This case study presents how BMW, a German automobile, motorcycle and engine manufacturing company, is trying to reduce development turnaround time using new technologies. To build new development capability three areas of opportunities are emphasized, managing automotive development including exterior styling; process/organizational changes; and adapting new computer-aided technologies. This strategic move is responsible for BMW historically strategic product positioning in automotive industry in 1990’s.
Most important facts
1>History of BMW – In 1916, Gustav Otto founded Bayerische Motoren Werke which is better known worldwide by BMW. In 1923 it set a world speed record of 134 mph. The legendary BMW 328 sports car, debuted in 1936, won numerous international race events. In 1951, when the firm started car production in Munich, it made egregious marketing errors. In 1959, the company’s weak financial position almost led to a takeover by its traditional rival Mercedes-Benz in Stuttgart. By the 1970s, BMW exported two-thirds of all its cars and three-fourths of all its motorcycles and had established subsidiaries on six continents. In 1996, BMW employed more than 116,000 persons worldwide and sold its products in 140 nations ranging from the United States to the Fiji Islands, total turnover of DM 52.3 billion. In mid-1990s BMW had a world market share of only 1.5%, company acquired the British Rover Group in the 1990s and made several major series of automobiles which, following European tradition – 7-Series(totaled about
51,000 cars), 5-Series(totaled about 190,000 cars), 3-Serie (totaled about 400,000 cars). 2>Automotive environment in 1990s – In 1996, the European market sported some 50 car brand names, with about 300 different base models and virtually thousands of derivatives. The European market production capacity of 20 million overwhelmed the total yearly sales of 14 million Japanese had led the way, aiming to reduce their traditional 50-month development lead times by over 30%, even though they were not known for technological advancement so much as for producing reliable cars. One of the major competitors of BMW, Mercedes-Benz, led to plans for radical changes including the very successful E-Series and a new and radically redesigned S-Series model supposed to be launched in 1998. This strategic initiative is considered as a serious threat to BMW’s current 7- Series model and faced significant market competition. 3> Product Design and Engineering: In 1990s BMW automotive development entailed thousands of steps involving 20,000 to 30,000 components. To simplify it, an automobile can be defined as “package” consists of wheels, axles, steering, climate control, exhaust and “skin” which consists of exterior, seating, and the layout of the dashboard. BMW’s Design phase followed multiple
New York University
December 11, 2012
concepts; they normally fall into revolutionary, evolutionary, aerodynamic, and classic category. Traditionally BMW worked with clay model in 1990’s at design phase followed refinement process. This process required laser scanners to “digitize” information but it was comparatively slow process. The design models could be made available to engineering in the form of computer-aided design (CAD) and Computer-aided styling (CAS) models. A major advantage of working digitally was parallel development with engineering and it also allows direct data links to computer-aided design (CAD). After exterior design was complete, the CAD data moved to Andreas Weber’s group in body engineering.
4) The Evolution of Product Development at BMW –
The old process: 72-month-long process dominated in 1970’s and 1980’s. There were 3 major prototyping cycles in this process. A high-quality physical prototype could exceed one million dollars and often required months of superb craftsmanship. Ex: BMW 5-Series was developed under this development process.
The current process: In 1990s a development process was entailed which is 60-month-long. Two major prototyping cycles first time started to take advantage of rapidly emerging computer simulation methods and to identify potential design problems earlier in the development schedule. Computer-aided technologies remained untapped in the current process. Ex: BMW 3-Series, launched in 1998, was developed under this development process.
5) Reengineering Automotive Development: To stay competitive and decrease the turnaround time of the development process BMW had to launch a reengineering task force who was responsible for meet a bold target of for slashing product development time by 50% percent . Task force identified five key process areas—body, climate control, fuel supply, test engines (power train), and acoustics—that accounted for about 90% of the critical processes in the product development timeline and decided to change the traditional process to increase productivity – 1> Increased parallelization of design tasks, 2> Elimination of some design iterations, 3> Quicker completion of the remaining design iterations.
Analysis of the relevant issues
Development Time – Japanese automobile companies targeted to decrease traditional 50 month development time by 30% as a response to rapidly
changing market. BMW was lagging behind competitor since its NPD process was
very traditional and slow.
The company had a very artistic way to develop new products and there was
internal resistance to change it. BMW had to speed up NPD, otherwise struggle with competition. 2.
Market Shift – In 1990’s automotive industry dramatically changed and market shifted from manufacturer to customer. Development of consumer market was one of the potential challenges BMW faced in this period of time. Consumers wanted to have large number of car choices. As per case study, European car band had 50 car bands, 300 base models, and thousands of configurations. Also over capacity sometimes was creating lower price, for instance European automotive market place producing 20 MM cars where as sales was limited to 14MM.
Open Market – European Market was completely open to foreign competition by 1999 and BMW had to face a tough market competition with world class Japanese, Korean or US car companies. BMW had to accelerate and focus on new model development and increase model variation to keep sales stable.
New York University
December 11, 2012
Options for the business or entrepreneur
Comparative Analysis of BMW’s Opportunities in 1990s
1. On-time market production which
1. Maximum Process and restructuring
leads to competitive advantage for
would be required, especially in
BMW to compete with other market
manufacturing or assembly line, lads to
competitors such as Mercedes Benz.
additional pressure of maintenance on
Automating the development
process will decrease the
2. 1990’s automotive market was high
development cycle to 60 months. It
competitive, BMW’s existing 7-Series
will help them to maintain same high
was the revenue generator; disturbing
quality product line with less
traditional development cycle may affect
development cycle time, which leads
their production. Even though new cycle
to stay competitive in the market.
is automated and much faster but the
2. Proven brand reputation of 7 series
will help BMW in market positioning.
process was not yet guaranteed to be
100% successful at that point of time.
Disturbing 7-series traditional cycle
would increase moderate amount of risk
3. Skilled resources deployed in 7-Series
cycle such as craftsmen or designers
are accustomed with old process. BMW
needs to execute an organized
transition plan leading to an extra cost
1. Allow parallel development with
engineering which leads to speeding
2. Reduced process and development
cycle by 50% than traditional 72
1. High risk in terms of new technology
2. BMW needs to deploy a new resource
pool for CAD/CAS and automate the
New York University
December 11, 2012
3. BMW 3-series is sports sedan car
and it has fewer competitors in the
automotive market than 7-Series, at
this point of time 3-series is not the
major game player, implication of
new development process would be
less risky in terms of revenue
1. This approach will allow BMW to
1. Required significant R&D initiative; needs
rethink the existing process and
to come up with completely new approach
decrease development cycle time
and decrease proto-type cycle, technically
more than 50%, leads to less than
more time consuming process.
Prototyping to a
60 months cycle.
2. Development process would be most
2. It’s considered as a very high risk
approach at this point of time because
refined and with latest automated
BMW doesn’t have buffer resource pool to
technologies implication would help
utilize further R&D process than focusing
to decrease the labor cost and
on traditional/current approach.
BMW needs to adapt strategic change where it’s absolutely critical in order to succeed in highly competitive market place. In 1990s BMW’s revenue is still growing and they have ample opportunity to market their product. At this point of time BMW needs to follow a strategy that will help them to sustain in future global market place with its quality, efficiency and automated development cycle without disturbing ongoing production cycle/assembly line that generates its major revenue. Based on the above comparative analysis, it’s recommended to follow option 2 because this strategic break-through has minimal risk of failure and maximum chances of high productivity without disturbing current 7-series production/cycle. Lesson learned from this exercise needs to be applied to other competitive product lines in future to stay ahead of the curve in highly competitive automotive market place.