on hand and bank balances 1,065 884 670

Securities 54 108 95

Gross liquidity 1,119 992 765

*Year 2010: August to December only considered


Appendix 6: Value Chain and Fit

Source: based on: Cf. Thompson et al. (2012), pp.303-306.


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Documents

20130717 FOM Assignment Strategic Review of Porsche AG Stark 313921