Essay on Contemporary Developments in Business and Management

Introduction

Management plays a crucial role for every organization and business determining goals and objectives, performing planning and controlling functions, etc. In recent years, writers on management (Robbins, 2002; Cairns, 2003; Beeson, Davis, 2000) have recognized that management deals with a number of variables that are dependent upon each other. The case of the BMW group shows that corporations are subjected to different internal and external influences which have a great impact on their goals and strategies. Car manufacturers must be accountable for the ecological, environmental, and social costs incurred by their actions; at maximum, corporations must react and contribute to solving society’s problems. Recent years, the issue of corporate social responsibility (CSR) becomes one of the crucial areas of management. The BMW Group is one of the leading car manufacturers which follow CSR policies in order to meet the highest standards in management.

Company Overview

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BMW, a leader in automotive industry, was founded as an aircraft engine manufacturer. In 1919 the first motorcycle engine was designed. Since that time, BMW has expanded its operations and global presence. In 1945, the company was Germany’s leading manufacturer of aeroengines. While German recovery through the 1950s occurred at a pace which attracted the title of economic miracle, BMW did not prosper. Uncertain of its future, the company emphasized automobiles but its products ranged from tiny bubble cars, manufactured under license, to limousines. In 1959, the firm faced bankruptcy and a rescue by Mercedes seemed its only hope of survival. Instead, BMW found a powerful shareholder who perceived the company’s inherent strengths. The turning-point came when the firm identified a market which most effectively exploited its capabilities–the market for high-performance saloon cars, which has since become almost synonymous with BMW.

Today BMW is one of Germany’s largest and most successful companies. BMW has a complex organizational structure in order to create a structure which best fits its strategic plans and organizational performance. The company subsequently diversified into what are now its two principal product ranges: automobiles and motor cycles. BMW cars are not the most powerful, or the most reliable, or the most luxurious on the market, although they score well against all these criteria. Also, BMW “announced 33 percent revenue growth for its fiscal year 2004, ended December 31, 2004, when compared with fiscal 2003, reporting $40 million in total revenue” (Financial Results 2006). BMW rightly emphasizes the quality and advanced nature of its technology, its products are not exceptionally innovative. The design of the company’s cars is conventional and the styling of its models is decidedly traditional.

Internal and External Factors

Internal Factors

Internal influences within the industry include technology and innovation which change the work flow system of production. With the traditional ‘functional layout’ of production, lines of similar machines or operations are arranged together so that components are passed back and forth until all activities are completed. However, with ‘group technology’ pro­duction, the work flow system is based on a grouping of workers and a range of machines. This enables BMW’s work groups to perform series of successive opera­tions using a group of machines on a family of similar components.

Technology

The increasing need for constant change is cre­ated by internal need to improve technology and labor skills; attitudes of employees; size of organization; need to improve performance. For BMW, change is necessary to ensure an adequate supply of staff who are techni­cally and socially competent, and capable of career advancement into special­ist departments or management positions. New hydrogen and cell powertrain cars are the recent solutions aimed to meet environmental laws and regulations. Following the company’s website: “Environmentally-friendly hydrogen technologies are characterized in the case of vehicles by the fact that exhaust emissions contain no carbon dioxide. Instead only innocuous steam is produced, decisively improving air quality” (The Group BMW, 2006).

The achievements of BMW are built on two closely associated factors. The company achieves a higher quality of engineering than is usual in production cars. Rationalization of production is another area of improvement applied by BMW. While most car assembly has now been taken over by robots or workers from low-wage economies, BMW maintains a skilled German labor force. The company benefits, as many German firms do, from an educational system which gives basic technical skills to an unusually high proportion of the population. Its reputation has followed from these substantial achievements. In this, BMW is representative of much of German manufacturing industry.

Product Development

The other internal factor is a constant need for change. In a time of rapidly changing technologies and ever-shorter product life cycles, product development often proceeds at a glacial pace. In an age of the customer, order fulfillment has high error rates and customer enquiries go unanswered for weeks. In a period when asset utilization is critical, inventory levels exceed many months of demand. The usual methods of boosting performance – process rationalization and automation – haven’t yielded the dramatic improvements for the company’s need. In particular, heavy investments in information technology have delivered disappointing results – largely because companies tend to use technology to mechanize old ways of doing business. In this case, external drivers have a direct impact on the internal needs of any company. It should be mentioned that the external and internal factors such as structure, people, technology and task are all interdependent as a change in one. For example technology, will influence tasks, organization structure and staff.

