Challenges faced by automobile final

1. Page | 1
UNIVERSITY OF MUMBAI
PROJECT REPORT
ON
CHALLENGES FACED BY AUTOMOBILE INDUSTRIES
BY
MR. JITEN H MENGHANI
ROLL NO 28
M.COM. (PART-2)
ACADEMIC YEAR 2014-2015
PROJECT GUIDE
PROF.MRS .
PARLE TILAK VIDYALAYA ASSOCIATION’S
M.L.DAHANUKAR COLLEGE OF COMMERCE
DIXIT ROAD, VILE PARLE (EAST)
MUMBAI-400 057

2. Page | 2
DECLARATION
I, MR. JITEN H MENGHANI OF PARLE TILAK VIDYALAYA
ASSOCIATION’S, M.L.DAHANUKAR COLLEGE OF
COMMERCE of M.COM (PART-2) (Semester 4) hereby
Declare that I have completed this project on
CHALLENGES FACED BY AUTOMOBILE INDUSTRIES
in
The Academic year 2014-2015. The information
Submitted is true & original to the best of knowledge.
-----------------------
(Signature of student)

3. Page | 3
ACKNOWLEGEMENT
To list who all have helped me is difficult because they are so
numerous and the depth is so enormous.
I would like to acknowledge the following as being idealistic
channels and fresh dimensions in the completion of this
project
I take this opportunity to thank the University of Mumbai for
giving me chance to do this project.
I would like thank my Principal, Dr. Madhavi.S.Pethe
for providing the necessary facilities required for completion of
this project.
I would also like to express my sincere gratitude towards my
project guide PROF.__________________________________________
whose guidance and care
made the project successful.
I would like to thank my college library, for having provided
Various reference books and magazines related to my project.
Lastly I would like to thank each & every person who directly
or indirectly helped me in completion of the project especially
my parents & peers who supported me throughout my project.

4. Page | 4
Content
1. Introduction
2. Methodology
3. The evolving automotive Landscape
4. The on demand challenge
5. Brand management
6. Customer Relationship Management
7. Software management
8. Quality management
9. Product development management
10.Management
11.Expansion management
12.Environment scanning
13.SWOT Analgise
14.SWOT analysis Framework
15.strategic steps towards the on Demand Business
16.Conclusion
17.Bibliography

5. Page | 5
Introduction
The automotive industry is facing new and pressing challenges. Globalisation, individualisation,
digitalisation and increasing competition are changing the face of the industry as we know it. In addition,
increasing safety requirements and voluntary environmental commitments by the automotive industry will
also contribute to the changes ahead. Size is no longer a guarantee of success. Only those companies that
find new ways to create value will prosper in the future. The purpose of this paper is to present a short
overview of the automotive industry today and highlight challenges facing the industry. Based on this
perspective, we will discuss strategic levers enabling OEMs to transform to on demand enterprises.
The Indian automobile industry is currently experiencing an unprecedented boom in demand for all types
of vehicles. This boom has been triggered primarily by two factors:
(1) increase in disposable incomes and standards of living of middle class Indian families estimated to be
as many as four million in number; and
(2) the Indian government's liberalization measures such as relaxation of the foreign exchange and equity
regulations, reduction of tariffs on imports, and banking liberalization that has fulfilled financing-driven
purchases. Industry observers predict that passenger vehicle sales will triple in five years to about one
million, and as the market grows and customer's purchasing abilities rise, there will be greater demand for
higher-end models which currently constitute only a tiny fraction of the market. These trends have
encouraged many multinational automakers from Japan, U. S. A., and Europe to enter the Indian market
mainly through joint ventures with Indian firms. This paper presents an introduction to the key players in
the Indian automotive industry, a summary of the recent developments, and an analysis of the
opportunities and challenges facing the various players (Indian and multi-national assemblers and
component makers) in the areas of product development, production, and distribution.

6. Page | 6
History
For forty years since India's independence from the British in 1947, the Indian car market was dominated
by two localized versions of ancient European designs -- the Morris Oxford, known as the Ambassador,
and a old Fiat. This lack of product activity in the Indian market was mainly due to the Indian
government's complex regulatory system that effectively banned foreign-owned operations. Within this
system (referred to informally as the "license raj"), any Indian firm that wanted to import technology or
products needed a license/permit from the government. The difficulty of getting these licenses stifled
automobile and component imports, creating a low volume high cost car industry that was inefficient,
unprofitable, and technologically obsolete. The two dominant products Ambassador and Fiat, although
customized to the poor road conditions in India, were based on a stale design concept (with outdated
features), and were also fuel inefficient.
In the early 1980's, the Indian government made limited attempts at reforming the automotive industry,
and entered into a joint venture with Suzuki of Japan. The joint-venture, called Maruti Udyog Limited,
launched a small but fuel efficient model (called "Maruti 100"). Priced at about $5,500, the product
became an instant hit. The joint venture now produces three small-car models, a van, and a utility vehicle
at a rate of more than 250,000 a year. Despite being a late entrant, Maruti's vehicles are estimated to
account for as much as 70 per cent of India's car population.
In 1991, a newly elected Indian government took over and faced with a balance-of-payments crisis
initiated a series of economic liberalization measures designed to open the Indian economy to foreign
investment and trade. These new measures effectively dismantled the license raj which had made it
difficult for Indian firms to import machinery and know-how, and had disallowed equity ownerships by
foreign firms. In 1993, the government followed up its liberalization measures with significant reductions
in the import duty on automobile components. These measures have spurred the growth of the Indian

7. Page | 7
economy in general, and the automotive industry in particular. Since 1993, the automotive industry has
been experiencing growth rates of above 25%. Data for the 1995-96 financial year is yet to be released by
all the firms, but estimates indicate that passenger vehicle sales may reach or exceed 350,000 for the first
time. (Passenger vehicles include cars and vans but not jeeps.) Table 1 presents the production data of
passenger vehicles for the top four Indian assemblers. Foreign vehicle sales have been insignificant until
the 1994-95 years.
1.1 A Brief Introduction to the Top Four Indian Automotive Assemblers
As seen in Table 1, Maruti Udyog Limited (MUL) is the number one Indian automotive assembler
commanding more than a 70% share of the Indian
passenger vehicle market. (It also sells a few thousand
jeeps, called Gypsy, which are not included in the
passenger vehicle data of Table 1.) Most recent data
released by MUL show that it produced a total of
277,000 vehicles in 1995/96 resulting in a turnover of
approximately $2 billion (Rs. 6673 crore, Source:
Financial Express, March 30, 1996). It is also a
reasonably profitable venture with after tax profits of
about $122 million (a 65 % increase over the previous
year).
MUL's relatively large production volumes offer scale
economies in production and distribution, that pose
formidable barriers to entry. It has also established a
solid supplier-base located around India (most of its
assembly is concentrated in Northern India near New
Delhi). Its products enjoy good reputation – in fact,
Indian automotive industry observers credit Maruti for
the rapid improvement in quality and supplier capability
in this industry. (Until last year, new Maruti's have to be
booked several months in advance!) MUL's product line
is concentrated in the economy car segment, although it
has been moving up recently to cater to the premium
market segments by introducing the higher-end Esteem.
Occupying the second position in 1994/95 is Bombay-
based Premier Automobiles Ltd. (PAL), which edged out
Calcutta-based Hindustan Motors Ltd. (HM) from the
second place. In fact, PAL produced the Fiat, and HM
produces the Ambassador – both products that dominated
the Indian automotive industry for decades. The advent of
Maruti has resulted in the decline of both these firms.
PAL's main products are the Premier Padmini (in the
compact car segment) and the NE118 (in the mid-size car
segment). Recently, PAL has rejuvenated itself by
entering into joint ventures with Peugeot (for the Peugeot
309), and with Fiat (for the Fiat Uno). Its close
competitor HM continues to produce Ambassadors in

