STRATEGIC MANAGEMENT ANALYSIS

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Contents
SECTION 1: MISSION, VISION, AND STAKEHOLDERS................................................... 3

Stakeholder mapping of Porsche using power/interest grid ................................................... 3

SECTION 2: SCENARIOS AND INDUSTRY ANALYSIS .................................................... 5

Porters five force analysis of Porsche .................................................................................... 5

SECTION 3: RESOURCES AND CAPABILITIES ................................................................. 8

VRIO framework analysis of Porsche .................................................................................... 8

SECTION 4: BUSINESS AND CORPORATE STRATEGIES ............................................. 11

TOWS matrix analysis ......................................................................................................... 11

Conclusion ............................................................................................................................... 13

References ................................................................................................................................ 13

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 SECTION 1: MISSION, VISION, AND STAKEHOLDERS
Freeman (2010) defines stakeholders as the groups or persons who are influenced by the
processes in a company. In this context, the main stakeholders of Porsche include customers,
employees, contractors, partners, shareholders, suppliers, government, non-governmental
firms, local communities, competitors, industry bodies and regulators.

Stakeholder mapping of Porsche using power/interest grid

According to Slaba (2014), stakeholder mapping is an activity by which the stakeholders of a
firm are visually illustrated in terms of the level of power/interest grid of respective
stakeholders. The power/interest grid maps a firm’s stakeholders based on 2 dimensions-
level of power of stakeholders and level of interest of stakeholders (Ackermann and Eden,
2011).

Figure 1: Power/interest grid of Porsche’s stakeholders

Source: Created by the author

Keep satisfied: This group is comprised of stakeholders with high power low interest in the
organisation. Hence, these stakeholders do not pose any strong interest in the firm but can
take active actions against the firm in case they are not satisfied, notes Piscopo (2015). In the
case of Porsche, their shareholders, regulators and government are classified into this section.
The automotive industry is one of the most regulated sectors in Europe and the regulations
relating to environment, safety, taxation etc have already added to manufacturing costs,
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reports FTI Consulting (2015). Hence, government and associations have significant
influence over automotive companies. Shareholders of Porsche have the ability to elect board
members of the company and to control the organizational structure of the firm (Porsche,
2016).

Manage closely: In this group stakeholders have high interest and high power in the firm.
Hence, they are managed closely by the organization (Ackermann nd Eden, 2011). In
Porsche’s case, this group is comprised of non-governmental firms, customers, local
communities and communication media. Local community and customers of Porsche closely
analyses the working of the company and have the power to interrupt the working conditions
of the firm when they are not managed closely (Porsche, 2016). In European automotive
sector, communication media, local communities and non-governmental firms closely
scrutinize the activities of the firm and are always attentive on unethical practices of
automotive companies (SMMT, 2014).

Monitor: In this group, stakeholders have low power and low interest in the company.
Hence, firm only need to monitor their activities (Freeman, 2010). As presented in the above
diagram, industry bodies, competitors, partners, contractors and suppliers are the major
stakeholders of Porsche that required to be monitored. As per the case study, the activities of
these stakeholders can affect the competitiveness and market position of Porsche, so they
need to be monitored.

Keep informed: This group of stakeholders have low power but high interest in the firm
(Slaba, 2014). As per the case study of Porsche, employees are classified into this group as
they do not have significant power in the organizational decision making as the firm follows
hierarchical military leadership culture (Petra Kuenkel, 2015). Hence, though having high
interest in the organization, employees have low power in Porsche. For managing employees,
Porsche only required to keep them informed about the working of the firm.

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 SECTION 2: SCENARIOS AND INDUSTRY ANALYSIS

Porters five force analysis of Porsche

As per Hill and Jones (2009), porters five force analysis is a structure that tries to evaluate the
level of competition within the organizational strategy development and within the sector.

