This is the prepared text of the speech and may not reflect the verbatim presentation
Good evening, ladies and gentlemen.
January 17, 2001
As a leader of a smaller automobile organization, It is always interesting for me to come to Detroit, the land of the automotive giants. The sheer size and volume of things can be quite overwhelming. Mergers, synergies, corporate reshufflings are all in the air. And everyone is talking about bigger, and expansion and acquiring.
In this environment, I sometimes feel like the smaller of two fellows who were thrown into the sea from a sinking boat. Soon, they were surrounded by sharks. The smaller man started to swim frantically for the shore. His much larger colleague cried out, "you don't think you can out swim those sharks, do you?" The smaller man replied, "No, but I only have to swim faster than you."
1. Strength and Corporate Size
I won't explore the subject of sharks any further today, and I will get to the topics of speed and agility in a moment, but first, let's explore the relationship between strength in the marketplace and corporate size.
In the search for profitable growth, questions such as what is "proper" corporate size and "correct" corporate structure continue to arise.
During my 30-year career as an entrepreneur as well as a scientist and consultant, I have seen many trends come and go, usually about every ten years.
For example, early in the 1970's we had a phase that was characterized by the slogan "Size does not matter- Small is beautiful."
Then came a phase that argued that wider stability could be achieved through diversification and deals in areas completely outside the normal automobile business. And so, "Integrated Technology Companies" was the concept of the day.
Then the pendulum reversed, and "Back to the roots" and "focusing" became the proper recipe.
We are now experiencing a phase in which "Size does matter again. Big is beautiful." We must ask ourselves, however, how much longer this phase will be seen as true.
Those of you who have observed our industry for some time will also recall other "trends":
There were times when the German automobile industry was considered to have no chance to succeed, since manufacturing costs in Germany were much too high. There were also times when the "End of the American automobile industry" was predicted. And, there were times when many automotive managers consulted with Japanese firms to learn from them how one may be successful in our industry.
This was all soon forgotten over the course of the next cycle:
Although these trends were one-dimensional and short-lived, they were frequently over-emphasized as the only right way to go. There is, after all, a certain amount of "herd mentality" in our industry. That herd mentality extends also to our thoughts about the size of a company - and, right now, "bigger is better".
So the strict theory has now applied for some time that only those automobile manufacturers that produce at least X million vehicles per year will survive in the industry - I am being intentionally vague about exact numbers here.
Personally, I do not think that the question "How large must one be in order to be successful?" is the correct one.
In my opinion, the proper question should be "How strong must one be in order to be successful?" And, of course, true success means preserving one's independence.
Size and strength should not be confused.
I cannot recall ever having seen a clear and convincing correlation between size and success. At the moment, it seems as though the greater the size, the more the problems.
Not even economies of scale count, as they heavily depend on company-specific production structures, its flexibility, capacity and so on. Economies of scale do not depend on branch standards.
I am therefore of the firm opinion that size alone does not guarantee economic success.
In fact, size brings the possible danger of becoming unwieldy. It involves concerns about managing large-scale corporate units. And it raises questions about individual identity and cultural differences within large corporations and conglomerates.
Therefore, when I seek stable guarantees for economic success, I find that absolute corporate size is of little interest to us. Brands, markets, and products have a much greater significance.
Most important for the BMW Group in particular are the rules of the premium area of the market segments.
It is not the supplier who sells the highest volume that is successful in this area, but the supplier who commands the most profiled brands. He achieves comparative advantages by differentiation instead of economies of scale.
In this sense, a brand is far more than a product. A brand is a comprehensive promise of performance.
In order for a brand to be perceived having a strong profile, it must have a clear identity.
A strong brand does not distinguish itself by being superior in every respect - it is superior and distinct only in those respects, which matter most to the target groups.
A brand that tries to represent everything is merely average - or actually represents nothing.
It is important that the differentiating aspects of a brand apply to all products offered by the brand.
These differentiating product characteristics must be understood as segment- and customer-specific, and must be adapted to changing customer needs.
