For office use

Grade:

Business Process Re-Engineering

Case Analysis

BMW AG: The Digital Car Project

Submitted to: Prof V.V. Nath

Submitted by:

Ayushi Khandelwal (151314)

Radhika Maheshwari (151340)

Deepak Meena(151414)

Institute of Management, Nirma University

Submitted on: 30th Nov, 2016

Table of Contents
INTRODUCTION................................................................................................... 3
COMPETITIVE CHALLENGES AND IMPACT ON BMW..............................................4
EVALUATE THE PRODUCT DEVELOPMENT PROCESS AT BMW................................7
RISK INVOLVED IN FAST PRODUCT DEVELOPMENT PROCESS..............................12
THE DILEMMA..................................................................................................... 15

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INTRODUCTION
The case describes Bavarian Motor Works (BMW) product development efforts toward
reducing the product development time to half using various means including computer aided
design technologies. In this case we have analysed the challenges faced by the company in
order to achieve the objective of reducing the product development time.

We have discussed the processes existing at BMW for many years, the changing environment
and other competitive challenges and the evolution of product development processes in
response to these challenges.

This includes a thorough analysis to understand the competition in the automotive industry in
1990s and the consequent changing dynamics. Then we discuss how the product
development process has evolved in response to the environment and what strategies the
company wants to employ going forward. We have also tried to capture the new product
development process and the risk involved in changing the product development process too
slowly or quickly. Finally, we discuss a relevant decision point which the company faces.

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COMPETITIVE CHALLENGES AND IMPACT
ON BMW
The case was written by Professor Stefen Thomke and research associate Ashoke Nimgade
during the late 1990s. Hence we shall concentrate on the changes that occurred in the
automotive industry during this period, the kind of competitive challenges it created and the
effect it had on BMW.

Firstly this decade saw Globalization, regionalization and market convergence in the
automotive industry Due to the effects of liberalization, national markets became
increasingly globalized. Though this gave companies a chance to expand to new markets, but
it also increased the threat of new entrants or increased competition in traditional markets.
Hence all car manufacturers were experiencing the boons and banes of the biggest buyer
market in history.

Next we see the emergence of increasingly diversified consumer aggregate patterns of

behaviour Consumers were no longer accepting standardized products, but wanted products
that satisfied their individual requirements and tastes. Target groups thus had to be downsized
by companies to attract customers by the products offered. However, because of the increased
global competition with a stronger focus on price and not on brand loyalty, consumers
generally did not reward companies only for their more individualized products irrespective
of price. In other words the customers became price sensitive, were not ready to pay a
premium for more innovative products, and used their bargaining power to become more
demanding. As a result of these factors, automobile manufacturers had new demanding
requirements within their field of activity. To help these opulent consumer generous financial
schemes were also offered by banking institutions.

All in all demand, growth and expanding opportunities increased rapidly.

To take advantage of the new demand and market growth, Japanese and Korean automotive
companies accelerated modification and diversification of their product portfolio They
shortened product lifecycles in order to react to the expectations of individualized and fast
changing consumer demands with innovative products. In the past, an average product

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lifecycle in the automotive industry was eight years; in 1990s, lifecycles became much
shorter, or at least the products design was often modified after just two or three years on

the market. With development costs for a new model remaining on the same level or even
increasing, this concurrently meant a shortening of amortization time by 30% for the OEM
and, potentially, lower profits. To make up for the low margin these companies tried to
achieve economies of scale by volume production and large staffing. But this lead to
overcapacity in the industry, further cash discount and idle time for workers. A short
Engineering lead time was used as a competitive advantage or a differentiation point. The
Japanese substitutes were reliable and performed acceptably well. The Japanese and Korean
adopted this technique of churning out cheaper, reliable cars suiting local taste at an
incredibly fast pace, and the U.S. automotive companies (Chrysler for example) wisely
decided to follow suit.

Another aspect to meet the specialized demand was the incorporation of increasing number of
parallel development projects since companies developed more and more niche models for
special target groups. This certainly required the use of new development techniques such as
virtual reality or CAD. This technique later enabled BMW to shorten the development time of
its Z4 model to just 30 months.

Furthermore it became exceedingly difficult to gauge what the customers really wanted. Their
demands became whimsical and unpredictable. Even the high-end premium luxury car
market realised that with cheaper products in the market their own target market was no
longer price insensitive. During the early 1990s the customers verdict was that they did not
want big cars since they felt it was difficult to manoeuvre in city streets. For example the
Mercedes-Benz S-series model of 1991 could not attract customers since its product design
and concept freeze had been drawn up during mid 1980s in keeping with tastes prevalent of
that time. But due to a long product life the car was finally launched in 1991 and by then the
customer tastes had changed and the new tribe of consumers would be satisfied with nothing
less than what they demanded.