Figure 2: Porter five force analysis framework

Source: Hesterly and Barney (2015)

The main benefit of using porters five force framework is that it identifies the competitive
strength and hence the attractiveness of a sector. Porter’s framework also helps to determine
the opportunities and threats faced by an organization in the market (Hesterly and Barney,
2015). Porter’s five forces analysis of Porsche AG has been discussed below;

Threat of new entrants: This is related with the threat created by new organizations entering
the market. It can be inferred from the case study of Porsche that the threat posed by new
companies in the automobile industry is very low due to high capital costs, capital intensity of
R&D, high cost of brand implementation and needed fixed assets in innovative technology.
Also this makes it difficult for a premium-only Original Equipment Manufacturer (OEM) to
enter unless operating under the background of a big OEM. The cost of production in the
industry is very high and also the firms operating in automobile sector needs to invest heavily

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in R&D. For example, in 2008 the cost for producing 100,000 Porsche vehicles was nearly 7
million Euros and the firm spent over 12% of profit on R&D in 2007 when compared to an
industry average of 4%-6% (Amor, 2014). Automobile industry is also scrutinized by
regulators and government in relation to environment and sustainability practices in the
industry (FTI Consulting, 2015). Because of this, most of the OEM’s have negative
popularity and this particular reason prevent new entrants in automotive sector (Gastrow,
2012). From the case study, it can be observed that building partnership with Volkswagen
helped Porsche to benefit from VW’s effective fuel efficient technologies at a period when
new emissions regulations came into effect. This clearly indicates that the level of threat
created by new entrants for Porsche is very low.

Bargaining power of suppliers: This is related with the power possessed by suppliers in a
sector. The bargaining powers of suppliers are less weak in the premium car segment as
premium and sports cars such as Porsche needs high quality manufactured parts, high
technology devices, exclusive materials etc which only few number of suppliers are able to
provide (Petra Kuenkel, 2015). From the case study, it can be inferred that Volkswagen (VW)
is an important supplier as well as partner of Porsche. Forming close relations with VW
helped Porsche to acquire electronics components at cheaper price as electronics account for
30-35% of Porsche’s development costs. Also Porsche was able to benefit from
Volkswagen’s fuel effective technologies. Hence, this part of Porsche’s five force analysis
reveals the firms comparative ease in addressing the bargaining power of suppliers. While
most of the industry observed that Porsche’s partnership with VW as a good move, many
revealed concern that VW will be an interruption for Porsche mainly when Porsche enter
another new market with its luxury car ‘Panamera’ (Sarasini, 2014).

Bargaining power of buyers: This relates to the power of buyers in the market. The major
products from Porsche are the high-performance SUV’s, sports cars and sedans as well as
engineering services for other car-makers through Porsche Engineering Services (PES),
which is not much different from the products of other firms in the automobile sectors (Amor,
2014). Due to this fact, buyers can easily change from Porsche to other competing
organizations without any additional costs. The case scenario reveals that unit sales of
Porsche in 2007 were very low i.e. 98,652 in comparison with Toyota (8900000), Ford
(6553000), Honda (3652000) etc. Porsche customers can easily select their best option
because internet has enhanced buyer’s access to details on the characteristics of car models
and expert reviews. Even though cars form Porsche is still better in terms of performance,

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substitutes are available which significantly enhances the bargaining power of potential
buyers. Hence, Porsche needs to assure that their cars and services match the desires and
preferences of clients.

Threats of substitute products/services: This relates to the threat put forward by substitutes
accessible in the market. Premium cars mainly meets the 2 needs of customers such as offers
a means of transportation and asserts the luxury/premium status of their owners (Som and
Blanckaert, 2015). There are different substitutes are available to full fill the need of
transportation such as bicycles, public transport, planes etc. The most obvious substitutes for
premium cars like Porsche are Ferrari, Lamborghini, Lotus and Jaguar. The major substitutes
for engineering services of Porsche are Stola, Hawtal Whiting and MSX International Inc.
This indicates that the threat of substitutes in the case of Porsche is comparatively high.

Rivalry among existing competitors: This indicates the threat created by existing rivals in
the market. The competitive rivalry in premium car segment is not high as diversity of
distinct brands with distinct strategies and origins compete (Gastrow, 2012). However, the
outsourcing of engineering services is a growing sector for car makers and Lotus Engineering
was the only Engineering Service Company with whom Porsche indulged in competition for
outsourced engineering business. The rise of Porsche from just engineering service company
to premium sports car builder posed significant threat for Lamborghini and Ferrari. However,
the rivalry has extended from developed markets to emerging markets where each firm strive
to take advantage of extensive growth in middle-class sector (Petra Kuenkel, 2015). Porsche
competes with variety of carmakers which differentiate themselves through brand name,
style, technology etc. Hence, it can be understood that Porsche needs to adopt comprehensive
strategies to address the strong competition.