Mass-produced goods do not comply with the trend toward differentiation. Mass production does not lead to an increased significance of strong brands per se. More and more customers are tending toward premium brands in order to satisfy their desire for differentiation and individuality.
This leads to the increased significance of premium brands in various market segments of the automobile industry.
Forecasts state that for the next ten years the premium segments in the car market will grow by about 50 % worldwide. In comparison, the mass segments will grow "only" by around 25 % over the same period of time.
Manufacturers of premium products target the premium market. Large-volume producers target the overall market. That is a critical distinction that must be made and maintained.
Therefore, when I seek guarantees for economic success, the main thing is which product and market strategy to follow. In the automobile industry there are three possible approaches:
When you ask what is the 'correct' corporate size and structure, I answer that these are variables which depend on which of these strategies has been chosen. There is no single, universal and unvarying 'correct' size and structure.
Let me round off this point by emphasizing that strategies may not be copied at will.
Each company must establish its own path. Each company must decide for itself, in which segments of the market it wants to be active.
Each company must then define its own strategy and follow it in a consistent fashion. This strategy depends not only on the attractiveness of the markets, but also on the entrepreneurial capabilities.
A strategy should therefore be one tailored for a company's specific environment and not be guided only by trends such as those I mentioned earlier.
At the BMW Group we have learned from experience that a company must rely on its own strengths. We intend to do exactly that.
Therefore, we are committed to factors which echo the theme of this conference: Even the most attractive markets do not guarantee success if agility and efficient networks are absent.
2. BMW Group's experiences and consequences
Ladies and Gentlemen,
This exclusive dedication to the premium sector is the clear lesson that the BMW Group learned from its participation in Rover.
From our experiences before Rover we knew that successful growth may be achieved out of our own strength by focusing on the premium sector. Our experience with Rover taught us in addition that you cannot integrate producers of volume and premium products on a permanent basis. Premium and volume brands are hard to combine under the same roof. The whole value chain of a premium supplier requires other priorities, structures and procedures.
We have learned how important the identification of employees with the brands of "their" company is in regard to goal oriented work and motivation.
This eventually leads to an overall 'unity' of the company, employees, suppliers, retailers and customers. And that contributes to making a company strong and successful.
From our experience with Rover we have learned as well that mergers can paralyze organizations.
The speed of an organization is influenced by the mix of strong and weak brands. Weak brands restrict resources and limit motivation. This narrows the success of hitherto strong brands in the long run.
And we learned that to be successful a strategy must be clear, consistent and logical.
We entered the volume market as a premium producer, which just didn't work for the reasons listed above.
We corrected this situation.
We quickly turned our decisions into action with important results. We achieved the continuation of Rover Cars and Land Rover by other companies within a very brief time span.
The consequence of our learning process has been a strategic re-orientation of the BMW Group, concentrating on the premium area of the market segments. This re-orientation was one of the greatest tasks that this company has ever taken on. And we succeeded.
3. Strategic considerations regarding our re-orientation
Ladies and Gentlemen,
Today, the BMW Group is the automobile company that is following a clear, success-oriented course: one with a logical, comprehensible premium brand strategy that takes into consideration all recognizable trends, growth potentials, and demand.
In the future, we will place a much higher value on the "emotion" factor than we have in the past.
MINI and beginning in 2003 Rolls Royce will expand and strengthen our brand portfolio upwards and downwards.
For MINI, downwards means concerning size, as MINI will be positioned in the premium part of the small car segment.
This all means that the BMW Group will concentrate on those segments of the world automobile markets
The BMW Group covers exclusively selected premium sectors of the segments from small cars up to the absolute luxury class.
And we will establish new market segments within the premium sectors, such as the BMW X-family or the new small BMW.
The BMW Group has achieved a high degree of consistency, and of self-similarity by means of its premium brand strategy. It has strengthened our own identity. We are now doing what we do best: developing, building, and selling premium products.
Therefore, volume per se is not the BMW Group's goal. We are much more interested in profitable growth, with "profitable" and "growth" in that order.
Profitable growth means, first, receiving higher returns per vehicle, and then increasing overall returns (and thereby corporate value) by means of considerably higher production quantities.
