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  1. 1. SelfRajan[Ferrari: The ItalianAutomotive Company] STRATEGIC MANAGEMENT PROJECT
  2. 2. Introduction:Ferrari S.p.A. is an Italian sports car manufacturer based in Maranello, Italy. Founded by EnzoFerrari in 1929, as Scuderia Ferrari, the company sponsored drivers and manufactured race carsbefore moving into production of street-legal vehicles as Ferrari S.p.A. in 1947. Throughout itshistory, the company has been noted for its continued participation in racing, especially inFormula One, where it has had great success.History:Enzo Ferrari never intended to produce road cars when he formed Scuderia Ferrari (literally"Ferrari Stable", and usually used to mean "Team Ferrari", it is correctly pronounced in 1928 asa sponsor for amateur drivers headquartered in Modena. Ferrari prepared, and successfully raced,various drivers in Alfa Romeo cars until 1938, when he was hired by Alfa Romeo to head theirmotor racing department.The first Ferrari road car was the 1947 125 S, powered by a 1.5 L V12 engine; Enzo Ferrarireluctantly built and sold his automobiles to fund Scuderia Ferrari.In 1988, Enzo Ferrari oversaw the launch of the Ferrari F40, the last new Ferrari to be launchedbefore his death later that year, and arguably one of the most famous supercars ever made. From2002 to 2004, Ferrari introduced the Enzo, its fastest model at the time, in honor of thecompanys founder: Enzo Ferrari. It was restricted to only the most wealthy automobileenthusiasts, however, as each one cost $1.8 million apiece.On 17 May 2009 in Maranello, Italy, a 1957 250 Testa Rossa (TR) was auctioned, by RMAuctions and Sothebys, for $12.1 million — a world record at that time for the most expensivecar ever sold at an auction. That record is now held by a Bugatti Atlantic which sold for over $28million.Products:Ferraris first vehicle was the 125 S sports/racing model. In 1949, the Ferrari 166 Inter, thecompanys first move into the grand touring market, which continues to make up the bulk ofFerrari sales to the present day.Several early cars featured bodywork customised by a number of coachbuilders such asPininfarina, Zagato and Bertone.The Dino was the first mid-engined Ferrari. This layout would go on to be used in most Ferrarisof the 1980s and 1990s. V8 Ferrari models make up well over half of the marques totalproduction.For a time, Ferrari built 2+2 versions of its mid-engined V8 cars. Although they looked quitedifferent from their 2-seat counterparts, both the GT4 and Mondial were closely related to the308 GTB.
  3. 3. The company has also produced front-engined 2+2 cars, culminating in the current 612 Scagliettiand California.Ferrari entered the mid-engined 12-cylinder fray with the Berlinetta Boxer in 1973. The laterTestarossa remains one of the most famous Ferraris.Concept cars and specials:Ferrari has produced a number of concept cars, such as the Ferrari Mythos. While some of thesewere quite radical (such as the Ferrari Modulo) and never intended for production, others such asthe Ferrari Mythos have shown styling elements which were later incorporated into productionmodels.The most recent concept car to be produced by Ferrari themselves was the 2010 FerrariMillechili.A number of one-off special versions of Ferrari road cars have also been produced, some ofwhich have been commissioned by wealthy owners. One of the examples is the Ferrari P4/5.The Special Projects program is a collaboration by Ferrari with Italian automobile coachbuilderssuch as Fioravanti, Pininfarina, and Zagato to build custom cars using selected Ferrari models asa structural base. The first car under this program is the SP1, commissioned by a Japanesebusiness executive. The second is the P540 Superfast Aperta, commissioned by an Americanenthusiast.Bio-fuel and hybrid cars:Ferrari has considered making hybrids. A F430 Spider that runs on ethanol was displayed at the2008 Detroit Auto Show. Ferrari has announced that a hybrid will be in production by 2015. Atthe 2010 Geneva Motor Show, Ferrari unveiled a hybrid version of their flagship 599. Called the"HY-KERS Concept", Ferraris hybrid system adds more than 100 horsepower on top of the 599Fioranos 612 HP.Keys Towards Strategy PlanningThe strategy statement of a firm sets the firm’s long-term strategic direction and broad policydirections. It gives the firm a clear sense of direction and a blueprint for the firm’s activities forthe upcoming years. The main constituents of a strategic statement are as follows: 1. Strategic Intent An organization’s strategic intent is the purpose that it exists and why it will continue to exist, providing it maintains a competitive advantage. Strategic intent gives a picture about what an organization must get into immediately in order to achieve the company’s vision. It motivates the people. It clarifies the vision of the vision of the company. Strategic intent helps management to emphasize and concentrate on the priorities.