The above discussed analysis of Porsche reveals that for companies in the premium sector of
automobile industry such as Porsche, the market is highly attractive because only few
premium brands such as Ferrari, Lamborghini etc have strong position over the market.
Moreover, the low threat of new entrants, average level of competitive rivalry and low
bargaining power of suppliers make premium automotive industry more attractive. However,
threat of substitute’s products and high bargaining power of buyers indicate that Porsche will
be less competitive in the long run.

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 SECTION 3: RESOURCES AND CAPABILITIES
According to Glavas and Mish (2015), resources are the assets that an organization utilises
for creating value in the firm. On the other hand, the ability of the company to effectively
utilise the available resources for value creation is known as capability. Resources and
capabilities hold an important role in business as they directly influence value creation and
thereby affect sustainability of the company. Moreover, the competitive advantage of the
company is also closely related to the resources and capabilities of the company.

VRIO framework analysis of Porsche

VRIO framework is an analytical criterion developed by J.B. Barney that is widely used for
evaluating the resources and capabilities of a business organization. The framework assesses
the key resources and capabilities of the firm with respect four dimensions: Value, Rareness,
Inimitability and Organisation (Pesic, Milic and Stankovic, 2013).

 Value: This dimension measures the value added to the organization by a resource or
capability.
 Rareness: This dimension evaluates whether the resource or capability is unique to the
organization.
 Inimitability: This dimension evaluates if competitors will be able to imitate this
resource or capability.
 Organization: This dimension evaluates if the organization has strategically organised
the rare and inimitable resource or capability to leverage maximum value from it.

The VRIO framework outlines that resources and capabilities that are rare can only provide
short term competitive advantage while resources and capabilities that inimitable and
organised provide long competitive advantage to the company (Pesic, Milic and Stankovic,
2013). The VRIO framework analysis of Porsche is given below:

Resource/Capabilities Value Rare Inimitable Organised to

exploit
Lean manufacturing Yes

Synchronized Yes
engineering
Global brand Yes Yes

Product Quality Yes Yes

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High operating margin Yes Yes

Corporate structure Yes Yes Yes

Luxury sports cars Yes Yes Yes

Product design Yes Yes Yes

Internship program Yes Yes Yes Yes

Partnership with other Yes Yes Yes Yes

OEM’s
Research and Yes Yes Yes Yes
Development
Porsche Engineering Yes Yes Yes Yes
Group

Table 1: VRIO Framework analysis of Porsche

Source: Created by the author

From the VRIO framework analysis it is evident that four resources and capabilities were
identified as key strategic capabilities of Porsche than can offer the company sustainable
competitive advantage. These are engineering service, R&D, internship program and
partnership with other OEM’s.

Porsche Engineering Group (PEG) is one of the key capabilities of Porsche. Through its
engineering service, Porsche collaborates with almost all car manufacturers in the world. This
helps the company in employing 400 in PEG and another 2300 engineers in the firm that the
company otherwise could not have afforded. This also helps the company in developing
expertise in development and production of various products. This provides competitive
advantage to the company in product development. Engineering service also accounted for
around 3% of revenue of Porsche (Gastrow, 2012). This indicates that engineering service is
integral to the business model of Porsche especially as it helps the company in achieving
competitive advantage product development.

Research and development is another key forte of Porsche. Porsche spends 12% of its
revenue on R&D while the industry average expenditure on R&D was around 4%-6% of
revenue. Around 19% of employees of Porsche were employed in R&D and related

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operations (Sarasini, 2014). From this it can be inferred that R&D was given greater
importance in Porsche. The company collaborated with partners in developing cutting edge
technology through Porsche Engineering Group and its internal engineering group. The
capital requirement for R&D is expected to increase significantly in the next decade (Amor,
2014). So in this context, Porsche’s collaboration with external partners especially
Volkswagen in R&D would help the company in maintaining its high investment in R&D.
The company’s association with other OEM’s help the company fund its lucrative R&D
operation and also help the company in developing competency in different production
methods and technologies. This reveals that Porsche’s partnership with other OEM’s is
another key capability of the company.