Strategy

BMW is a company with a well-executed strategy. It is a company which came–after several false starts–to recognize its distinctive capabilities and choose the market, and subsequently markets, which realized its full potential. Its dealings with its suppliers and distributors, its pricing approach, its branding and advertising strategies, are all built around that recognition and these choices. There was no master plan, no single vision which took BMW from where it was in 1959 to where it is today. There was a group within the
company which believed strongly that a model like the 1500 was the firm’s main hope of survival. There were other views, other options. No one had more than partial insight into what the future would hold.

Importance of Control

The company maintains tight control over its distribution network. This control supports the brand image and also aids market segmentation. BMW cars are positioned differently and priced very differently in the various national markets. The same tight control is reflected in BMW’s relationships with suppliers, who mostly have continuing long associations with the company. BMW’s activities are focused almost exclusively on two product ranges high-performance saloon cars and motor bikes which reflect its competitive strengths. The company also uses the brand to support a range of motoring accessories.

External Factors

Competitive advantage in car industry today is driven by manufacturing, customer relationships and sales. The direct sales model (or other near-direct models) has been successful in the U.S., and the industry is moving more in that direction. Customers want products that satisfy their needs or improve their productivity. Market annalists suppose that furniture industry has potential to growth and profitability in near future. Retail margins on BMW cars are relatively high. Foreign competition is one of the main external influences which determine price level and market efficiency. The main competitors of BMW are Asian car makers which supply market with cheap products.

Demand Conditions

For BMW, the nature of demand conditions is very important because it determines the rate and nature of improvement and innovation. These are the factors that either train industry for competition or that fails to adequately prepare them to compete in the marketplace. Three characteristics of this industry demand are particularly impor­tant not only to creation of competitive advantage, but for economic situation in the country in general. It includes:  the composition of industry demand, the size and pattern of growth of demand, rapid market growth, and means by which the industry demand pulls the products and services into markets. Composition of demand is that determines how industry perceives, interprets, and responds to buyer needs. Recent years, the remarkable feature of car manufacturing industry is great imbalance between supply and demand. The opening up of the market and the resultant increased competition has widened the perspective of the planning framework with profound implications. The threat was that the removal of physical barriers to trade and the new-found freedom of movement around the European market have served to catalyze European expansion and in so doing raise the degree of European trade. According to the market survey 2000, BMW faced decline in its operations during this period, and had to close some retail store in Europe and around the country.

Environmental Concerns

One of the most important external influences is environmental concerns and legislation. Form the environmental perspective, the end of 1990s was marked by the changes on the European market which altered many of the parameters of competition and thus enforced a period of reassessment and adaptation. “Currently the market and its mechanisms are not promoting the use of hydrogen sufficiently, and it is therefore all the more incumbent on business, politicians, and society to work together to ensure the use of hydrogen alongside conventional fuels on a global scale. For this reason, the BMW Group has undertaken a wide-ranging study of the legal framework required for the use of hydrogen as a fuel” (The Group BMW, 2006). Legal regulations and constraints have a crucial impact on the industry and its technological developments. The Kyoto protocol and industry safety-related regulations limit activities of automakers forcing them to develop and implement ‘green’ cars and update production facilities (Automotive Industry 2006). Political factors have a great impact on auto industry because of its concentration and influence on overall market potential. Anti-trust regulations and labor unions policies influence labor relations and even industry dynamics.

Corporate Social Responsibility (CSR) Defined

Before analysis of the BMW group, it is important to define the concept of SCR and its main elements. There are numerous definition of SCR and its impact on organizational settings, but the most comprehensive was proposed by Frederick, Post, and Davis (1992) who state that: “Corporate social responsibility means that a corporation should be held accountable for any of its actions that affect people, their communities, and their environment” (p. 30). While the concept of CSR as defined by the numerous authors has been unstable to some extent (Manakkalathil, Rudolf 1995), the status of profits in the context of social responsibility has never been seriously challenged. On the contrary, the notion of profit as “the basic economic mission of business” has been a main assumption for almost all authors (Pava and Krausz 1995).

SCR and the BMW Group

In the BMW group after-profit CSR is based on the traditional view of the corporation as a rational profit maximizes (Buchholz 1991). Harte ( 1988) characterizes the firm in the traditional view as “a legal entity with a production set from which a manager, acting rationally with full information, chooses the set most likely to maximize profits or the present value of the firm” (p. 1758). In the BMW group, equal employment opportunity is a very important topic in human resource management, and it has many managerial implications in the decision to downsize or restructure the company.

