BMW's Dream Factory and Culture
BMW, with more than $73 billion in sales, is much smaller than its American rivals. However, the U.S. auto giants could still learn some things from BMW. Detroit's rigid bureaucracies have been slow to respond to competitive threats and market trends. In contrast, BMW's management system is flat, flexible, entrepreneurial-and fast. Few companies have been as consistent at producing an ever-changing product line, with near-flawless quality, that consumers like. BMW has redefined luxury design with its 7 Series, created enthusiasm for its Mini, and maintained some of the highest profit margins in the auto industry. A sporty four-wheel-drive coupe and a stylish minivan called the Luxury Sport Cruiser rolled off the production line in 2008. These models promise to continue BMW's run of cool cars under its new chief executive, Norbert Reithofer. (His predecessor, Helmut Panke, stepped down upon reaching the mandatory retirement age of 60.) Says Reithofer: "We push change through the organization to ensure its strength. There are always better solutions." Panke once insisted that all six members of the management board take an advanced driving course so they would have a better feel for BMW cars. Virtually everyone at BMW is expected to help find those solutions. When demand for the 1 Series compact soared, plant manager Peter Claussen volunteered to temporarily use the brand new factory in Leipzig, Germany-which had been designed for the 3 Series-to produce 5,000 of the compacts. Claussen and his associates quickly figured out how to do it while maintaining high quality. Recently, line workers in Munich, Germany, suggested adding a smaller diesel engine in the 5 Series. They contended that it would have enough power to handle like a Bimmer and be a big seller among those on a tighter budget. They were right.
Culture
Much of BMW's success stems from an entrepreneurial culture that's rare in corporate Germany. Management in Germany is usually top-down. The cultural gulf between workers and managers is significant. BMW's 100,000 employees have become a network of committed associates with few hierarchical barriers to hinder innovation. From the moment they set foot inside the company, associates are overcome with a sense of place, history, and mission. Individuals from all levels of BMW work side by side. They create informal networks where even the most unorthodox ideas can be thought of for making better Bimmers or boosting profits. BMW buyers may not know it, but when they slide behind the wheel, they are driving a vehicle born of thousands of impromptu brainstorming sessions. BMW, in fact, might just be the chattiest auto company ever. Claussen comments: "The difference at BMW is that [managers] don't think we have all the right answers. Our job is to ask the right questions." That's not to say this freewheeling idea factory hasn't made its share of blunders over the years. In 2001, BMW alienated customers with its iDrive control system. The device was designed to help drivers quickly move through hundreds of information and entertainment functions with a single knob. It proved incomprehensible to many buyers. Rival Audi is narrowing the gap with BMW in Europe by producing a new generation of stylish, high-performance cars that have topped consumer polls. Toyota's Lexus also has BMW in its sights as it makes a move to gain in Europe with sportier, better handling cars. Reithofer comments: "We will be challenged-no question. We have to take Lexus seriously." In BMW's favor is an enduring sense that things can go wrong. New hires quickly learn that the BMW world as they know it began in 1959. That's when the company nearly went bankrupt and was just a step away from being acquired by Mercedes. This long-ago trauma remains the pivotal moment in BMW folklore. Reithofer continues: "We never forget 1959. It's in our genes, and it drives our performance." BMW wouldn't exist today if it weren't for a bailout by Germany's wealthy Quandt family-still the controlling shareholder, with a 47 percent stake-and a pact with labor to keep the company afloat. "Near-death experiences are very healthy for companies," says David Cole, a partner at the Center for Automotive Research in Ann Arbor, Michigan. "BMW has been running scared for years." The story of 1959 is told and retold at each orientation of new plant associates. Works Council Chief Manfred Schloch, a 26-year veteran, holds up old, grainy black-and-white photos of two models from the 1950s. The big one was too pricey for a struggling postwar Germany. The other, a tiny two-seater, looked like a toy and was too small to be practical, even by the standards of that era. The company badly misjudged the market, he says. Schloch pulls out a yellowed, typewritten 1959 plan for turning the company around with a new class of sporty sedans. Schloch then hands out photos of Herbert Quandt and the labor leader of the period, Kurt Golda. Schloch states: "I explain how we rebuilt the company with Quandt's money and the power of the workforce. And I tell them that's the way it works today, too."
Motivated Workers, Better Cars
BMW derives much of its strength from an almost unparalleled labor harmony rooted in that long-ago pact. In 1972 and years before the rest of European companies began to think about pay for performance, the company included all employees in profit sharing. It set up a plan that distributes as much as one and a half months' extra pay at the end of the year, provided BMW meets financial targets. In return, employees are flexible. When a plant is introducing new technology or needs a volume boost, it's not uncommon for associates from other BMW factories to move into temporary housing far from home for months and put in long hours on the line. Union leaders have made it easy for BMW to quickly adjust output to meet demand. Without paying overtime, the company can increase the production schedule to as much as 140 hours a week (20 hours per day, 7 days a week) or scale it back to as little as 60 hours. The system enables BMW to provide a high level of job security. Since 2000, BMW has hired new associates even as General Motors Corporation, Chrysler, and Ford Motor Company have slashed tens of thousands of jobs. BMW's human resources department receives more than 200,000 applications annually. Those who make it to an interview undergo elaborate day-long drills in teams that screen out big egos. For the lucky few who are hired, a Darwinian test of survival ensues. BMW promotes talented managers rapidly and provides little training along the way. It requires them to reach out to others to learn the ropes. With no one to formally coach them in a new job, managers need to stay humble and work closely with subordinates and their peers. This minimizes traditional corporate turf battles. Anyone who wants to push an innovative new idea learns the key to success fast. "You can go into fighting mode or you can ask permission and get everyone to support you," says Stefan Krause, BMW's 44-year-old chief financial officer. "If you do it without building ties, you will be blocked.