  4. 4. Strategic intent is, nothing but, the influencing of an organization’s resource potential and core competencies to achieve what at first may seem to be unachievable goals in the competitive environment. A well expressed strategic intent should guide/steer the development of strategic intent or the setting of goals and objectives that require that all of organization’s competencies be controlled to maximum value.2. Mission Statement Mission statement is the statement of the role by which an organization intends to serve it’s stakeholders. It describes why an organization is operating and thus provides a framework within which strategies are formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for existence). A mission statement differentiates an organization from others by explaining its broad scope of activities, its products, and technologies it uses to achieve its goals and objectives. It talks about an organization’s present (i.e., ―about where we are‖). Features of a Mission a. Mission must be feasible and attainable. It should be possible to achieve it. b. Mission should be clear enough so that any action can be taken. c. It should be inspiring for the management, staff and society at large. d. It should be precise enough, i.e., it should be neither too broad nor too narrow. e. It should be unique and distinctive to leave an impact in everyone’s mind. f. It should be analytical,i.e., it should analyze the key components of the strategy. g. It should be credible, i.e., all stakeholders should be able to believe it.3. Vision A vision statement identifies where the organization wants or intends to be in future or where it should be to best meet the needs of the stakeholders. It describes dreams and aspirations for future. An effective vision statement must have following features- a. It must be unambiguous. b. It must be clear. c. It must harmonize with organization’s culture and values. d. The dreams and aspirations must be rational/realistic. e. Vision statements should be shorter so that they are easier to memorize. In order to realize the vision, it must be deeply instilled in the organization, being owned and shared by everyone involved in the organization.
  5. 5. 4. Goals and objectives A goal is a desired future state or objective that an organization tries to achieve. Goals specify in particular what must be done if an organization is to attain mission or vision. Goals make mission more prominent and concrete. They co-ordinate and integrate various functional and departmental areas in an organization. Well made goals have following features- a. These are precise and measurable. b. These look after critical and significant issues. c. These are realistic and challenging. d. These must be achieved within a specific time frame. e. These include both financial as well as non-financial components. Objectives are defined as goals that organization wants to achieve over a period of time. These are the foundation of planning. Policies are developed in an organization so as to achieve these objectives. Formulation of objectives is the task of top level management. Effective objectives have following features- f. These are not single for an organization, but multiple. g. Objectives should be both short-term as well as long-term. h. Objectives must respond and react to changes in environment, i.e., they must be flexible. i. These must be feasible, realistic and operational. Process of strategic ManagementThe strategic management process is a systematic approach to its company & its environment.The strategic management process can be broadly divided in to 3 phase which consist of 19steps. 3 phases in which strategic management process is designed are as follows.I) Phase 1Strategy FormulationStrategy formulation can also be referred to as strategic planning. This step is designed by thecorporate level of the strategic management .The strategy formulation involves following steps.1>Framing Mission & ObjectivesThe 1st step in formulation of strategy is to frame mission & objectives of a company. Theobjectives are the aims or the end which the company seeks to achieve where as mission statesthe philosophy & purpose of the company.
  6. 6. 2>Analyzing the Internal environmentThe analyzing of internal environment refers to analyzing of manpower, machine, procedure &other resources of the organization i.e. it reviles strength & weakness of the company.3>Analyzing The External EnvironmentThe external environment refers to government, combination, consumer, technologicaldevelopment & other Environment Factors that affect the organization.4>Gap AnalysisGap analysis is the analysis in which the management compare & analyze it’s presentperformance level & the desired Future performance level.5>Framing Alternative strategyAfter making Mission & Objectives analyzing the internal & external Environment & the Gapanalysis the management must frame alternative strategies i.e. some strategies may be put onhold & some other needs to be framed for taking some decision.6>Choice of StrategyThe organization cannot implement all the strategies & thus a firm Strategy must need to beselected i.e. the strategy must need to be selected i.e the strategy which gives maximum benefit& minimum lost Would be Selected.II) Phase 2Strategy implementationThe strategies are formulated for each & every functional department such as Production,Marketing, Finance & personal. Once the strategies are formulated then the next step isimplement of such strategies.1>Formulation Of Plans, Programmes & Projects.There is a need to frame plan, programme & projects. i.e plans result in different kinds ofprogrammes & results in different kinds of programmes & programme leads to the formulationof projects.2>Project ImplementationProject passes through various stages before the actual implementation. The various phasesincludes Conception phase, Definition phase, Planning & Organizing phase, Implementationphase, Cleanup phase, Etc.
