Ferrari Business Strategy
International Organizations

Enzo Ferrari founded Ferrari in 1929, born out of Modena, Italy under the name Scuderia Ferrari, translated literally as ‘Ferrari Stable’; it was originally set up as a sponsor for amateur drivers and manufacturer of racing cars. In its early days Ferrari used to prepare and race drivers in Alfa Romeo cars up until 1938, Enzo Ferrari was then hired by Alfa Romeo to head their motor racing department. The early 1940’s saw the arrival of The War in Italy and as a result Alfa Romeo was taken over by the fascist government of Mussolini in order to aid the war effort. Due to contract restrictions Enzo was restricted from racing cars for four years and for a short while Scuderia Ferrari became Auto Avio Costruzioni Ferrari; it was during this time the first Ferrari was produced, the Tipo 815. In 1943 the Ferrari factory moved to Maranello where it remains until this day, the factory was, however, bombed in 1944 and rebuilt a few years later, this time to include a division for the production of road cars although due to funding only the racing department was functional. Ferrari officially moved into the production of street legal vehicles in 1947 as Ferrari sPa, a joint stock company, it was during the same year that the first Ferrari road car was produced, the 125 S. Enzo reluctantly built and sold these cars purely to fund his love for racing and poured most of the company’s money into Scuderia Ferrari, the racing leg of his operation. The iconic symbol of Ferrari, the Cavallino Rampante (prancing horse), was adopted by Enzo Ferrari after he won a race at the Savio track in 1923. It was here Countess Paolina requested that Enzo use the horse symbol in memory of her son Francesco Baracca, a World War I air force hero who used to paint a horse on the side of his planes; she insisted it would bring Enzo good luck on the track. Scuderia Ferrari has partaken in a range of motorsport categories including Formula 1 and sports car racing, as well as supplying engines and chassis to other teams. The company is famous for manufacturing both its own engine and body, while other racing teams choose to specialize in one or the other. It was in fact one of Enzo’s drivers, Luigi Chinetti, who took Ferrari worldwide by importing the cars to the United States in the late 1940’s, including the first highway Ferrari, the 166 Inter. Over the years Ferrari has been through a lot enjoying success and hardship. In the 1950’s Ferrari saw some of the most legendary engineers on the payroll, as well as groundbreaking body designs by the famous Pinin Farina. It was during this time that Ferrari saw production levels skyrocket from 70 or 80 at the beginning of 1950, to around 3000 by 1959. The 60’s started well with the famous win of the 1961 Formula 1 championship by Phill Hill, gaining Ferrari a name as the best team in motor racing. Despite this the company faced financial difficulty in the late 60’s, there were even talks of a Ford buyout, instead Enzo walked on the deal and sold part of the company to Fiat in 1969. In 1977 Carozzeria Scaglietti, the design house for Ferrari, was officially incorporated into the company. As time went on Ferrari began to enjoy huge success with production being increased even further in the late 1970’s, with some models being built in the thousands; it was at the same time that the automatic gearbox was introduced. 1980 saw the beginning of the ‘Ferrari decade’; their image of the ultimate sports car came into shape with the launch of the hugely famous Testarossa. It was at this time that Enzo Ferrari’s dream came into realization – the Ferrari F40, which commemorated the 40th anniversary of Ferrari. In 1988 Enzo Ferrari died at the age of 90; this saw Fiat’s share of Ferrari rise to 90%, Enzo’s son Piero Ferrari became vice president and retained the remaining share in the compay. Ferrari’s reputation grew with Scuderia’s famed driver Michael Schumacher, who brought home seven Formula 1 championships between 1994 and 2004. The supercar streak continued with the production of the Ferrari Enzo, a 230mph road car built in memory of the company’s founder. The business environment of Ferrari is characterized by extensive challenges owing to the specialized nature of their services, customers’ volatility due to variance in economic capabilities, effects of globalization and erratic business climate. Consequently, across decades, the strategic policy formulation and management of both its internal and external business environments have influenced the sports car manufacturer’s competitiveness and business development. Ferrari has consolidated its business strategy around targeting the markets for high-performance sports cars which attracts a relatively small number of customers comparative to the total car market. Attraction of new buyers, maintaining existing clients and keeping the clientele happy has remained a key challenge for the Ferrari car manufacturer. The company manufactures high valued cars hence it must ensure style, comfortability, reliability and safety to create brand loyalty and ensure competitiveness. With the majority of its clients being in the upper class category, Ferrari