8. Page | 8
small volumes targeted at the economy/compact car segment. HM also offers a higher end product called
Contessa Classic, and has entered into joint venture agreements with General Motors (GM) to produce the
Opel Astra, and with Mitsubishi to make the Lancer targeted at the higher-end market.
Despite occupying the fourth position and producing passenger vehicles only in small volumes, Tata
Engg. & Locomotive Company Ltd. (TELCO) is noteworthy, not only because it is a part of the powerful
Tata industrial family, but also because it is one of the few firms with indigenous product development
capabilities, and has been a dominant player in the commercial vehicles segment. (The author, in fact,
worked with TELCO for a brief period in the late 80's in their light commercial vehicles product
development group.) TELCO holds about 70% of the heavy commercial vehicles market, and (after
entering the market late) has also managed to fend off Japanese competition by gaining about 50% of the
light commercial vehicles segment with its in house product development. It entered the passenger
vehicles market only in 1991-92, and has quickly established itself in the higher end of this segment with
its Estate and Sierra models. The firm has entered into a joint venture with Mercedes Benz to assemble
the E220's, and is also said to be planning an entry into the small/economy car segment challenging
Maruti's stronghold.
1.2 A Brief Introduction to the Indian Component Suppliers
Component suppliers are the backbone of an emerging automotive industry. By all accounts, the Indian
component industry, based mostly in the southern city of Madras, is tiny. The auto component
manufacturers association of India (ACMA) estimates that $2.1 billion worth of car parts were produced
in the financial year 1995, out of which exports amounted to $228 million. To put this in perspective, the
entire Indian industry's revenue is roughly one-tenth that of GM's component unit, Delphi automotive
systems2. But, the component market has been growing rapidly at about 25% a year, and is expected to
quadruple in size by the year 2000. This growth has not only been due to the growing demand for
passenger vehicles, but also due to the increasing trend by multi-national OEM's to resort to global
sourcing to improve competitiveness.
Leading automotive assemblers and component makers are increasingly turning to India for components.
One of the now widely-cited examples of this trend is the Indian component firm, Sundaram Fasteners
Limited (SFL), which the author has been studying for the last year. SFL became GM's largest supplier of
radiator caps, and exports about 300,000 caps from its factories in Madras to GM plants around the world.
In 1992, when GM was planning to close one of its plants in UK., SFL took advantage of the liberalized
economic environment in India, bought the machinery from GM, and relocated them to its plant in
Madras. The company has continued invest heavily in quality and productivity improvements, and a tour
around SFL's suburban Madras Factory shows a world-class plant with minimal inventory and rework.
The company's workers, trained in statistical tools and control charts, keep processes under statistical
control due to which radiator cap rejection rate is less than 1% of annual production. The company also
has a very skilled managerial and engineering workforce, which has helped it develop in-house product
development capabilities. Using these resources and skills, the firm is now seeking to expand its supply to
other manufacturers in Europe, US, and Asia, and also diversify into other components.
SFL exemplifies the Indian auto components industry, which although small and fragmented has the
competitive advantages of a skilled workforce and low labour costs. It is estimated that components can
be produced about 30% cheaper in India than in the west. (The top Indian assembler, Maruti, is able to
price its cars at about $5,500 because it sources 90% of its components from Indian suppliers.) Rapid
growth and tie-ups with foreign firms will help Indian auto components suppliers further invest in
capacity and automation and acquisition of the latest know-how, thereby closing the productivity gap with
other world-class component makers. Exhibit 1 shows a few other notable Indian component suppliers
and their exports to OEM's.

9. Page | 9
The Evolving Automotive Landscape
The global automotive industry is subject to a range of factors that are increasing complexity and
influencing the economic options available to automobile manufacturers. The majority of these factors
interact with one another and have strong interdependencies. However, some of these factors are market-
induced and, consequently, cannot be influenced directly by the automobile manufacturers.
These factors include:
• Globalisation, regionalisation and market convergence – Due to the effects of liberalisation, national
markets are increasingly globalised. This gives OEMs the chance to expand to new markets, but also
increases the threat of new entrants or increased competition in traditional markets. For example,
European OEMs currently face an aggressive sales offensive by Korean OEM Hyundai. The reverse side
of globalisation is regionalisation, which means that local tastes and consumer preferences have to be
considered by companies. The concept of a standardised “world car” as promoted by Ford a few years
ago would not succeed in today’s world. Another problem for an OEM is market convergence due to
digitalisation of almost all products and value-add processes. On the market side, the increased pervasion
of products with digital technology leads to new vertical and horizontal partnerships between all kinds of
companies (e.g., IBM as a value add partner for the automotive industry), thus increasingly eliminating
traditional industry limits. This eventually raises the question for a company as to who is a partner and
who is a competitor in the company’s field of business.
Increasingly diversified consumer aggregate patterns of behaviour – Consumers no longer accept
standardised products, but want products that satisfy their individual requirements. Target groups thus
have to be downsized by companies so customers will be attracted by the products offered. However,
because of the increased global competition with a stronger focus on price and not on brand loyalty,
consumers generally do not reward companies for their more individualised products.

10. Page | 10
As a result of these factors, automobile manufacturers have new demanding requirements within their
field of activity:
• Accelerated modification and diversification of the
product portfolio – The OEM has to shorten product
lifecycles in order to react to individualise and fast
changing consumer demands with innovative
products. In the past, an average product lifecycle in
the automotive industry was eight years; today,
lifecycles are much shorter, or at least the product’s
design is often modified after just two or three years
on the market. With development costs for a new
model remaining on the same level or even increasing,
this concurrently means a shortening of amortisation
time for the OEM and, potentially, lower profits.
• Pervasion of automobiles with digital technology – In 2002, digital technology in cars already averaged
22 percent of the total value of a car, with a forecasted
increase to 35 percent of the total value in 2010. 1 But
for an OEM, the integration of hardware and software
into automobiles represents the predominant
accelerator of increased functionality coupled with
increasing complexity. This complexity results in
overstrained car development departments, product
failures, a cost explosion with respect to guarantee
and warranty costs, and impact on customer
satisfaction.
• Increased pressure for innovation and flexibility in
development and manufacturing – OEMs’
development departments are not just overburdened by the complexity of digital technology, but also by
the shortening of product lifecycles. Another aspect is
the increasing number of parallel development projects
since OEMs develop more and more niche models for
special target groups. This certainly requires the use of
new development techniques such as virtual reality.
For example, this technique enabled BMW to shorten
the development time of its Z4 model to just 30
months. On the production side, flexible assembly
lines become a key success factor to enable OEMs to
react quickly to individualised consumer demands.
However, flexibility cannot be ensured only by using
new technology. Completely new production concepts
have to be developed to systematically manage the
complexity in car production. This eventually requires
outsourcing of responsibilities and activities to a variety of cooperation partners, thus demanding new
ways of managing cooperation partners or even the development of business webs.