As with the classical and stakeholder theories, two versions of the performance argument have been used to defend the social demand position. The first equates performance to the benefits that accrue to individual businesses; the second equates it to whatever contributes to the overall social welfare. “The BMW Group derives the core themes of its social commitment from its corporate objectives and its corporate culture, which combines success orientation, cosmopolitanism, trust and transparency. These themes are traffic safety, education, intercultural exchange, the fight against HIV/AIDS, particularly in South Africa, as well as art and culture” (The BMW Group).

The analysis of BMW performance and its activities will be based on utilitarianism approach which is referred to by some as the consequentialist ethical theory. It is expressed in the form that asserts that people should always act so as to produce the greatest ratio of good to evil for everyone. The utilitarians believe that when choosing between two actions, the one that produces the greatest net happiness should be the one chosen. Where most of them disagree with one another is in the area of how this principle should be applied. There are also several stated weaknesses in this concept. It ignores actions that appear to be wrong in themselves; it espouses the concept that the end justifies the means; the principles may come into conflict with that of justice (utilitarianism) (Anderson 1989).

BMW supposes that a manager’s first obligation is to the shareholders and, as a top executive, a manager should protect and promote the economic interests of the stockholders. From the classical theory viewpoint, if members of society strongly desire some good or service not provided by the market, they should either seek to build a market for it or petition the government to either provide the good directly or to supply firms with the necessary motivation to provide the good (The BMW Group 2006). They should not look to corporations to provide it voluntarily at the risk of not meeting their required economic objectives (Robbins, 2002).

Following Pava and Krausz (1995), Mintzberg et al (1995), the ethical investor bases investment decisions not only on economic considerations but also on sociological considerations. Many believe that ethical investors form a clientele that responds to demonstration of social concerns. Investors of this type tend to avoid particular investments for entirely ethical reasons and would prefer to favor socially responsible corporations in their portfolios. Those social investors are not necessarily sacrificing their economic well-being. As a matter of fact, an emerging theory of social investments proposes that social and economic values can be maximized together, and that this creative synergism is the practical direction taken by social investors today. The BMW group follows this strategy aimed to meet ethical standards and social policy.

Legalistic Ethics

Legalistic ethics is based on the premise that moral rules are absolute laws that must always be obeyed (Frederick et al 1992). To a great extent this is the concept behind much of the social responsibility legislation. If people and business cannot and will not act in an ethical and moral manner on their own, then the local, state, and federal government will step in and through new laws force them to behave and act in the government’s concept of what comprises an ethical and moral way. BMW is expected to be active socially, that is, it seeks to solve social problems, because in most cases corporate actions are the ones that have caused those problems.

As human systems, BMW develops a moral obligation to respond to the needs of its constituents. In other words, BMW philosophies shift toward more collaborative relations and a sense of purpose that includes the organization’s effectiveness as well as the improvement of the quality of life of its members. The individual personal value shifts from self-centered achievement and independence to altruistic self-actualization and interdependence. The company states that: “Our long-standing commitment not only promotes the employees’ identification with the Company, but also substantiates and strengthens society’s trust in the BMW Group as a reliable partner and thus enhances the Company’s reputation both within its ranks and among the public at large” (The BMW Group 2006). Also, BMW issues an annual environmental report at the urging of its shareholders. The company has discovered that keeping tabs on non-financial matters helps business. The company explains that reporting on environmental performance increases awareness of what it is trying to do as a good corporate citizen.

Closely related to legal compliance are moral and ethical standards. Political contributions, bribery, and other acts of conduct illegal in this country may not be illegal in other parts of the world. They fall into this category, as do areas such as proprietary information, product misrepresentation, disparagement, premature disclosures, acquiring or divulging confidential information, certain gifts and entertainment, and conflicts of interest (Anderson 1989). BMW pays a special attention to moral and ethical standards for both employees and corporate goals. To deal with areas that may be considered technically legal but, in the eyes of American Management, improper or unethical, companies must develop and disseminate explicit policies that are rigidly and expeditiously enforced if broken. A typical set of the clearly delineated policies generated by large companies is a small booklet handed out to the BMW group employees. Developing a code of morals and ethics is not always simple. The frame of reference is large and sometimes complex. Consideration must be given to existing and proposed laws, Judeo-Christian values, family norms, society and industry as a whole, the firm, and the background and desires of owners, managers, and other employees. Detailed standards applied by BMW covering most environmental hazards have been issued by OSHA. They cover such areas as material handling and storage, compressed gas, power tools, and toxic substances such as asbestos, cotton dust, lead, coal dust, and carbon monoxide. While most standards were helpful and important, there were also a number of nuisance rules as well.