To take advantage of the high profit margins and growth opportunities of the European car
market Japanese automotive brands with their quick development time and flexible processes
was able to come up with premium luxury cars at comparatively cheaper prices (almost half).
The dramatic compression in the length of time for competitive reaction to be felt and

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changes in consumer behaviour to be incorporated into product design accompanied this
phenomenon. Their adaptability to survive in global niches and flexibility in moving from
one niche to another helped them eat away at the market share of the overpriced European
brands like Mercedes-Benz, BMW and Jaguar.

But since the consumer was whimsical he went back to liking European luxury cars in 1996
as can be seen from the short-lived popularity of Toyotas Lexus LS400 a luxury car from the
Japanese stable. As soon as the value of yen increased the affluent American and European
buyers went back to their Benz and BMWs for speed, power and most importantly status.
However the new consumers of BMW in the latter half of 1990s were those who were more
involved in driving the car and appreciated BMW for its speed, performance and the sheer
passion and fun one derived from driving it. Needless to say BMW became popular among
the young rich buyers who had a passion for driving.

However the changing market scenario made BMW decide to cut down on its notoriously
long product development time using a newly developed system code names digital car.
But the main dilemma that BMW was facing was whether to adopt CAD in place of its
traditional handcrafted design techniques. BMW sells many low volume vehicle models as
compared with its competitors. To be profitable they used to rely on longer production runs,
to spread their fixed cost over longer time period. The trade-off was a lessened ability to
respond to changing market demands. To achieve this they had to reduce their product
development time. But BMWs strategic differentiation had been its meticulous engineering,
and handcrafted styling and designing. They used hand-drawn models and later made the
approved ones into real-life clay models. This was an iterative process where each model and
product idea took 12 weeks to work out. This period also saw intensification in competition
between BMW and Mercedes-Benz since they had the same target market. While this
encouraged them to improve and achieve new heights of excellence, it also got sour and
personal.

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EVALUATE THE PRODUCT DEVELOPMENT
PROCESS AT BMW
A generic product development process looks like the following:

r o
P du c tio
P la
ngni nCo nc ept
nRau mp
p Dev elo
npe
mt
es
T ta in
g
d Sy t e
s m
Refi
nn e
t m
e De s
L ign
e in
v g
l
De s ilg
ta n

Figure 1: Generic Product Development Process

The evolution of product development process at BMW from 1970 onwards can be delineated
into two processes - Old Process and Current Process on the basis of:

Total development lead time

The time it took from initial concept development to market launch
The number of major prototyping cycles

The Old Process:

Dominated in the 1970s and 1980s

Product development took 72 months
3 major prototyping cycles with each cycle involving a generation of dozens of
physical prototypes

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 Cost for each prototype exceeded $1 million dollars and often required months of
superb craftsmanship
Functional and manufacturing problems identified during testing and solved while an
increasing number of design and financial commitments were made to suppliers and
manufacturing
While the early release of design specifications to suppliers could speed up
development, it had to be balanced against the very high cost of making design
changes to such dies

The Current Process:

Figure 2: Current Development Schedule

This process started from the early 1990s

Product development took 60 months
2 major prototyping cycles
Employed rapidly emerging computer simulation methods throughout the product
development cycle
Computer-aided process was relatively untapped as the current process was modeled
after the old hardware-driven process

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 Distinct
Process Type Description
Features
Complex System Systems and
System Decomposed components
in several are developed
subsystem in parallel
and many process
components System
Integration
and validation

Figure 3: Categorization of Product Development Process for Automobile

The need to re-engineer the product development process:

Meticulous handcraftsmanship in BMW products resulted in long spans of time

between platform changes (about 7-8 years)
Less reliance on outsourcing process activities than other firms
Higher fixed costs because of its significantly smaller volumes per model
Focus on developing cars whose lives outlasted competitors products
Losing to competitors on account of longer development span (Japanese firms were
providing more variety in shorter span of time)
Customers preference are changing at a fast rate, with the long product cycle it is
difficult to meet the customers expectation
Superior quality cannot be the only differentiator as it restricted BMW to reach
customers looking for variety

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Approach taken to slash new product development times by 50%:

Figure 4: Approach adopted for re-engineering certain initiatives

Key principles in re-engineering process:

Increased parallelization of design tasks

Elimination of some design tasks such as physical prototyping
Quicker completion of the remaining design iterations

Implications of the re-engineering process:

Required direct involvement and support of functional managers

Involved friendly rivalry between different areas to identify teams coming up with the
best development process
The Digital Car heralded the widening role of computers in car development at
BMW

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Figure 5: New Projected Development Schedule

Comparison between the traditional styling process and CAS-Driven process:

Figure 6: Traditional styling VS CAS-driven process

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RISK INVOLVED IN FAST PRODUCT
DEVELOPMENT PROCESS
BMW is famous for styling, quality and longetivity of product.BMW cannot compromise on
these attributes as they are the value proposition given by the automobile company to their
customer. A fast product development process can be a compromise with the quality of the
product as only single prototype model will be manufactured and thus the time spent and the
detail check of the product design will not be done properly. BMW motive is to compare with
the Japanese manufacturer as they are eating away the market share, but important point to
understand is that Japanese Automobiles are all about incremental changes from the previous
product and thus they take less amount of time in the product development.