11. Page | 11
On The Demand Challenge
The 64-million-dollar question is if an OEM can remain competitive in the face of the turbulent
transformations taking place in the automotive industry. The answer is a clear YES! The key to success
lies in being focused, responsive, variable and resilient, which can be accomplished by converting to an
on demand company.
Adaptively to an ever-changing environment has become the core business demand, requiring problem-
solving tools and methods to be identified, selected and implemented “on demand.” Focused, responsive,
variable and resilient are different behaviours required to become more adaptable, behaviours whose
features correspond with the exigencies of the business objective. If you are hungry at lunch time, you
will responsively take a break so that you can afterwards again focus on your work. The vitamins in the
salad you had for lunch make you resilient against influenza. Thus you can variably adjust to different
weather conditions on the way back home without catching a chill. Transforming this analogy to business,
a car manufacturer has seven major strategic levers to enable such adaptive behaviour
• Brand management – Brand management strategies help make an OEM more focused and able to
differentiate its products from the competition.
• Customer relationship management – Customer relationship management (CRM) helps a company
become focused on customer requirements and wishes and responsive to changes in aggregate patterns of
customer behaviour.

12. Page | 12
• Core competency management – Core competency management allows a company to focus on its
internal strengths and become more variable and resilient by entering into strategic partnerships with
suppliers with competencies in new technologies or niche operations.
• Software management – Software management is key to making a company focused on software
standardisation and strategic partnerships, which, in turn, help the OEM become variable and resilient.
• Quality management – Quality management (QM) will, by becoming a cross functional and cross-
company concept over the whole value-add chain, help ensure that companies grow their maturity in
resilience.
• Product development management – Managing product development together with a focus on
broadening competencies in new technologies will help enable OEMs to become more variable by the
optimisation of collaborative engineering. Increased resilience can be achieved by standardised processes
and the extended use of virtual testing. Decentralised and regionalised development activities will help
lead OEMs to increased responsiveness to customers’ desires.
• Expansion management – Management of expansion into new geographies and cultures requires that
OEMs are focused on the requirements in these new markets and responsive to changing market
conditions and requirements.
Sevenmajor strategiclevers enablingaggregate patterns of on demandbehaviours for autocompanies.

13. Page | 13
Brand management
The OEM’s brand image is a key factor that enables consumers to differentiate their product from those
of their competitors. Generally a strong brand image can provide a kind of uniqueness to the product. In
an over-stimulated automotive world with increasing similarities between individual vehicles, such a
brand image represents a rock for consumers to hold on to, giving them cognitive and emotional support
to navigate through the diversity of products in the market. A premium provider with premium brands is
in a valuable position for an OEM. This is not just due to differentiation aspects on the customer side, but
also to enhancement of the company’s stock value, since brand value is seen as an intangible asset
nowadays and has become increasingly important for a company. These two aspects underscore the fact
that currently all OEMs are strengthening the back end of the value chain to focus on a core value-add
area. Initially, OEMs’ motivation to create a premium image became apparent with some major strategic
moves in the industry:
• With Volkswagen’s Phaeton, the company did not just want to close a gap in the segment of upper-class
vehicles, but also intended to transform its whole brand image from a mass market to a premium market
supplier.
• Ford made a strategic move into the premium segment by acquiring the premium brands Aston Martin,
Jaguar, Land Rover and Volvo.
• Entirely new premium brands were created, as Honda did with Acura, Nissan with Infiniti and Toyota
with Lexus. Moreover, some traditional premium manufacturers have moved into the lower end of the
market to develop new valuable segments by leveraging a strong brand image in these new business
areas. Some well-known examples are:

14. Page | 14
• DaimlerChrysler’s A-Class and Smart
• BMW’s Mini and the 1 Series.
Finally, even mass manufacturers have moved down-market to reach new customers as Toyota did with
the Scion brand in the USA. However, brand transformation and brand extension require holistic brand
management targeting and the creation or retention of unique brand images.
First, one has to distinguish between cognitive and emotional customer awareness of the brand concerned.
A high cognitive awareness means the customer’s perception of a brand known for special product
features – for example, Peugeot’s traditionally strong position in diesel technology. On the other hand, a
high emotional awareness corresponds with a customer’s perception of a brand for a certain life-style or
feeling associated with the product. For example, by featuring a retro design, Chrysler’s PT Cruiser tries
to arouse feelings of the American life-style in the 1950s. A premium brand such as BMW or Mercedes-
Benz is characterized both by cognitive and emotional brand awareness. For example, the brand
Mercedes-Benz is recognised for its constant stream of product innovation, as well as for prosperity or a
luxurious life-style. With both cognitive and emotional awareness influencing customers, it makes sense
to establish a theme park concept. This concept adds the usual sales aspects of a showroom and a
presentation of a brand with the objective of enhancing the OEM’s brand images and, therefore, customer
loyalty and brand values. An example of an OEM establishing a theme park concept is BMW, who is
currently establishing a “brand temple” in Munich to create a “mythical aura” around its brand by
combining exhibition elements with cultural events and personal customer support. And, within its
“metropolis concept,” for major urban areas’ new Mercedes-Benz centres link product with brand
presentation by a common architecture highlighting so-called “brand galleries” with exhibitions of
brands, motor sports and design. OEMs who do not possess both cognitive and emotional awareness
should rather focus either on a selective product or on selective emotion-focused positioning. GM’s brand
Opel, for example, failed with the theme park concept in Germany due to a lack of visitors in its centre in
Rüsselsheim. As a consequence, Opel again puts emphasis on sightseeing of the production lines and car
delivery, which stresses a product-focused positioning. Emerging brands with low brand image and
market strength such as Hyundai, Kia or Daihatsu in Europe are a special case. The brand management
strategy of these OEMs should first of all focus on increasing brand awareness before considering
product- or emotion-focused positioning or even a theme park concept.
Finally, it must be stated that the theme park concept implicitly requires a high brand image and clear
differentiation from the competition. Especially high-volume manufacturers will have to invest a lot of
effort to transport their message and convince potential customers of their unique selling proposition. If
OEMs realise a theme park concept without sufficient cognitive and emotional brand awareness, they will
become stuck in the middle. It remains to be seen whether Volkwagen’s theme park concept in Wolfsburg
(“Autostadt”) and in Dresden (“transparent factory”) will sustainably transform the brand’s image from a
predominant mass market manufacturer to premium manufacturer.