is constantly faced with the concern of sustainability within all areas of manufacturing. Presently, demand is driven by interest and employment rates hence the company must depend on product quality, manufacturing efficiency and effective marketing, (Adler and Chinetti, 2006). Ferrari also faces marketing and distribution challenge since comparative to other car manufacturers, its clientele demographics continues to shift towards a more advanced age group on one hand while at the same time having the most geographically dispersed target group. Unlike other car companies such as Toyota or Ford, the company does not produce family saloons, minis or tracks but focuses on the production of high performance cars. This limits its capacity to sell more products due to distribution and maintenance problems coupled with the potential depletion of the brand’s exclusiveness. Competition brought about by increased globalization has also presented challenges to the Ferrari business. The auto industry remains one of the most competitive with average annual revenue per employee at $2 million, (Hoovers, 2010). Auto car makers such as Toyota, General motors, Honda and Nissan presently have extensive auto assembly operations globally, furthermore, they have adopted the culture of manufacturing low priced high quality sports cars. American companies such as Chrysler, the General Motors and Ford also have high quality sports cars, additionally, Lamborghini, an Italian rival has also produced sleek, exotic designs nearly of equal performance to Ferrari. Ferrari has come up with various strategies which are spearheaded by its management. These include innovation on new products lines through manufacturing and servicing and creation of diverse and innovative brand names, (Adler, 1997). The company for example implemented an elaborate engine displacement strategy that led to the creation of V6, V8, V12 and Flat 12 models, it has maintained one of the most advanced IT systems, outsourcing of non core business operations, and creation of joint ventures with other Italian automobile coachbuilders such as Zagato, Pininfarina and Fioravanti in its bit do build custom cars with superior structural base, (Adler and Chinetti, 2006). The versatile nature of Ferrari business environment coupled with globalization, intense competition, dynamism, and uncertainties that characterize the company’s business decisions has prompted it to implement a clear strategy of differentiation based on superior performance, design and its Grand Prix record that enables it to implement a pricing strategy well above those of its competitors. The company has also entered into strategic partnership with other multinationals to aid its operations. Adler (1997) documents that it enjoys a long standing relationship with Shell Oil, a British company that has specialized in supplying its fuel and oils needs for the MotoGP, World Super bike and the Formula One racing championships. The production of new models has also been an elaborate strategy implemented by the company to attract new customers, increase sales and stay relevant in the competitive market. The introduction of Ferrari Scuderia in 2007 for example directly resulted in to an increase in sales furthermore the company introduced the first ever coupé-cabriolet model in 2003, a model renown for highly innovative features such as a folding hardtop, a 7-speed dual clutch transmission and a central front-mounted engine. The company has also specialized in the production of new hybrid models such as the A F430 Spider that operates on ethanol. Specialization has also been a key business strategy adopted by the company. Ferrari has, for more than half a century, concentrated its efforts on the super car market producing special and concept sports cars. Following stiff competition within the global market, the company has continued to produce high end market vehicles such as the 2005 Ferrari Ascari. Analyses indicate that over the past decade, the company’s sales have steadily increased, for example, there was a 74% increase in its customer base between the years 1999 and 2008, (Italiaspeed, 2009). The company has a culture of organizing its functions around teams and committees thereby enabling it to ensure that effective control, innovativeness and accountability are upheld while deviations are noted and corrected on time. Consequently Ferrari, a learning organization , has not only been able to improve the processes of service delivery over time but also benefit from the ability of its members to think as a team and work collectively to achieve the specifically outlined vision and mission. This also relate to the theory of holism in management where the sum of the whole is viewed as greater that the sum of sub systems or parts of an organization. Mitleton-Kelly emphasizes that the learning organization also practice self-organization, by allowing groups to come together to explore new ideas without being directed to do so by a manager outside that group (2003). At the company, organization functions are grouped in different functions which serve to help in achieving various formulated strategies. Individual consumers are critical to the