Assignment:
BYD (which stands for Build Your Dreams), founded by Wang Chuanfu in 1995, was originally a low-cost manufacturer of rechargeable lithium ion batteries for cell phones.1 Wang had considerable expertise in batteries but virtually none in automotive technology. However, that didn't stop him from buying a state-owned automobile maker in 2002. He envisioned a central role for battery technologies in the rise of electric vehicles.
Although the company borrowed ideas from Japanese manufacturing (and reverse-engineered popular Japanese car designs), it shunned Japan's reliance on intensive automation and employed thousands of workers to produce not only cars but also most of the needed parts, from braking systems to CD players. And, in order to boost sales, it rapidly expanded dealerships in China, set aggressive sales targets, and pushed inventory to dealers in pursuit of those targets.
In 2008, Warren Buffett bought 10 percent of the company, dramatically enhancing its brand value and increasing BYD's sales in the United States. In 2009, its F3 model was the best-selling sedan in China, with more than 250,000 cars sold. The company's sales hit a peak of about 500,000 units in 2010. That year it was ranked as the eighth most innovative company in the world by Business week.
However, soon after, BYD began to falter. Consumer demand for electric vehicles was weak, and China Central Television questioned the company's quality standards. It was not surprising BYD ranked below the industry average on a number of J.D. Power studies, including initial quality and dependability.
Still, BYD did a few things right-from adopting a bold vision to establishing a position as a technology leader. Unfortunately, that vision was not rooted in reality. Widespread consumer adoption of battery-powered passenger vehicles is still far in the future (if it occurs at all). Further, the firm's emphasis on technology made a good start in establishing a strong competitive position, but a vehicle maker must also be known as reliable. BYD's stumbles resulted from a failure to develop sophisticated capabilities such as new product development, demand forecasting, capacity planning, inventory management, and customer insight. Going forward, the company may have to accept being a niche player, selling electric passenger cars and buses. And shareholders definitely haven't fared well-by the end of 2014 they had lost about half of the value that they had in 2010!
Discussion Question
Question: 1. What were BYD's key strategic mistakes? How could they have been avoided?
In this chapter we will place heavy emphasis on the value-chain concept. That is, we focus on the key value-creating activities (e.g., operations, marketing and sales, and procurement) that a firm must effectively manage and integrate in order to attain competitive advantages in the marketplace. However, firms not only must pay close attention to their own value-creating activities but also must maintain close and effective relationships with key organizations out¬side the firm boundaries, such as suppliers, customers, and alliance partners.
Although BYD was clearly a technology leader, it faltered because of its weaknesses in many value-creating activities. As noted earlier, these included new product development, inventory management, capacity planning, and customer insight.
Mitch Caplan, the CEO of E*Trade turned the company around from near bankruptcy through a few simple changes. He reduced costs by getting rid of businesses that did not follow the company's primary objectives. He cut advertising costs and laid off a thousand workers. Also he moved the company's headquarters from California to New York. Doing so, he created a more professional and disciplined atmosphere. He differentiated the company by providing brokers loans and checking accounts. Unfortunately, after Mitch brought the company back from the dead, he soon ended up back where he started. The company invested in mortgage based securities and when the housing market crashed the company deteriorated as well.
The case of E*Trade relates to the chapter because it is a great example of external view leadership. The external forces, the market crash, primarily led to the disastrous outcome of the organization.As a result, Mitch Caplan had limited influence over his company's outcome however I believe he as well as others should have foreseen the market crash by thoroughly understanding the situation. Therefore I feel romantic view leadership can also be applicable in E*Trade's predicament.Later on in the chapter, it explains ways a company can gain a competitive advantage which could be applied to E*Trade. I think if the company had done proper analysis before investing in housing securities, it would have madebetter informed decisions and actions that may have sustained the company's status quo.