15. Page | 15
Customer Relationship Management
CRM has become a buzzword in the automotive industry. However, CRM is not always clearly
understood. CRM can be defined as an organisation-wide activity to improve customer focus and
responsiveness by systematically gathering and using customer data at relevant customer touch-points and
in preliminary value-add activities. According to a recent IBM study, Audi, BMW and Volkswagen have
already implemented activities that have been especially successful in certain CRM areas. Current steps
being taken in automotive CRM include optimisation of multichannel approaches, strengthening of
financial services, and optimisation of dealer management and integration of CRM with supply chain
management (SCM). These steps are discussed below.
Optimisation of Multichannel Approaches
A multichannel approach addresses the development and integration of relevant customer touch points in
the customer lifecycle, from the first negotiations with the dealer through online configuration and order,
delivery and after-sales support. Thus, multichannel CRM means complementing traditional channels
such as direct mail, telephone or the dealership with new communication technologies such as the
Internet, Short Message Service (SMS) or telemetric. “Multichanneling” helps improve the OEM’s focus
on the customer since the collection and centralisation of customer data can enhance personalised
communication with the customer. Many OEMs, for example, provide a personalised Web page on the
Internet and integrate it with front- and back-office CRM applications so the data collected can be
profitably used for marketing and sales purposes. Also, product development and production planning can
be adapted.
For example, a manufacturer could align production planning with customers’ needs by collecting and
analysing aggregate patterns of online customer behaviour as documented in Web configuration tools.

16. Page | 16
Strengthening of financial services
Providing financial services has become an integral part of most OEMs’ activities. Since such automotive
banks do not operate with their own
subsidiaries, they have a lean cost
structure, enabling them to offer low-
interest loans for financing new cars. This
aspect should not be underestimated as a
sales promotion tool considering the
increased competition and stagnating
demand in the industry. Financial services
also help strengthen customer loyalty – for
example, leasing customers of BMW
Financial Services receive two
complimentary repair shop visits per
year.For operative CRM purposes,
providing financial services facilitates an
OEM’s collection of sensitive customer
data to improve customer focus. Of course,
this conflicts with banking confidentiality,
generally meaning that customer data may not be transferred to a third party. However, DaimlerChrysler
defined a way to work around this situation. When buying a car at the local DaimlerChrysler dealer, the
customer’s credit application is registered by the dealer. In addition, forwarding customer data to
subsidiary DaimlerChrysler companies is part of the contract. This procedure is reinforced by
corresponding objectives for sales personnel.
The intensity of financial services generally varies in the industry. Whereas the GMAC bank or the Ford
bank concentrates on car financing, the Volkswagen, BMW and DaimlerChrysler banks are comparable
with regular commercial banks. The Volkswagen bank, for example, offers giro accounts and extensive
capital investment opportunities. The DaimlerChrysler bank in Germany does not just govern 655,000
leasing and financing contracts but also has 186,000 customers in the capital investment segment.5 The
bank is especially interested in the 30 percent of customers who do not yet drive a DaimlerChrysler car,
so personalised measures derived from the DaimlerChrysler bank may be used to help gain those
customers as potential DaimlerChrysler car buyers.
The OEMs’ banks also evolve as an
important link for the fleet management
business with companies. Especially for
premium manufacturers, this business has
become an emerging business segment. For
example, in Germany, sales to companies
account for 60 percent of BMW’s sales.6 In
this field, car banks provide bundled products
consisting of leasing, insurance and mobile
services, thereby offering the business
customer one-stop shopping for mobility.
Optimisation of dealer management
The prerequisite for any successful CRM in
the automotive industry is good operating

17. Page | 17
relationships among OEMs and their dealerships, the customer interface per se. No other touchpoint in the
automotive customer lifecycle has a more intense and personal relationship with the customer than the
dealership. The dealer is continuously feeling the customer’s pulse and visualising his needs and pains.
An effective communication to dealers thus contributes to OEMs’ insights into market trends and
customer preferences, which can considerably enhance their responsiveness.
However, this relationship has suffered as a result of the new European Union (EU) regulations
exempting dealerships from the single-brand strategy. Many manufacturers have offered new contracts
with lower profit margins, which are being challenged by the dealers. In the case of BMW, all old
contracts with the 2,500 European dealers were cancelled in the context of the new EU regulations.7 The
new contracts offered to the dealers, which are now limited to a five-year duration, are a means to impose
new standards for such issues as the exhibition spaces. However, the investments necessary to achieve the
standards indirectly tie the dealers to the brand and, thus, significantly undermine the purpose of the new
EU regulations to increase more competition in automotive sales. An administrative appeal at the EU
commission against BMW’s new dealer contracts initiated by the BMW dealer association is still
undecided (July 2004). In any case, such disputes need to be satisfactorily resolved if BMW (as
announced) wants to integrate the dealerships as value-add partners in its CRM concept. The same is true
for all other brands ranging from Alfa Romeo to Volkswagen, where similar problems caused disputes
between the OEMs and dealerships.
Integration of CRM with SCM
A holistic integration of CRM systems with SCM systems in preliminary value-add activities represents
further evolution in an OEM’s CRM activities. Such integration comprises – as outlined above – the
transfer of customer data to the development department. Car design controlled by demand profiles
provides better capacity planning and thereby can help reduce fixed costs. As a result, OEMs
considerably improve their variability. To operationalise these strategies, an OEM first needs to have an
overview of all internal CRM strategies. Many manufacturers still pursue parallel yet independent
approaches and thus do not follow the demand of integrating all relevant channels into a multichannel
strategy. OEMs that have already centralised their CRM need to develop an extensive strategy that
incorporates customer-specific national and regional CRM solutions. It is anticipated that only concepts
that combine realistic goals with positive economic results will succeed.

18. Page | 18
Core Competency Management
Outsourcing and transferring out of development and manufacturing activities are two of the key ways to
master the complexity of product development and production. With increasing in-vehicle electronic
content in the future, the question of outsourcing will have a whole new dimension. Outsourcing will be
one of the key challenges for the automotive industry, which OEMs can face using the following three
strategies:
• Definition of core competencies
• Optimisation of core competencies
• Institutionalisation of meta-competence management.
These strategies are discussed below.
Definition of core competencies
OEMs need to decide what their future
portfolio of core competencies will be. A
core competency generally drives superior
customer value and uniqueness and is also
difficult to imitate. To define core
competencies, all business components have
to be analysed to determine the OEM’s most
differentiating activities for the future.
However, first this requires an overall vision
for an OEM’s business model that allows a
derivation of strategies for business
segments and functions. Despite the OEM’s

