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Strategy Thinking

In: Business and Management

Submitted By lisimu
Words 2266
Pages 10
Supplying BMW

Translating sales into profitability through tighter control on costs

A traditional problem affecting the growth of BMW over the last decade is the difficulty in translating sales volumes growth into net profits. In fact there is very little correlation between these two parameters in BMW's case. While deliveries of automotive products to customers have grown by an annual average of 2.2% starting from 1999, profits have been rather less proportionate because of some bad financial performances especially in 1999 and 2008. This takes us to the new strategic guidelines BMW's management board have set with their Number One strategy which was presented in 2007. The first direction along which the plan is being deployed is increasing profitability. The profitability target, which has not been revised lately, unlike the volume target, foresees a return on capital employed (ROCE) of 26% and a ROE (Return On Sales) of 8–10%. All this for the sole automotive division and for the year 2012. The underlying policy to achieve this challenging goal is a tighter control on costs. The very first activity that was carried out to reach the above mentioned target encompasses a generalised reduction of headcount. BMW cut 8,500 positions in 2008, 4,500 through buyout offers and 3,000 through natural not replaced turnover. The reduction allowed €500m in savings in 2008. Additional 1,000 jobs are expected to be axed in 2009 through natural attrition. This will take total workforce just below the 100,000 threshold in 2009. Other areas on which BMW will focus include efforts to spot inefficiencies and unnecessary costs are purchasing, which was identified as the primary source of savings, (as described in the purchasing strategy section) and marketing & retail activities. In particular BMW wants to reshape its US sales by cutting local corporate jobs, by cutting lease...

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