profitability of the Company, for example, the 2008 financial report by the Fiat group indicated that the company’s revenue was €1,921 million an achievement primarily driven by the sale of the 430 and 599 Scuderia and GTB Fiorano models respectively. During 2008, an estimated 6,527 cars were sold expressive of the brand’s distinct market and considerable growth, (Italiaspeed, 2009). The company also develops periodic strategic plans which serve as the reference point for the internal stakeholders (employees and management), of all activities over a given time periods. Over the years, Ferrari has strived to be identified with motor sport racing and the manufacture of engines and cars for similar purposes. Fundamental in the plans are the organizational vision and mission as well as the required resources to be used and the time limit for accomplishments of tasks. For example, due to intense competition, innovation, application of technology in research and development, and need to diversify its products has remained a key focus of the Italian company. Ferrari has been technologically ahead, building cars renowned for powerful and efficient engines with the ability to hold tightly on the road thereby maximizing the driver’s safety, (Adler and Chinetti, 2006). Diversification of its product also aided the car manufacture to remain competitive despite enormous competition. Following the acquisition of its brand name, the company has managed to produce a number of brands inclusive of pencils, perfumes, cologne, high tech bicycles, laptop computers and even desktops, (Ferrari, 2010). Its reliance on the formulation of plans coupled with the intentional organization into different departments and implementation by the internal stakeholders has also ensured cutting edge competitiveness. At Ferrari tasks are always organized and executed by teams whose members are drawn from different departments. As such, it is imperative that aspects of team leadership exist to guarantee good performance. Comparison can be held to Porsche, the German car manufacturer. While Porsche and Ferrari hold evident differences, such as the fact that Porsche has in fact become a more affordable alternative to owning a sports car, as well as offering a wider range of models including four door saloons and a sports utility vehicle. As a derivative of Porsche’s wider range of models they produce a far larger number of vehicles than Ferrari. As far as owning a Porsche compared to a Ferrari, it is far more affordable with cheaper repair costs, servicing and generally a more efficient daily car. Further differences between the two manufacturers can be noted, such as the fact that Porsche are machine built while Ferrari are hand built, giving Ferrari a more ‘boutique’ status over Porsche. Porsche’s market is far more saturated and has many more segments. As far as Porsche as a company is concerned, they in fact earn 2/3 of their revenue from finance based activities, whereas as Ferrari’s main source of income is from its motorsport sections. Generally it can be said that owning a Ferrari is far more exclusive that owning a Porsche, while both companies are concerned with impeccable design and performance, they operate to target very different consumers; perhaps a more suitable competitor for Porsche are companies such as BMW or Mercedes, who offer high performance options under M Sport and AMG, respectively. Conclusively, it is imperative to note that the leading function is provided by the effective organizational structure adopted by the company. The leadership has such executive positions as the Chairman, Vice Chairman, the Chief Executive Officer, Chief Financial Officer and Directors who ensure the company remains productive. The company’s chairman, Luca Cordero di Montezemolo for example, is considered one of the most able and flamboyant business leaders in Europe, (Eason, 2003). Undoubtedly, racing has been the foundation for the advancements in the design of Ferrari road cars. The company has maintained a streak of winnings, an attribute that has ensured customer loyalty and market domination, (Ferrari, 2010). In 2008, the Team Ferrari won its sixteenth Formula 1 constructors championship, marking eight victories in ten years.
References
Adler, D. (1997). Ferrari Road Cars. Motorbooks
Adler, D. and Chinetti, L. (2006) Ferrari: The Road from Maranello. Random House.
Eason, Kevin (2003-12-12). End of the Road For the Man Who Rescued Ferrari? London: The Times, Retrieved May 5th, 2010 from: http://driving.timesonline.co.uk/tol/life_and_style/driving/article1040951.ece.
Ferrari, (2010). Ferrari Official Website. Accessible: http://www.ferrari.com/English/Pages/Home.aspx
Hoovers, (2010). Ferrari S.p.A. Retrieved, May 5th, 2010 from: http://www.hoovers.com/company/Ferrari_SpA/hshxri-1.html
Italiaspeed, (2009). 22.01.2009 Fiat Group Q4 and Full Year Financial Report. Retrieved, May 5th, 2010 from: http://www.italiaspeed.com/2009/cars/industry/01/q4/2201.html
Mitleton-Kelly, E. (2003) What are the Characteristics of a Learning Organization? Retrieved September 26, 2009, from: http://www.gemi.org/metricsnavigator/eag/What%20are%20the%20Characteristics%20of%20a%20Learning%20Organization.pdf.