Social obligation is corporate behavior in response to market forces or legal constraints. BMW obliges its managers confine their responses to social issues to those mandated by prevailing laws and the operation of the economic system. They engage in philanthropic acts only when they believe their organization will benefit directly. Social contributions are viewed as the responsibility of individuals and not of an organization. Critics underline (Frederick et al 1992) that there are such organizations might adhere to the letter of federal and local environmental protection laws, yet willingly allow pollution when no legal punishment is likely. In contrast, BMW is socially responsible; its managers go beyond merely fulfilling their social obligation. It is possible to say that for BMW social responsibility “implies bringing corporate behavior up to a level where it is congruent with the prevailing social norms, values, and expectations” (Manakkalathil, Rudolf, 1995, 13). Whereas the concept of social obligation is proscriptive in nature, social responsibility is prescriptive in nature. Also, BMW recognizes that laws often change more slowly than society’s expectations, and it tries to make its actions keep pace with social norms, values, and expectations of performance. Frequently seen as good corporate citizens, socially responsible organizations are willing to assume a broader responsibility than that prescribed by law and economic requirements. For example, these organizations are likely to take steps to reduce the pollution if they consider certain levels to be dangerous, even if these levels are acceptable by legal standards (Mintzberg et al 1995).

Also, BMW pays a special attention to long-term goals and ethical standards which are crucial for society and company’s success. Social responsiveness followed by BMW suggests that what is important is not how corporations should respond to social pressure but what should be their long-run role in a dynamic social system.” Here business is expected to be “anticipatory” and “preventive.” Managers in BMW are leaders in their dealing with social issues. They attempt to anticipate social issues. BMW top management takes the lead in adopting new processes to protect the environment. BMW, like many other “environmentally conscious” organizations, has articulated its commitment to the natural environment in its Environmental Ethics statement. In a strategic policy statement, strategy formalized its commitment to environmental issues to (a) prevent pollution at the source, whenever possible; (b) solve its own pollution and conservation problems beyond compliance requirements; (c) assist regulatory and government agencies concerned with environmental activities; and (d) develop products that have a minimal effect on the environment.

Businesses have a social role of trustee for society’s resources. Since society entrusts businesses with its resources, businesses must wisely serve the interests of all the stakeholders, not just those of owners, consumers, or labor. BMW operates as a two-way open system, with open receipt of inputs from society and open disclosure of its operations to the public. Social costs as well as benefits of an activity, product, or service are thoroughly calculated and considered in order to decide whether to proceed with it. Technical and economic criteria are supplemented with the social effects of business activities, goods, or services before a company proceeds. The social costs of each activity, product, or service are priced into it so that the consumer (user) pays for the effects of his consumption on society. Business institutions as citizens have responsibilities for social involvement in areas of their competence where major social needs exist.

The individual is not seen in isolation or as a part of a group. For BMW, an individual represents by a worker, an employee, a managerial staff member, executives etc. The pattern of relationships among positions in BMW and among members of the organization corresponds with traditional form of a complex origination. BMW formal structure can be defined as divisional structure which consists of numerous departments aimed to perform independently. The formal structure is reinforced through the system of rites and rituals, patterns of com­munication, the informal organization, expected patterns of behavior and perceptions of the psychological contract.

Conclusion

The case of BMW shows that car manufacturers apply recent management and business practices in order to resist to internal and external influences. Management methods help to improve the quality of goods and services; production processes; information and communications; distribution. The assumption of social responsibility balances corporate power with corporate responsibilities. Also, BMW asserts that organizations have an obligation to see that the public’s interests are served by corporate actions and the way in which profits are spent. Because BMW controls vast resources, because it is powerful, and because this power and wealth come from its operations within society, it has an obligation to serve society’s needs. In this way, corporations and its leaders and managers become trustees for society.


References

  1. Anderson Jr, J. W. 1989. Corporate Social Responsibility: Guidelines for Top Management. Quorum Books.
  2. Automotive Industry. 2006, [Online] Available at: http://ec.europa.eu/enterprise/automotive/index_en.htm
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  8. Manakkalathil, J., Rudolf, E. 1995, “Corporate Social Responsibility in a Globalizing Market”. Advanced Management Journal, Vol. 60, p. 13.
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10.  Pava M. L., and Krausz J. 1995, Corporate Social Responsibility and Financial Performance. Westport, CT: Quorum Books.

11. Robbins, S. 2002, Organizational Behavior. Pearson Higher.

12. Sharkey, C.M. 2003, Punitive Damages as Societal Damages. Yale Law Journal, 113, p. 347.

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