19. Page | 19
continuing role as a brand manager, concentrating solely on the end of the value chain is not a realistic
scenario. This is because the European automotive supplier landscape is still in the consolidation phase.
Many medium sized suppliers do not yet have the level of sophistication to work self-sufficiently on
product development issues. Another reason against the OEM’s sole core competency in brand
management and CRM pertains to the OEM’s culture: All OEMs regard themselves as car manufacturers,
not just brand managers. However, decreasing participation in automotive value creation and
collaborative engineering will not considerably change this culture. Nevertheless, a paradigm change has
to be stimulated in an OEM’s organisation with respect to the transfer of responsibilities to suppliers since
increasing product complexity is taxing OEMs more and more, resulting in product failures and
increasing guarantee and warranty costs. In contrast to product development, especially in car production,
many successful approaches of partner integration can already be seen. Ford in Saarlouis /Germany
developed a conventional supplier park where the most relevant suppliers are situated close to the final
assembly. This scenario optimises infrastructure and transport costs.
The production of DaimlerChrysler’s “Smart” brand cars in Hambach/France goes one step further by
integrating Tier-1-suppliers through conveyor belts, thus eliminating any transport costs. In Volkswagen’s
commercial vehicle facility in Resende/Brazil, an innovative production concept was developed, which
could be a positive example for other production facilities. The suppliers not only deliver the modules,
they also assemble them. The production facilities in Hambach and Resende also implement the concept
of pay-on-production. Pay-on-production means farming out capital equipment and complete processes to
a supplier so the OEM pays per unit and saves tremendous investment costs in its own assembly lines. For
example, the Ford Fiesta assembly in Germany is financed, built and run by the supplier Eisenmann as a
pay-on-production model. Depending on the different stages of partner integration within car production,
it becomes obvious that OEMs can significantly leverage their overall variability since the use of
outsourcing transforms fixed costs into variable costs.
Variability can also be enhanced by completely outsourcing niche models to Tier-0-suppliers, such as
Bertone, Heuliez, Karmann, Magna Steyr, Pininfarina or Valmet. Contradictory OEMs do need to build
up assembly lines for low-volume products to be able to balance fluctuations in demand and
overcapacities. For example, Magna Steyr is not just the manufacturer of the BMW X3, but also was
considerably involved in the planning and development phase. Similar approaches can be seen at
Karmann, who was responsible for the Mercedes CLK, Audi A4 convertible and Chrysler Crossfire
production and also partly contributed to development. Ultimately, any outsourcing of activities
presupposes the formulation of a business case since the concentration on core competencies primarily
focuses on cost efficiency.
Optimisation of core competencies
Once the core competency portfolio has been
defined, the next step is to improve the
effectiveness and efficiency of these
competencies. This process will cause OEMs to
migrate from a functional organisation to a
process-oriented organisation. A good example of
this is the shared service centre concept, as
practiced by GM Europe for finance processes in
Barcelona. Another example is BMW’s CRM
program, which implemented not only a new
technology but a total reorganisation to improve
customer focus. Also, DaimlerChrysler’s
investments in research & development – about

20. Page | 20
28,000 employees work in this section – can be interpreted as a way to emphasise a core competency with
a focus on fundamental research (e.g., fuel cell) and the acquisition of specification know-how so the
increasingly outsourced development competencies can be systematically managed. This meta-
competence management significantly improves the OEM’s resilience.
Institutionalisation of meta-competence management
Meta-competence management comprises management of the internal core competencies in interaction
with the competencies introduced by suppliers. The goal of meta-competence management is to create the
best possible cooperation among all players in the supply chain, meaning that supplier relationship
management (SRM) will become a critical success factor in the automotive industry. However, SRM is
practiced with varying levels of intensity. A study by the University of Bamberg/ Germany showed that,
in particular, in the case of volume manufacturers, supplier satisfaction has deteriorated since 2001 – in
spite of the growing responsibility of the supplier.8 Main points of criticism were high cost pressure and
poor payment patterns, affecting morale. Another recent study by the Boston Consulting Group should
give those OEMs reason to reconsider their SRM strategy. It was proven statistically that customer
satisfaction positively correlates with supplier satisfaction.9 Hence an OEM needs to institutionalise an
SRM that covers the full product lifecycle from component development to risk-sharing in car recalls.
BMW can be regarded as an innovator in SRM – as confirmed by high supplier satisfaction levels in the
University of Bamberg study. This satisfaction is attributed to certain measures which should increase
effectiveness and efficiency in the joint core processes of collaborative engineering, procurement and
sourcing, and material SCM. For example, for the collaboration of suppliers, a standard process model
was defined which ended up in an integrative Web-based supplier interface. The supplier portal also
represents a central link that can be used to exchange information or to transmit BMW’s specifications.
Other successful examples for seminal SRM activities are Chrysler’s Score program implying an
individualised scorecard for each supplier and Toyota’s institutionalised “blue sky” discussions with
suppliers. Both activities enhance the information flow between OEM and suppliers and the joint
definition of objectives, thus making the automotive business web more resilient. The following table
compares migration of the OEMs’ core competencies, from 1990 to 2000 and projected to 2010, from an
industry point of view. This is from a generic perspective and does not consider individual OEMs.

21. Page | 21
Consequently, deviations are possible; e.g., in contrast to most other OEMs, Toyota will probably always
emphasise its outstanding manufacturing competencies.
OEM Competencies.

22. Page | 22
Software Management
The increased pervasiveness of digital in-vehicle components has become a main feature of today’s
vehicles – especially in the premium class. Electrics and Electronics (E/E) have been pushing
technological innovation in the last decade. Power train, chassis or suspension are already permeated by
electronics. And where transmissions or brakes are involved, E/E and software quality and reliability
become a safety issue. Only if the stability and reliability of the systems are guaranteed will electronics
and software pave the way for profitable differentiation. For example, engine power will be controlled by
software. Or a vehicle of the future could transmit a powertrain defect back to the manufacturer, who, in
turn, transmits a software patch back to the vehicle or sends a message to the in-board monitor with
details for the next check up at the dealer of preference. The objective of software management is to
develop and deliver functions that the customer can experience and operate intuitively, that are always
available and that, in case of defects, do not have any negative influence on the safe function of the
vehicle.
IBM forecasts that 100 million lines of code will be used in cars by 200910, a number that, at a Capability
Maturity Model CMM level 3, corresponds to 2.3 million software design faults. Without question, these
faults will have a negative impact on future quality and warranty costs. To prevent this, the prevailing
strategies in automotive software management are:
• Networking and integration of different in-vehicle microprocessors
• Setup of architecture and integration competency
• Definition and integration of strategic partners
• Participation in – and even driving of – standardisation activities
• Development of software functions separate from hardware functions.
The interaction between the various E/E and software architectures requires a clear strategy to consolidate
all the functions into a comprehensive architecture embracing all product lines, i.e., a holistic and
integrative approach to software management – starting in the development phase through to after-sales
support.

23. Page | 23
E/E and software are not considered a vehicle manufacturer’s downright core competency. Yet by
extending their competence in the areas of electronics specifications and integration, focused OEMs can
improve their resilience. The integration of external strategic partners and their software is urgently
necessary, but the responsibility for developing a robust software development and integration process
will lie with the car builders themselves. They have to define, organise and implement the software
development process. The manufacturer defines a component’s specification and the aspects of
integration based on the comprehensive architecture and the consolidation of electronic and hardware
development to achieve sound interaction among all architectures involved. A standardised process
should be emphasised here to allow cost optimisation. The enlargement of internal capacities will allow
the specification of requirements, effective outsourcing and surveillance of the partners’ design processes,
and exertion of integration competency. At the same time, those internal competencies can render the
manufacturer more responsive, because software is the entry gate to innovation, where opportunities have
to be realised and transformed into a marketable product. Since development and design are the
responsibility of the partners, integrated technology systems are essential.
Another major task for OEMs in the future will be to drive cross-industry standardisation activities. Fully
recognising the advantages of an open standard for automotive E/E architecture, OEMs and system
suppliers founded AUTOSAR (Automotive Open
System Architecture). Its objectives are to standardise
basic system functions and functional interfaces,
provide the capability to integrate and transfer functions
and substantially improve software updates and
upgrades over the vehicle lifetime. Standardisation
activities such as AUTOSAR will unify the parties
involved and ease the integration of different
microprocessors. Open standards thus contribute to
more reliable functions, enhance the OEM’s maturity in
on demand resilience and allow suppliers to develop
their applications based on a standard architecture and
platform. Since the integration and interrelation of electronic control units are vital, this global
partnership will play an important role in mastering software problems. Additional steps forward include
systematic test procedures and a software quality and
supplier management ideally supported by
methodologies such as SPICE (Software Process
Improvement and Capability dEtermination) or CMM.
Quality problems caused by E/E and software could
further be avoided through the transfer of development
standards for high-end computers to vehicle
development. The goal should be to develop software
functions separate from hardware functions. Thus, the
OEM can become even more responsive. Successive
software releases will drive new functionalities into a
given control unit. With software and hardware separated, a software release management process will
gain an importance that helps the OEM control the innovation flow through an intelligent release policy.
Implementation of these strategies means organisational challenges for an OEM. Many car producers are
not yet attuned to software lifecycles of 6 to 12 months in contrast to hardware lifecycles of 18 to 36
months. Correspondingly, they need learning loops considerably shorter than in mechanics and should
more proactively investigate for strategic partners. However, there is a danger in underrating cultural
problems both in this integration process and in standardisation boards.

