Posted: May 25th, 2022

Adapting to changes inside the industry

Strategic Management Case

Over the last 20 years, the Balance Scorecard has been used as an approach by corporations to improve their competitiveness and ability to adapt to changes inside the industry. This is based on several fundamental principles to include: financial, the internal business process, learning / growth and the customer. Financial is when the firm is looking at tactics that will measure the monetary impact of the strategy on the organization. The basic idea is to be able to understand shareholders views of management and the company. The internal business process is when executives are examining various strategies inside the firm that will help them to become better in delivering products to customers and achieving the goals of shareholders. Learning & growth is when there is a focus on improving and creating value for different stakeholders. The customer is when management is concentrating on consumer perceptions and how they are impacting the organization. These elements are important, because the combination of them is providing a basic foundation for helping to identify problems and quickly adapt to transformations. (“Balance Scorecard Basics,” 2011)

In the case of Porsche, they used this strategy to allow the company to redefine itself and the way it reaches out to customers. To fully understand what is happening requires examining the current strategy of the firm and possible alternatives for dealing with any issues. This is when we can offer specific insights about how the Balanced Scorecard approach can help a business to address the various challenges they are facing. (Carpenter, 2009, pp. 761 — 767)

The Current Situation at Porsche

Porsche had tremendous success during the 1980’s. This is from their unique designs and the experience for most customers using their products. The problem was that the company started to see a loss of influence among their core demographic of consumers (the affluent). This is from other companies introducing SUV’s, sedans and sport cars. The fear at Porsche was that the company needed to adapt to these changes to remain competitive. Otherwise, the brand name and image would suffer. To prevent this from happening, executives decided to use the Balance Scorecard approach. (Carpenter, 2009, pp. 761 — 767)

The way that this was accomplished is to utilize the knowledge at many dealerships around the world to improve the overall quality of products and services. The problem was that this idea needed to be tested. To achieve this objective, the company decided to use this approach in dealerships located in France, Italy and England. This was close enough to the firm’s headquarters in Germany that management could make adjustments to the strategy. (Carpenter, 2009, pp. 761 — 767)

Once the plan was implemented, is when there would be challenges from existing employees who did not embrace these changes. Instead, they wanted to keep the status quo in place and wanted to ensure that the working environment remained the same. While at other times, select dealers began to embrace the strategy and transformations. At the heart of this system, was a critical tool implemented into the system called Key Performance Indicators. The basic idea behind this approach was to understand all of the data from each dealership using one standard formula. This offered Porsche a number of advantages including: the dealership could evaluate performance beyond financial figures, it improved communication between dealerships / headquarters and the profit margins for the entire sales network would improve. These elements are important, because they are showing how this tool would increase the collaboration and effectiveness of the entire firm. This is when the company can adapt to changes in the markets and quickly respond to customer issues. (Carpenter, 2009, pp. 761 — 767)

When the plan was being rolled out, many dealerships had to make a tremendous amount of adjustments. This is because there were certain procedures that had been established (which were designed to improve communication at the dealership). While at the same time, many training manuals and key information was missing on new models that were being introduced. To address these issues, the company had a consultant that would spend time inside each dealership. Their responsibility was to help implement the new policies and procedures inside every location. To do this, consultants worked closely with managers inside the dealership. This helped them to see how this approach can improve their organization and the profitability of each store. These factors are showing how there were a host of challenges facing Porsche and what strategies were used to address potential issues. (Carpenter, 2009, pp. 761 — 767)

As a result, the firm was able to maintain its dominance inside key markets and to improve the bottom line numbers of the organization. A good example of this can be seen by looking at the net income (after taxes) from 1995 to 2002 in the below table.

Net Income after Taxes for Porsche

Time

Net Income after Taxes (In Euros)

1995 — 1996

24.6 million

1996 — 1997

71.3 million

1997 — 1998

141.6 million

1998 — 1999

190.9 million

1999-2000

210.1 million

2000 — 2001

270.5 million

2001-2002

462.0 million

(Carpenter, 2009, pp. 761 — 767)

These figures are showing how the Balance Scorecard was able to help improve the profitability of the firm in key markets. This allowed Porsche to increase their net income and adapt to transformations inside the auto sector.

Alternatives and Recommendations

The problem with this strategy is that it has been untested in other regions of the world. This is mainly from the company focusing on testing the approach in select countries (i.e. France, Italy and Germany). At the same time, the increase in the bottom line results of the firm is a sign that the company may not be dealing with these challenges. This is because there could be an improvement in auto sales from strong worldwide demand. To see the impact on each dealership requires comparing the bottom line numbers of those that are implementing the strategy with locations which are not. (Carpenter, 2009, pp. 761 — 767)

The way that this can be accomplished is to create two different databases. The first one will contain information about the dealership and the effect that it is having. While the second database, will compare the results of dealerships that are not a part of the program. This will allow the company to see the impact of the Balance Scorecard on the firm. (Carpenter, 2009, pp. 761 — 767)

It is at this point that managers can begin to identify the common issues when implementing this strategy and what specific tools were used. This is when they can be applied to other dealerships around the world by showing them how to change and what is the effect. Over the course of time, this will make it easier to implement these procedures and create a strategy that will make the transition go smoothly. At the same time, executives can use various techniques that were identified to create a basic plan for addressing possible changes in the future. This can be accomplished by comparing the culture in the dealership and what were the common issues of resistance. Once this happens, is when managers can create an approach that will effectively deal with these challenges. This can help to improve productivity and reduce the underlying costs of implementing this new strategy. (Carpenter, 2009, pp. 761 — 767)

To ensure that the approach is effective over the long-term requires constant evaluations. One way that this can take place is through the having the managers and employee submit random surveys to executives. This would be accomplished by having consultants monitor what is happening and report their findings to upper management. This will help the firm to see if this strategy is effective and the different ways that it can be augmented to deal with these challenges. (Carpenter, 2009, pp. 761 — 767)

If this approach is used, it is estimated that the growth rate of the firm could increase by at least 10%. This was determined by looking at these rates over the last few years (which is averaging around 43% in earnings per share) and estimating how this can reduce any kind of operational inefficiencies. This would fall in line with the current implementation strategy. While it will be able to address specific areas that could often be overlooked by executives. This is the point that Porsche will be able to understand the marketplace and what are the most common issues affecting dealers. Over the course of time, this will help the company to see how there could be supply chain and service issues that will affect profitability. This will assist managers in knowing what customers are looking for and how they can have dealers address these challenges. (Carpenter, 2009, pp. 761 — 767)

References

Balance Scorecard Basics. (2011). Balance Scorecard. Retrieved from: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx

Carpenter, M. (2009). Strategic Management. Upper Saddle River, NJ: Prentice Hall.

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