  7. 7. 3>Procedural implementationThe organization needs to be aware of the regulatory framework of the govt. authorities such asregulation in respect of foreign technology, foreign collaboration procedure, FEMA regulation,capital issue guidelines, foreign trade regulation, etc before implementing the strategies.4>Resource AllocationIt deals with the arrangement & commitment of physical, Financial & Human resources tovarious activities so as to achieve the goals of the organization.5>Structural ImplementationStructure is the establish pattern of relationship among the components of parts of anorganization. The organization structure for strategy implementation can be of Entrepreneurstructure, Functional structure, Divisional structure, Matrix structure, etc6>Functional implementationIt deals with the implementation of functional plans & policies. Strategies frame by the topmanagement needs to be divided in to vital functional plans & policies which are compatiblewith each other.7>Behavioral implementationIt deals with these aspects of strategy implementation that have an impact on the behavior ofstrategist in implementing the strategies i.e. it deals with leadership, motivation, business ethics,corporate social responsibility, etc.III) Phase 3Strategy Evaluation.Evaluation of a strategy is that phase of s.m process in which managers try to assure that thestrategic choice is properly implemented & this meeting the objectives of the company this stepis taken up by the business level at strategic management.The strategy evaluation involves following elements.1>Setting of standardsStrategist needs to established standards in term of quantity, quality, cost & time2>Measurement of performanceThe next step is to measure the actual performance both in quantitative terms as well asqualitative terms.3>Comparison of actual performance with standardsThe actual performance needs to be compared with standards. There must be objectivecomparison of actual performance with standards so as to find out deviations.
  8. 8. 4>Finding out deviationsAfter a comparison, the managers may notice the deviation i.e the differences between the actual& standards.5>Analyzing DeviationThe deviation must be reported to the higher authorities. The higher authorities analysis thecause of deviation if any is available6>Taking corrective MeasuresAfter identifying the Causes of deviation the managers need to take corrective steps to correctthe deviations. The corrective steps must be taken at the right time so as to accomplish theobjectives. Thus the strategic management process which involves three phases including 19 steps.To sum up the strategy management process can be showed with the following diagram.Keys towards business strategy (SWOT Analysis)SWOT analysis is a method for analysing a business, its resources, and its environment.SWOT is commonly used as part of strategic planning and looks at: Internal strengths Internal weaknesses Opportunities in the external environment Threats in the external environmentSWOT can help management in a business discover: What the business does better than the competition What competitors do better than the business Whether the business is making the most of the opportunities available How a business should respond to changes in its external environmentThe SWOT analysis for Ferrari can be explained as follows:Strengths of FerrariExtremely strong brand image.Products that are a fine combination of beauty and aesthetics combined with unforgettableperformance.The brand has connected to itself an aura of mystiqueIs looked upon as a status symbolTakes on new challenges on a constant basis with a head on attitude.Innovation and technology are key drivers behind every product.