24. Page | 24
Quality Management
Since Ford addressed the Firestone tyre recall in early 2001, the internal areas of Quality, Quality
Assurance and Reliability have been complemented by the external after-sales failure costs, better known
as warranty costs. The increased content of in-vehicle electronics, mechatronics and software, coupled
with ever-decreasing development times and unclear responsibilities will continue to force OEMs to
master their quality problems in the near future.
Currently, Quality Management (QM) has three major thrusts:
• Durability and reliability (product focus)
• Perceived quality and customer satisfaction (customer focus)
• Quality-oriented new products and continuous improvement (production and process focus).
QM is no longer seen as just a cross-function activity driven by the quality and reliability organisation,
but as the key building block for all parts of, and players in, the supply chain. OEMs, by defining quality
as their ability to create customer satisfaction, adopt Total Quality Management (TQM) as a holistic
approach driven from the top-down.
Though QM has had a high priority in various
functional areas of car manufacturers for a long time,
implementation of a coherent and organisation-
spanning quality strategy represents an even higher
level of evolution. Prerequisite for an overall quality
strategy is knowledge about the interaction of all
quality procedures used within a company and by its
suppliers. To retain, regain and improve their product
quality, OEMs will need to drive QM methods and
tools within the framework of their development
departments; this will include SRM activities,
production systems and knowledge management.
OEMs can foster responsiveness through virtual /
enhanced reality since problems can be recognised

25. Page | 25
and solved very early in the development process before significant investments have been made. In their
production systems, OEMs like Audi, BMW, Mercedes-Benz, Honda or Toyota combine standard
processes with management methods and tools. APS, KOVP, MPS or Jellyfish treat issues ranging from
problem detection to process stability and customer orientation using a fixed variety of methods, tools and
applications. With respect to their collaboration, OEMs and suppliers rank QM as the core process that is
crucial to the relationship. Partner integration can be enhanced further with respect to interaction,
organisation, process and IT. By gaining influence over suppliers’ QM, OEMs will be able to
continuously improve the quality of their products
Use of QM to enhance partnerintegrationwith respect to interaction,organisation, process and IT.
Knowledge management will also increasingly become an integral part of effective QM as a method of
administrating a company’s entire set of product, process and resources data. Responsive companies will
collect quality issues and derive key performance indicators for early recognition of problems and
continuing quality improvements. Hence, OEMs like Audi, BMW, DaimlerChrysler, Ford or GM / Opel
and suppliers such as Bosch push the virtual factory / digital factory, an extreme manifestation of this
concept.
In short, by implementing the quality issue into various links of the automotive value chain, OEMs can
become more resilient as the cross-functional integration of quality procedures removes interfaces,
increases transparency of the procedures and helps eliminate potential risks.

26. Page | 26
Product Development Management
Product development is the area within the product lifecycle that sets the parameters for cost, quality and
time to market. From a customer point of view, the end results have deteriorated over recent years.
Increased vehicle complexity has had a negative influence on product quality and customer satisfaction
with a corresponding impact on brand image. For development departments, there is potential to improve
customers’ perceptions in the following areas: individualisation, product strategy, increased efficiency
and quality
Improvements in customers’ perceptions can be achieved through individualisation,
product strategy, increased efficiency and quality.
The challenges of increasing legal, safety and environmental requirements, product offensives and
reduced model cycles constitute different aspects of individualisation that have to be mastered by
development departments. Moreover, since many products are rejected by the market, a detailed market
and requirements analysis should be performed to determine which functions and models a customer is
willing to pay for prior to developing new functions and innovations.
Basically, globalisation is realised either by a marketing offensive in new markets with an OEM’s own
brands or by acquisition of regionally established brands. Whatever strategy an OEM follows,
globalisation will confront it with new customers and different desires. Product strategy has to react to
these changes with innovative and high-quality products in an enlarged segment range. Innovation and
product quality offer the starting points for differentiation. To increase and sustain responsiveness to
regionalised markets, decisions have to be made with respect to the installation and coordination of
globally centralised and regionally decentralised development centres.
For the car manufacturer, organisational design tasks have to be approached with a view to optimising the
management of product development. Silo thinking undermines effective internal communications and
must be overcome. The Mercedes Development System (MDS) is an example of such an organisational

27. Page | 27
scheme; its standardisation of development processes constitutes the basis for effective interchange and
thus helps to reduce time investments. Where competencies lie beyond their core area, focused
manufacturers can enter into partnerships with OEMs and suppliers. For example, OEMs cooperate with
each other in engine development. Ford and Peugeot jointly develop new common-rail diesel engines that
will be assembled first in Jaguars, and the turbo diesel engine of BMW’s Mini One D was a joint
development with Toyota. Due to the trend towards modularized cars and growing demand for niche
models, the added value of vehicle design will increasingly shift to suppliers. By 2015, Mercer
Management Consulting expects a suppliers’ share in the added value per vehicle of 78 percent for cars
produced for the mass market and 74 percent for premium cars.11 As already mentioned, BMW
outsourced large parts of the design and the whole production of its X3 model to Tier-0-supplier Magna
Steyr.
This transfer of development responsibilities to strategic partners requires the joint optimisation of
collaborative engineering. Optimised collaboration can be achieved by having comprehensive
specifications; clear definitions of tasks, targets an competencies; complete requirements management;
risk sharing; and open organisation, IT, processes and communication. However, optimised collaboration
on the whole needs the framework of a multi-project management concept. Another area with a high
potential for efficiency improvements is vehicle testing and tooling. It is imperative that the OEMs focus
intently on the maturity and reliability of components and systems prior to vehicle testing. Today, many
components have an unsatisfactory level of reliability, which, in turn, leads to major problems during
vehicle testing with significant impact on the results and project timing. A higher level of virtual
simulation through design software will help reduce the number of vehicles used in development. The
benefits of virtual simulation are obvious – allocation of designed space and functional testing by virtual
prototyping. If construction data get designed with the aim of virtual testing, manufacturing costs can be
significantly reduced by development. But to save time and money, expensive virtual models have to be
reused in subsequent model variants. Therefore, the flow of validation data back to the design department
has to be increased.
OEMs often lack consistent technical knowledge about virtual testing applications and their benefits.
Often, a comprehensive and reconciled strategy for testing and tooling still needs to be developed.
However, with such knowledge and strategy, the manufacturer could define an integrated process chain to
render virtual testing a standard tool in product development. Collaborative engineering, standardisation
of processes and virtualised testing – done to shorten design cycles and prevent cost risks – can lead to a
high level of maturity in on demand responsiveness. Without open standards, collaborative engineering
will neither succeed within the company nor on an intercompany basis between strategic partners. The
conveyance of lessons learned to design and virtual testing departments will help leverage the
manufacturer’s maturity in on demand resilience.