Work Environment
The construction of the Leipzig factory is a testament to the power of such ties. When plant manager Claussen first proposed a competition to lure top architects, executives at headquarters were taken back. Krause comments: "People said to me, 'What's wrong with these guys in Leipzig? We don't need beautiful buildings, we need productive buildings.'" Claussen convinced Krause and others that the unconventional approach wouldn't just produce a pretty factory but one whose open, airy spaces would improve communications between line workers and managers and create an environment that helps the company build cars better. Even before Claussen began pushing his architectural vision, others were busy designing the inner workings of the plant. Jan Knau, an engineer, was only 27 when he was asked to come up with a flexible assembly line for the factory. Knau, then just a junior associate, contacted BMW's top 15 assembly engineers. He invited them to a two-day workshop at a BMW retreat near the Austrian Alps. After a series of marathon sessions that included discussions of every facet of the ideal assembly line, Knau sketched a design with four "fingers," or branches, off the main spine. The branches could extend to add equipment needed to build new models. This made it possible to keep giant robots along the main line in place rather than moving them for each production change, an expensive and time-consuming process. The Leipzig plant opened in 2005. It represents Claussen's vision of teamwork enhanced through design by Knau's creative engineering concepts. With pillars of sunlight streaming through soaring glass walls, architect Zaha Hadid's design looks more like an art museum than a car factory. Open workspaces cascade over two floors. Unfinished car bodies move along a track with enhanced lighting that runs above offices and an open cafeteria. If the pace of the half-finished cars slows, engineers know it immediately and can quickly investigate the problem. The weekly quality audits-in a plaza workers pass on their way to lunch-ensure that everyone is quickly aware of any production snafus. The combination of togetherness and openness sparks impromptu dialogue among line workers, logistics engineers, and quality experts. Knau states: "They meet simply because their paths cross naturally. And they say, 'Ah, glad I ran into you, I have an idea.'"
Flexibility and Innovation
The flexibility of BMW's factories allows for a wide range of variations on basic models. At Leipzig, for instance, parts ranging from dashboards and seats to axles and front ends snake onto overhead conveyer belts to be lowered into the assembly line in precise sequence according to customers' orders. BMW buyers can select everything from engine type to the color of the gear-shift box to a seemingly limitless number of interior trims-and then change their mind and order a completely different configuration as little as five days before production begins. Customers request some 170,000 changes a month in their orders, mostly higher priced options such as a bigger engine or a more luxurious interior. There are so many choices that line workers assemble exactly the same car only about once every nine months. This kind of customization would swamp most automakers with budget-busting complexity. But BMW has emerged as a sort of anti-Toyota. Toyota excels in simplifying automaking. BMW excels in mastering complexity and tailoring cars to customers' tastes. That's what differentiates BMW from Lexus and the rest of the premium pack. "BMW drivers never change to other brands," says Yoichi Tomihara, president of Toyota Deutschland. He concedes that Toyota lags behind BMW in the sort of customization that creates emotional appeal. Bottom-up ideas help keep BMW's new models fresh and edgy year after year. Young designers in various company studios from Munich headquarters to DesignWorks in Los Angeles are constantly pitted against one another in constructive competitions. Unlike many car companies, where a design chief dictates a car's outlines to the staff, BMW designers are given only a rough goal. Otherwise, they are free to come up with their best concepts. To get the most out of its associates, BMW likes to bring together designers, engineers, and marketing experts to work intensively on a single project. The redesign of the Rolls-Royce Phantom, for instance, was dubbed "The Bank." The10 team members worked out of an old bank building at London's Marble Arch, where dozens of Rollses roll by daily. "We took designers from California and Munich and put them in a new environment" to immerse them in the Rolls Royce culture, says Ian Cameron, Rolls's chief designer. The result was the new Phantom, a 19-foot vehicle that remains true to Rolls's DNA, but with 21stcentury lines and BMW's technological sophistication under the hood. With sales of the $385,000 car running at about 700 a year, the Phantom is the best-seller in the superluxury segment, outstripping both the Bentley Arnage and the Mercedes Maybach. Much of BMW's innovation doesn't come via formal programs such as The Bank. In 2001, management decided to pull the plug on the disappointing Z3 sports coupe. That didn't stop a 33-year-old designer named Sebastian Trübsbach from doodling a sketch of what a Z3 successor might look like. Ulrich Bruhnke, head of BMW's high-performance division, loved it. In Trübsbach's drawing, Bruhnke saw a car that could rival Porsche's Cayman S in performance but at a lower price. He persuaded a few designers and engineers to carve out some time for the renegade project. Next, Bruhnke gathered a team to map out the business case. The small group worked for 10 months to build a prototype. The moment of truth came in 2004 at a top-secret test track near Munich. Cars were lined up so the board could examine their styling and proportions in natural light. Only one was covered by a tarp. Former board chairman Panke approached the mystery model. "What is this interesting silhouette?" he asked Bruhnke, who invited his boss to take a look. Panke yanked back the cloth, exposing a glittering, bronze metallic prototype for what would become the Z4 coupe. Bruhnke breathed a sigh of relief when he saw Panke's eyes light up as they viewed the car's design. Panke and the board quickly gave the go ahead. The Z4 coupe sped to production in just 17 months, hitting showrooms in 2007.
Questions
1. How would you describe the culture at BMW?
2. What model of leadership is illustrated at BMW? How does this impact BMW's culture?
3. Using the concepts illustrated in the Job Characteristics Model, analyze why employees derive high job satisfaction at BMW.
4. What attributes of organizational creativity are fostered at BMW?