  9. 9. A very inspired, well taken care of and satisfied work-force who are proud to be attached withthe brand. This was further expressed publicly when Ferrari was voted the ―Best Place to Workin Europe 2007″.Weaknesses of Ferrari :Ferrari’s business model, based around low volumes, removes the possibility of employingcertain technological solutionsThat same business model also limits their sales volumes even though a lot more demand ispresent in the market.Due to their ―waiting list‖ model, they lose out on customers to the competition.A big challenge lying in wait is fuel efficiency & emissions which are growing in importanceevery day, thanks to spreading concerns over the environment.Opportunities for Ferrari:Growth in the global market for high-performance super-cars due to growing economies &developing nations.Expansion of the brand through entering into new & important automotive markets like Indiawherein competitors like Porsche have already set up base.Enlargement of customer base (increase appeal of their products to a more variety of buyers)through adding comfort, roominess, luggage space, engines that are more user friendly, and soon, while at the same time maintaining traditional Ferrari characteristics–performance, style,exclusivity. Ferrari has been exploiting this aspect for a while and it has been a key contributor totheir success in the past 15 years.Development of technology (for example interfacing electronics with mechanical systems) hasopened up new avenues to explore for their products.Packaging i.e. the concept of the car, is another area which still has years to explore.Threats to Ferrari:Automotive policies being pushed by countries & continents all over the world which are beingstrictly enforced like the emission norms of 130g/km of CO2 are very difficult to keep up withdue to the performance oriented nature of the engines built by Ferrari.Tough competition from other iconic super car brands like Lamborghini & PorscheA competing brand like Porsche does not follow the same low volumes, high on exclusivitymodel which is followed by Ferrari & hence sells a lot more of its products & captures a largechunk of the market share.Once again, competitors like Lamborghini and Porsche are expanding their product range to highperformance SUV’s wherein Porsche has already been very successful with its ―Cayenne‖model, all over the world and in particular, in India, which has lead to its success in the Indianmarket. Ferrari has not announced any plans for such a product (high-performance SUV) as ofyet i.e.-2009.PRODUCT LIFE CYCLEIn the first phase, the introduction or start-up, we can see that Ferrari cars (as it is a luxury brand)are not a basic product, moreover this company doesn’t need a strong promotion since it is one ofthe most important teams of F1, which makes it really influential on the consumers.
  10. 10. In the growth phase, Ferrari has always been a successful brand. In this period customers aremore attracted by the product, however, if it has a selective public, the brand doesn’t have amassive product extension, it grows little by little.This stage can be the longest because the company can use a lot of marketing strategies liketaking out the market different models of the product or just manufacture a limited edition, whichincrease the interest of the consumers.For example, nowadays economy is in a recession stage, Andrea Ferrari, the marketingresponsible of the brand, assures that they keep on their waiting list for the Ferrari cars, the crisishas allowed them to get rid of the speculators, people who made petitions and negotiated whitthem, which wasn’t very good for the image of the company.BCG MATRIXAs already mentioned before, Ferrari is an outstanding, not usual brand, with a very specialmarketing strategy and a small group of exclusive costumers.Therefore, the products don’t conform always to the normal life cycles of a product (s. chapterProduct Life Cycle).The BCG-Matrix is based on the life cycle of a product- consequently an analysis of Ferrariproducts and creating following strategies by using the BCG-model could be problematic.Furthermore, the importance of the dimension of the market growth rate is questionable in thesmall market of luxurious super-sports cars, in which Ferrari compete.On the other hand, for Ferrari the (relative) market share is an important indicator; this is thesecond dimension of the BCG-Matrix.Actually it is quite difficult to get free information about the Ferrari products. So it is notpossible trying to create a Ferrari portfolio analysis here or showing some cash cows, stars,question marks or poor dogs. Ferrari should have some cash cows, products with a high marketshare and low market growth. Those are the fundamental products because you don’t have toinvest in them and they give you much money. This money should be used for your questionmarks or stars that need much money in the phase of becoming a cash cow.But let’s put give an example of a Ferrari product that doesn’t fit with the BCG-analysis modeland outlines the special position of Ferrari:When Ferrari wanted to build the ―_Enzo_‖, they set a limitation of 345 cars. These were soldbefore they were produced. Moreover, the demand was that strong that Ferrari decided to sell399 cars (later the 400th car was produced for a fundraiser). You see, there is no development ofthe product, all Enzos were sold at once and Ferrari earned much money with them. But,according to the definition of a cash cow, the Enzo can’t be called as one, as well as a questionmark, star or poor dog. Maybe the Enzo matches a poor dog soonest because with an amount of400 cars there is no high market share and, also, the market of such a super-sports car is verysmall. Moreover, a poor dog can bring you much money. And don’t forget the big marketinginfluence which the Enzo has on the luxurious image of Ferrari.In addition, here is shown Ferraris outstanding position- not anybody could buy a Ferrari Enzo,you would be asked whether you want to buy one.