28. Page | 28
Expansion Management
Emerging markets have tremendous growth potential for vehicle manufacturers. This is particularly valid
for threshold countries and regions at the crossroads between an agricultural economy and an industrial or
service-industry economic structure.
Overseas production has two incentives: marketability and cost reduction. Resilient manufacturers
analyse and decide on a region as a delivery or a production market. Globally, three regions can be seen
as emerging markets: Latin America, Eastern Europe and Asia. Whereas the Latin American markets are
traditionally very volatile (e.g., in Argentina and Brazil) and do not have the highest priority within the
OEMs’ expansion strategy, Eastern Europe has a much higher and sustainable growth potential.
The integration into the European Union of many former communist bloc countries is a key factor for the
OEMs’ expansion activities. Asian manufacturers, especially, are showing a lot of initiative building
manufacturing locations to supply the local markets and as a gateway to the whole European market. The
Russian market seems to remain of limited interest for the installation of new foreign production sites:
CSM forecasts production growth of roughly 200,000 units through 2009, but the percentage of sales of
foreign cars currently amounts to just about 6 percent. While GM and Ford, already in the country, plan to
expand their domestic production, Toyota and VW consider engagements hesitantly in ranges of 5 to 20
years. As Russia will not become an EU member in the foreseeable future, growing sales of foreign cars
will largely be supplied from abroad. Investments in Eastern Europe help make OEMs more variable as
the new plants with lean cost structures allow them to provide cars to the whole European market. Yet the
real “hot spot” of expansion is Asia. There, economic growth will create large middle classes, but vehicle
density is only medium in countries like Korea and Taiwan and very low in India and China. A
comparison of vehicle ownership density figures impressively explains China’s double-digit growth rates
over the past years. While in 2002, the USA had 779 passenger cars and commercial vehicles per 1000
inhabitants, the EU rate was 585 and the global average was just 132. China, however, has only 11.6
commercial vehicles and 4.3 passenger cars per 1000 inhabitants.

29. Page | 29
Vehicle ownership density in Europe, Asia and the Americas.
All major OEMs have plans for significant expansion in China. However, the fear of overcapacity is
growing, and government regulations could restrict the market. Despite the obvious growth potential,
such regulations, coupled with the unpredictability of the Chinese government, can make any kind of
engagement in China a veritable leap in the dark. Expansion to China, though, turns an OEM’s focus to a
future key global market. Apart from legal exigencies, the sheer size of China begs for responsive car
makers reacting to local customers’ wishes.
Management of expansion into new geographies and cultures requires that companies are focused on the
requirements in these new markets and responsive to changing market conditions and requirements.
Consequently, sound knowledge about the target market is compulsory for successful expansion. Once in
the market, reliable local partners have to be won – an existing and potential problem in China.
Comprehensive logistics steer both just-in-time (JIT) procurement and unobstructed delivery. Just-in-
sequence (JIS) and JIT require efficient supplier networks. Finally, for smooth delivery, dealer networks
have to be built up and enlarged.

30. Page | 30
Environmental Scanning
Organizational environment consists of both external and internal factors. Environment must
be scanned so as to determine development and forecasts of factors that will influence
organizational success. Environmental scanning refers to possessionand utilization of
information about occasions, patterns, trends, and relationships within an
organization’s internal and external environment. It helps the managers to decide the
future path of the organization. Scanning must identify the threats and opportunities existing
in the environment. While strategy formulation, an organization must take advantage of the
opportunities and minimize the threats. A threat for one organization may be an opportunity
for another.
Internal analysis of the environment is the first step of environment scanning.
Organizations should observe the internal organizational environment. This includes
employee interaction with other employees, employee interaction with management,
manager interaction with other managers, and management interaction with shareholders,
access to natural resources, brand awareness, organizational structure, main staff, operational
potential, etc.
Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis of internal environment helps in identifying strengths and weaknesses of an
organization.
As business becomes more competitive, and there are rapid changes in the external environment,
information from external environment adds crucial elements to the effectiveness of long-term plans. As
environment is dynamic, it becomes essential to identify competitors’ moves and actions. Organizations
have also to update the core competencies and internal environment as per external environment.
Environmental factors are infinite, hence, organization should be agile and vigile to accept and adjust to
the environmental changes. For instance - Monitoring might indicate that an original forecast of the prices
of the raw materials that are involved in the product are no more credible, which could imply the
requirement for more focused scanning, forecasting and analysis to create a more trustworthy prediction
about the input costs. In a similar manner, there can be changes in factors such as competitor’s activities,
technology, market tastes and preferences.
While in external analysis, three correlated environment should be studied and analyzed —
 immediate / industry environment
 national environment
 broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive structure of the
organization’s industry, including the competitive position of a particular organization and it’s main
rivals. Also, an assessment of the nature, stage, dynamics and history of the industry is essential. It also
implies evaluating the effect of globalization on competition within the industry. Analyzing the national
environment needs an appraisal of whether the national framework helps in achieving competitive
advantage in the globalized environment. Analysis of macro-environment includes exploring macro-
economic, social, government, legal, technological and international factors that may influence the
environment.

31. Page | 31
SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By
definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over
which you have some measure of control. Also, by definition, Opportunities (O) and Threats
(T) are considered to be external factors over which you have essentially no control.
SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic
position of the business and its environment. Its key purpose is to identify the strategies that
will create a firm specific business model that will best align an organization’s resources and
capabilities to the requirements of the environment in which the firm operates. In other
words, it is the foundation for evaluating the internal potential and limitations and the
probable/likely opportunities and threats from the external environment. It views all positive
and negative factors inside and outside the firm that affect the success. A consistent study of
the environment in which the firm operates helps in forecasting/predicting the changing
trends and also helps in including them in the decision-making process of the organization.
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below-
1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s mission. These
are the basis on which continued success can be made and continued/sustained. Strengths can be either
tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits
and qualities your employees possess (individually and as a team) and the distinct features that give
your organization its consistency. Strengths are the beneficial aspects of the organization or the
capabilities of an organization, which includes human competencies, process capabilities, financial