The internship program of Porsche is another key strategic capability of the company. The
company spends over $30 million for providing paid internship to students. The company
employs 600 graduate student interns who help Porsche Engineering Group. The company
also sponsors university or institute based research. Around 10% of interns are given
permanent jobs at Porsche while the rest of the interns become a part of the alumni network
of Porsche that the company taps into for research and development. Porsche’s internship
program is one of the most sought out internship programs in the world and helps the
company in attracting the brightest talents towards the company (Som and Blanckaert, 2015).

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 SECTION 4: BUSINESS AND CORPORATE STRATEGIES
From the case study it is obvious that one of the main issues faced by Porsche was the threat
of losing engineering services business of the company due to the acquisition of Volkswagen.
The main factor contributing to the enormous success of Porsche’s engineering service was
the small niche focus of the company. Due to this other OEM’s were confident that Porsche
would take advantage of the partnership and compete with them as the company only
manufactured sports cars. However, with the introduction of Cayenne and Panamera models,
Porsche has ventured outside sport car segment. So the acquisition of Volkswagen- a mass
manufacturer of cars- has created doubts in the minds of partners. As it is evident from the
case study that engineering service offers critical competitive advantage to the company, the
present report evaluates alternative strategies that can be used by Porsche to achieve
sustainable competitive advantage in the market.

TOWS matrix analysis

TOWS matrix analysis is used for identifying alternative strategies for organizations. TOWS
matrix offers strategies to streamline the strengths, weaknesses, opportunities and threats
faced by an organization and thereby develop strategic alternatives for achieving sustainable
competitive advantage (Koontz and Weihrich, 2015). The TWOS matrix analysis of Porsche
is given below.

Strengths Weaknesses
 Loyal customer base  Niche market
Internal Factors  Premium products  Environmental
[IFAS]  Strong brand image sustainability issues
 R&D
External Factors
[EFAS]
Opportunities SO strategies WO strategies
 Emerging economies  Focus on emerging markets  Develop affordable sports
 Product expansion to cater and develop new products cars for middle class
to non-premium customers that cater to non-premium customers
customers.

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Threats ST strategies WT strategies
 High competition  Improve fuel efficiency  Develop engineering
 Loss of engineering through R&D service as an independent
service corporate entity.
 Environmental regulations

Table 2: TWOS matrix analysis of Porsche

Source: Created by the author

It is evident from the TWOS matrix analysis that Porsche can adopt four alternative strategies
to achieve sustainable competitive advantage. Based on this the following recommendations
are made to the Senior Management team of Porsche:

 Porsche is recommended to focus on emerging markets and hence develop new products
that cater to non-premium customers. By utilizing its rare and valued capabilities and
resources such as product design, global brand, etc and along with the collaboration with
Volkswagen, Porsche can adopt means to develop innovative and novel products as per
escalating customer tastes and changing market scenarios, so that overall progress can be
attained.
 Depending on the existing weaknesses and development opportunities of Porsche, the
organization is recommended to develop affordable sports cars for middle class
consumers. This could be attained by the utilization of prevailing inimitable and rare
features, so that conviction of partners can be sustained and hence continue to possess
brand image, reputation and faith among the other OEM’s. This would in-turn bring
beneficial outcomes for organizations.
 An alternative strategy that could be recommended to Porsche is to improvise the fuel
efficiency through R&D. R&D is an imperative forte of Porsche and hence effective and
efficient improvements to this would accomplish sustainable advantages and recognition
to the company. Thus based on Porsche’s fortified strong suits such as brand image,
loyal customer base, etc and considering the increased threats in engineering services
and environmental regulations, improvising fuel efficiency would help organization to
get adequate recognitions and thus achieve escalating heights compared to similar
service providers.

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 Finally, developing engineering service as an independent corporate entity is also an
efficient strategy as it is one among the best forte of Porsche. With its existing
distinction in this field, Porsche will be able to develop and grow sufficiently and hence
this would also provide Porsche suitable progress in the current market milieu.

Conclusion
The strategic management analysis over Porsche was conducted in this assignment work. By
accomplishing this work, key fortes of Porsche and its main stakeholders were recognized.
Also using Porter’s five force and TWOS analysis, opportunities and intimidations of
organization was determined. Finally based on the inferences obtained, researcher
recommends effectual alternatives so that sustainable competitive excellence can be obtained
by Porsche in the present market scenario.

References
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