This becomes possible by the increasing willingness and financial ability of a growing proportion of customers to purchase premium products.
What counts is how much contribution margin we achieve at the end of the day, how much cash we generate.
And how much of this we can -- and want -- to invest in the future. That is what defines strength.
Please allow me at this point to mention the positive effects we anticipate on sales revenues from our premium brand strategy as applied to all of our model series.
Each vehicle produced by the BMW Group is a premium product. The ordinary theory that "selling a small car equals small profit, selling a big car equals big profit" does not apply to us. A well-equipped BMW 3 Series model yields more than the entry-level model of the BMW 5 series.
Since the new small BMW will be a premium product it will have higher margins than the volume producers can achieve. With this new BMW, once again 'small is beautiful'.
Based on its brand and product attractiveness, the new small BMW will be able to avoid the push-start that is often observed among volume producers.
With this vehicle, we want to participate in the growth of the compact car segment. We do not want to compete with the volume producers in this segment.
Also, we will apply our proven component system to our new small BMW model series.
With the BMW 3 series we showed how a series could be expanded successfully. The new small BMW has this same potential. Also, this new model series has a comparably high contribution margin potential.
Sales of the new small BMW will not be at the expense of the larger models. This innovative car concept will be targeted to new and younger customers. This makes it easier for them to purchase their first BMW and begin moving up the product ladder. In the long-term, this will support sales of our larger models.
Moreover, expansion of the X family will yield additional growth in the sector of vehicles with higher covering factors.
With these new model series and our established profitable models we will expand our sales and contribution margin volume - and in a strategic manner that unfolds over a period of time and supports over-all growth.
With the new small BMW we will continue to grow profitably because these cars will have all characteristics that make a BMW a BMW. We will grow around our core brand.
But the new Model BMW is not the only reason for growing further in a profitable manner.
There is more to our fundamental strategy. For example:
With our profitable growth on all levels we are convinced that we are ready for the future.
To implement this strategy and achieve this growth, we must have the qualities noted in the theme of this conference; speed and connectivity - or as we put it at BMW, agility and networking.
Ladies and Gentlemen,
We know that the ability to innovate is decisive for the success of a company.
We also know that not only the quality of innovation, but also the responsiveness through which the innovation is realized is a critical factor.
However, advances resulting from innovative product characteristics these days are only of a temporary nature. In general, an advance lasts only a few months, until the competition catches up. Although characteristics such as quality and safety still offer stability for a certain time,
innovations, however, are increasingly subject to time competition.
Successful companies must therefore expand their capabilities in order to achieve surprise effects by means of quick and smart innovations. For example by innovations that are not so easy to copy. Just like an innovative customer relationship management.
In addition, successful companies must therefore expand their capacity further to react quickly to developments by competition or the marketplace.
Companies must be flexible. We are talking about quick reaction and flexibility in a smart manner -- we are talking about agility.
Agility is becoming more of the determining factor for success or failure. In order to make an organization more agile, we must formulate two fundamental processes:
The first is the process of the product's origin. We are talking about shorter time periods for series development and a faster run up to full plant capacity for a new product.
The second is the process of processing customer orders. The automobile producers have already made great progress here.
Our strategic approach is our "customer-oriented sales and production process." With this, we optimize the process chain from order-to-delivery by means of a thorough and joint effort between Sales, Logistics, and Production.
While each customer may not want to take immediate delivery of their automobile, each customer does want to receive it on time according to an agreed delivery date. Our goal is to meet that expectation. Over the past two years, we have already achieved a very high level of customer satisfaction. We also achieved recognition from many financial analysts.
As a supplier of vehicles tailored for individual customers, the BMW Group already sets the benchmark for all 'build-to-order' producers.
This year, we will reduce elapsed time from order to delivery for new models to 12 days. By 2003, our goal is to have that down to 10 days. The BMW Group will thus set a new benchmark for "build-to-order" producers.
Behind all this is a principle: The customer's desires and specifications for the individual car drive the process, not the vehicle that BMW has planned.