32. Page | 32
resources, products and services, customer goodwill and brand loyalty. Examples of organizational
strengths are huge financial resources, broad product line, no debt, committed employees, etc.
2. Weaknesses- Weaknesses are the qualities that prevent us from accomplishing our mission and
achieving our full potential. These weaknesses deteriorate influences on the organizational success and
growth. Weaknesses are the factors which do not meet the standards we feel they should meet.
Weaknesses in an organization may be depreciating machinery, insufficient research and development
facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable. They must be
minimized and eliminated. For instance - to overcome obsolete machinery, new machinery can be
purchased. Other examples of organizational weaknesses are huge debts, high employee turnover,
complex decision making process, narrow product range, large wastage of raw materials, etc.
3. Opportunities- Opportunities are presented by the environment within which our organization
operates. These arise when an organization can take benefit of conditions in its environment to plan
and execute strategies that enable it to become more profitable. Organizations can gain competitive
advantage by making use of opportunities. Organization should be careful and recognize the
opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients
while getting desired results is a difficult task. Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for telecommunications accompanied by
deregulation is a great opportunity for new firms to enter telecom sector and compete with existing
firms for revenue.
4. Threats - Threats arise when conditions in external environment jeopardize the reliability and
profitability of the organization’s business. They compound the vulnerability when they relate to the
weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake.
Examples of threats are - unrest among employees; ever changing technology; increasing competition
leading to excess capacity, price wars and reducing industry profits; etc.
Advantages of SWOT Analysis
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it involves
a great subjective element. It is best when used as a guide, and not as a prescription. Successful
businesses build on their strengths, correct their weakness and protect against internal weaknesses and
external threats. They also keep a watch on their overall business environment and recognize and
exploit new opportunities faster than its competitors.
SWOT Analysis helps in strategic planning in following manner-
a. It is a source of information for strategic planning.
b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current data, future plans can
be chalked out.
SWOT Analysis provide information that helps in synchronizing the firm’s resources and capabilities
with the competitive environment in which the firm operates.

33. Page | 33
SWOT ANALYSIS FRAMEWORK
Limitations of SWOT Analysis
SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances as
very simple because of which the organizations might overlook certain key strategic contact which
may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and threats might
be very subjective as there is great degree of uncertainty in market. SWOT Analysis does stress upon
the significance of these four aspects, but it does not tell how an organization can identify these aspects
for itself.
There are certain limitations of SWOT Analysis which are not in control of management. These
include-
a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to import
restrictions; etc.
Internal limitations may include-
a. Insufficient research and development facilities;
b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

34. Page | 34
Strategic Steps Toward The On Demand Business
Based on experience with the seven areas of strategic action discussed, IBM has drawn several
conclusions and defined recommendations for further action.
The automotive industry has developed into a complex network of interrelations across the entire value
system, where decisions at any level often impact various other levels. Integration with customers, for
example, affects not only sales but also product development or expansion into new markets. Therefore,
increased business and cost efficiency can result from focusing on one’s own core competencies and
strengths. Vehicle manufacturers must define and focus on those features and characteristics that
differentiate them from competitors and outsource those non-core design, manufacturing, supply,
marketing and administration tasks that can be better handled by suppliers. The integration of strategic
partners with more responsibility into the OEM’s value chain should be intensified. By doing so, the
OEM/supplier interaction, organisation, process and IT are addressed. SRM has to be supported by
collaborative engineering, pay-on-supply, risk-sharing models and alignment of the suppliers’ QM.
On demand CRM requires a seamless, single view of the customer with consistent cross-channel
interaction models. Therefore, we recommend that OEMs bundle all internal CRM strategies into one
comprehensive multichannel strategy. On this basis, customer data can be systematically gathered and
evaluated for later use at multichannel customer touch points from dealership to profitable value-add
activities, such as financial services. The selective use of comprehensive customer data will drive more
personalised communication and thus help increase both customer loyalty and customer sales.
To increase loyalty even further, OEMs should create customer awareness and build or defend a strong
brand image that rightly balances the brand’s cognitive and emotional aspects. If OEMs integrate CRM
with SCM, then product design and production planning can be aligned with the customer information
available. Dealers will remain the most important customer touch point. To enhance dealers’ efficiency
and service, OEMs can streamline channel orders’ processes and warranty claims through coherent dealer
management systems and simplify dealer access to content, applications, people and processes.
Without sound knowledge about new markets for expansion, OEMs cannot make accurate and timely
decisions. Therefore, opportunities must be identified on demand with improved data analysis and
insights. And, once in the market, supplier and dealer networks have to be developed with reliable local
partners. For their integration, vehicle manufacturers have to install virtualised learning solutions and
increase communication solutions. This requires technologically consolidated, virtual and local
applications and infrastructure management consistent with the internal standards.
Where development cycles and the final product do not conform to increasingly complex market
requirements, product development parameters for cost, quality, time-to-market and processes have to be
optimised. A set of coordinated actions will help improve efficiency, quality and cost. OEMs’ design
departments should become on demand by using collaborative tools that define and control standardised
processes and distribute knowledge. These tools should also feed lessons learned from manufacturing and
service into reliability, design failure and diagnostic models.
Web-based design, simulation, tooling, virtualised testing and product lifecycle management capabilities
all need to be built on a common infrastructure. Where design centres are globally distributed and
collaborative engineering works across company borders, OEMs will need a real time system for
tracking, managing and communicating engineering changes and defects.
Since automotive electronics and software are influencing product development, quality, core competency
and brand management alike, the respective actions recommended above also pertain to automotive E/E

35. Page | 35
and software. Successful software management is the entry gate to innovation, one of the main market
differentiators. Open standards contribute to more reliable functions, allowing OEMs and suppliers to
develop their applications based on a standard architecture and platform. Thus OEMs should acquire and
set up architecture and integration competencies in embedded systems lifecycle management. This help
enables definition, organisation and implementation of a standardised software development and tracking
process. This enlargement of internal capacities will allow the specification of requirements, effective
outsourcing and surveillance of partners’ design processes, and exertion of integration competency. In
addition, manufacturers should separate software from hardware to develop a software release policy that
helps them control both product quality and innovation flow. With all these activities, an OEM can use
the extensive opportunities of automotive digitalisation for innovation and quality enhancement. Vehicle
manufacturers have realised that the interconnectedness of business design and technology capabilities is
making businesses more focused, responsive, variable and resilient. It is anticipated that managing the
seven areas of strategic action depicted here (see Figure 6), they will successfully move forward to
strategic excellence.
Seven areas of strategic action.
By focusing on these seven strategic levers, automobile manufacturers will increase their potential to
successfully cope with the challenges of globalisation, individualisation, digitalisation and increasing
competition.

36. Page | 36
Conclusion
Today’s tough challenges in the automotive industry require OEMs to find new ways to create value if
they are to prosper. To successfully adapt, OEMs need to be able to respond to changes with focus,
responsiveness, variability and resilience. OEMs can accomplish this by leveraging seven strategic areas
to transform to an on demand environment. To discuss how IBM Business Consulting Services
consultants can help you plan and prepare for an on demand future, e-mail the authors below or visit our
Web site:
Bibliography
Sours: http://www.time.com/time/world/article/0,8599,1881404,00.html#ixzz1cZDSfj00
http://www.ukti.gov.uk/investintheuk/sectoropportunities/moresectors/item/157760.html
http://www.tatamotors.com/media/press-releases.php?id=693
http://www.jaguarlandrover.com/gl/en/about-us/our-history/
http://www.businessgreen.com/bg/opinion/2376386/the-challenge-for-the-global-auto-industry
http://www.synergyindia.com/Auto_india.htm
http://www.tbl.com.pk/the-auto-industry-challenges-and-solutions/
ftp://ftp.software.ibm.com/software/plm/de/challenges_automotive.