  11. 11. General Electric (GE) Matrix:GE Matrix overcomes a number of the disadvantages of the BCG Box. Firstly, marketattractiveness replaces market growth as the dimension of industry attractiveness, and includesa broader range of factors other than just the market growth rate. Secondly, competitivestrength replaces market share as the dimension by which the competitive position of eachSBU is assessed.As Ferrari does not have any strategic business units (SBU’s), General Electric matrix cannot beimplemented.The McKinsey 7S modelThe Seven ElementsThe McKinsey 7S model involves seven interdependent factors which are categorized as either"hard" or "soft" elements: Hard Elements Soft Elements Strategy Shared Values Structure Skills Systems Style Staff"Hard" elements are easier to define or identify and management can directly influence them:These are strategy statements; organization charts and reporting lines; and formal processes andIT systems."Soft" elements, on the other hand, can be more difficult to describe, and are less tangible andmore influenced by culture. However, these soft elements are as important as the hard elementsif the organization is going to be successful.The way the model is presented in Figure 1 below depicts the interdependency of the elementsand indicates how a change in one affects all the others.
  12. 12. Lets look at each of the elements specifically: Strategy: the plan devised to maintain and build competitive advantage over the competition. Structure: the way the organization is structured and who reports to whom. Systems: the daily activities and procedures that staff members engage in to get the job done. Shared Values: called "super ordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic. Style: the style of leadership adopted. Staff: the employees and their general capabilities. Skills: the actual skills and competencies of the employees working for the company.Functional Strategy:Every business unit develops functional strategies for each major department such as: • MARKETING STRATEGY • FINANCIAL STRATEGY • HUMAN RESOURCES STRATEGY • OPERATIONS STRATEGY
  13. 13. Marketing Strategy:Ferrari follows strategies based on market dominance by which the company became the leaderamongst its competitors. The worlds fastest Ferrari, the F60, was debuted in April 2002. Itsucceeded the F50 and was composed of carbon fiber, with a mid-engine V-12 and the ability togo from zero to 100 in 3.2 seconds. It also constituted as an innovation strategy that made Ferrarias the pioneer in the field of automobiles.Financial Strategy:Ferrari inculcates finance strategy which includes components such as: Mobilisation of funds Working capital Retained earnings policiesHuman Resource Strategy:Ferrari undertakes numerous policies for human resource management: Recruitment and training policies Performance Promotion policies Compensation policiesOperation Strategy:Ferrari undergoes and applies various operation strategies such as: Production capacity Size & location of plant Technology Quality of production Research & development ModernisationGrand Strategy:Corporate-level strategy is concerned with the growth and survival of the firm. In the case wherea firm operates in only one industry, growth must occur through a properly implementedbusiness-level strategy, i.e. low-cost, or differentiation, or best-cost. It follows that all growthwithin a single industry is governed by the effectiveness of a firm’s business-level strategy.
  14. 14. Stability Strategy:Under stability strategy, Ferrari follows Profit strategy as the surplus margin of the products iskept too high with respect to the goodwill Ferrari has gained in the market.Growth / Expansion Strategy:Internal growth: Under intensification strategy Ferrari undergoes product development policy. Underdiversification strategy Ferrari follows vertical diversification with respect to forward integrationas it manufactures and sells its cars only via their own car showroom outlets across numerousnations in different continents.External growth:In the year 1997, Ferrari merged with Maserati. This was the only merger that Ferrari had in thelast two decades.Conclusion:Ferrari in my opinion is a company that right from the beginning was ―builds to last", it was builtto be the best in Europe. Its founder Enzo Ferrari was driven to develop the best (fastest) sportscar possible not the most profitable. He was a clock builder, not a time teller so he developedtraditions, he always wanted to be in the leading edge of automotive development; being apioneer. That is why "so much of what Ferrari established and where it was begun continues"today in Modena, Italy. He developed an internal drive that is crucial for companys successthroughout the test of time and competition from other companies. Like all the visionarycompanies that I know, Ferrari also had its problems but Luca Cordero Di Montezemolo"the manwho saved Ferrari" and this internal drive played an intense role in the transformation and thereconstruction of this once deeply troubled auto maker in to a European visionary company.Ferrari in my opinion has changed the Italian economy forever. They were the ones thatstimulated all the automotive competition we have today in Italy, and they are the reason theItalians today are known for their beautiful automobiles.