These examples emphasize that successful customer-oriented businesses don't have to be large. Successful businesses must be agile. And precisely our present company size will allow the BMW Group to remain agile.
In order to realize the potential for agile business, we naturally need partners that are as agile as we are.
This leads me to further criteria that make contributions to agility and that form a counterweight to monolithic size: cooperative efforts and networks.
Ladies and Gentlemen,
The following principle applies: "He who works alone adds; he who works together multiplies."
This is part of our tradition, and our experience is based on it.
As a relatively "small" auto producer that has intentionally always gone its own way, we always had to rely on our own strength in order to achieve growth.
And in order to write the success story of the BMW brand we had not just to be smart, innovative and fast. We had to be agile.
In order to be agile, we have used external resources from the beginning, along with developing our internal resources. Therefore, we sought partners. BMW learned to use networks to multiply internal resources early on.
Therefore, we generally seek long-term cooperation with our partners. That includes classic suppliers as well as with small, high-impact high-tech firms, research laboratories and technical schools in the corresponding technological fields. This includes the cooperation with virtual companies in the sense of a working group.
Let me to introduce a few examples of cooperation:
Our suppliers. These are often involved deeply in the development of new products in the initial phase, including creative collaboration. Suppliers already work in our development centers. The systematic cooperation between the BMW Group and suppliers is therefore ensured from the earliest possible onset, always with the goal of producing superb automobiles.
Consider our subsidiaries --- DesignWorks in California and our Hi-Tech-Office in Silicon Valley. Here, we use networks for early tracking and evaluation of the spirit of the times and possible technological trends issuing from North America.
Hydrogen technology. We are a driving force here. We are seeking partners, whether it is oil companies, energy companies, or other automobile producers.
Motorcycles. Here, we also had very good experience with partnerships, such as the completion of the first BMW F650 motorcycle at Aprilia or the completion of the BMW C1 at Bertone. In both cases, these motorcycles were designed and engineered by BMW, but assembled by our partner.
Or our cooperation with other automobile producers in the past, such as deliveries of Diesel engines to Opel, or the delivery of pressed parts to Porsche. A current example is our joint engine project with Chrysler in Brazil that will produce gasoline engines for the new MINI.
These examples of cooperation I have cited are directly related to the tasks to be worked on. We are not talking about financial relationships or merger.
In the future, the BMW Group will continue to engage in such strategic partnerships, perhaps more intensively than in the past. We will continue to expand our relationship network within the scope of a purpose-oriented, time-restricted network.
Two months ago we announced that we would expand the BMW X5 into an X-family. In this connection, we are negotiating with the Steyr-Daimler-Puch vehicle equipment company regarding possible participation in project realization. In the same manner, we are contemplating an expansion of the engine selection of the new MINI to include a Diesel.
Agility also means expanding our e-business capabilities at all corporate levels. This will significantly reduce our transaction and coordination expenses and bring added value in regard to performance to our customers.
In any cooperative venture or network, the BMW Group maintains direction over all aspects which influence the value of the BMW brand. Further, from our central position we coordinate the integration of the system for the maximum benefit of all concerned. This serves especially to ensure the quality of our product and the ultimate statement of ourselves as a company.
We are constantly thinking very intensely about new forms of cooperation - and we invite the supplier industry to join us.
Also, we will further expand our complementary businesses. For example, we have established even greater customer loyalty with our accessories and by offering financial services that go beyond vehicle financing and leasing.
Ladies and Gentlemen,
In conclusion, I believe we can see there are several keys to long-term success for the BMW Group or any company in our industry.
In conclusion, let me mention one last time the theme of this congress: 'Speed and connectivity'. At the BMW Group we use the terms 'agility' and 'networking', but the meanings are the same:
In today's world, you must be smart, fast, flexible and well networked. If you have those qualities, along with a strong sense of who you are and a good strategy for reaching your goals - then you have a chance for success.
Not just for profitably making and selling automobiles, but for creating a company that makes a real difference -- today, and tomorrow.
And to all here tonight, I wish you well in meeting that challenging goal.
Thank you very much.