Packaging Skin

Refers to the com ponent The exterior,the seatings and

invoved in the propelling of the layout of the dashboard
the autrom bile
This will include everything
under the
hood,wheels,axles,steering,cli
mate control and exhaust

This incremental change generally is in the styling of the Car or in the skin of the automobile
they do not make any tectonic changes in the package of the automobile.BMW whereas is a
very uniquely designed car, the design complexity can be understood by looking into the
appendix six which gives a fair idea about the number of design elements used just on the
door.

Compact Car BMW 3 Series

Basic Design Surface 2(Sx) 6(Sx)

Additional Elements 3(Cx+Gx) 7(Cx+Gx)

Legend: S-Basic Surface

C-Character element

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 G-Gap

One of the other important factor to be considered is that the employees working in the
company are accustomed to the minute detailing of the work and giving the perfection of the
data, the employees often hold back data with them to make sure that data is correct. In the
current system the interaction between different team is very less as the processes are not
working at parallel but now when the product development cycle will be fast there will be a

change in the organisation which will need high interactive cross functional associations
between team, which will be against the very culture of the BMW. People generally try to
maintain the status quo in their system which can hamper the product quality.

The Service
Profit chain

Internal
Service
Quality

Satisfied
Healthy and
Service productiv
profit and e service
gains employee
s

Satisfied Greater
and Loyal Service
Customer Value

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Above figure clearly indicates that the company cannot provide better service quality if the
employees are not satisfied and happy, so BMW must take account of this factor

Risk Involved in Slow Product Development Process

Surviving in the fierce competition offered in the market is a challenging task for the
companies. Product differentiation developed by the product design or the development
process are few parameters which keeps the competitor at the bay but still it is not enough.
Changing customer taste and preference call for new products and different variations
otherwise company can become a part of history.

If company opt to change too slowly they can lose the market share and slowly the brad value
they have established in the market. Slow product development also demands higher cost
which is substantiated. In the slow product development process they are making multiple
prototypes which are costing the company millions of dollar.

BMWs Current strategy

One of the priorities of BMW is reducing series development times, in order to bring new
products onto the market even more quickly. For this reason the BMW Group has created the
Product Evolution Process (PEP) and redesigned series development, so that in future new
models can be developed in a shorter time and will be of an even better quality. All speciality
departments involved in the development process are now better integrated and optimally
networked to each other. One of the ways that the massive reduction in development times
has been achieved is by running the individual phases of the development process in parallel,
rather than one after the other, and replacing time and cost-intensive trials with computer
simulations. The current BMW 7 Series was the first model to be completely developed in
accordance with the new process. The series development time for this very complex vehicle
was only 34 months. The aim for future vehicle projects is even lower at 30 months. In the
past, a time span of five to six years was necessary. The newly gained flexibility allows
quicker reaction to market trends without delaying the start of manufacturing and thus
secures a further competitive edge.

The BMW Group has optimised internal processes to such an extent that changes in
customers wishes in the BMW 7 Series regarding engine capacity, colour, upholstery and

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optional fittings can be accommodated up to eight working days before the start of assembly
without affecting the delivery date. All new models are integrated into this process. BMW is
setting new standards in change flexibility. A large number of customers are making use of
the option to make changes to their ordered vehicle at very short notice. The manufacturing
planning department processes up to 120,000 customer changes each month.

Fast and Flexible

Despite a constantly growing diversity of models, the BMW Group production network is so
flexible and the manufacturing technology so harmonised worldwide that different models
can be produced in every plant. This gives the BMW Group the chance to react quickly and
flexibly to fluctuations in the market and to individual customer wishes. Currently almost
every plant in the BMW Group is constructing at least two model series.

THE DILEMMA
BMW is going through a phase where they are going to change the product development time
by a substantial amount (50%). They had the choice of either selecting a derivative 3 series
model or flagship 7 series project.

Recommendation
1. We recommend 3-series touring wagon development project as a target of Digital Car
Project. The company wants to reduce the lead time of project by 50% to 30 months
from 60 months. This would enable the firm to leverage the latest technology to make
their product development quickly and to fit the market needs strategically. It will
make BMW in front of the competition and it will save huge money and time of the
firm.
2. Digital technology is considerably effective to reduce product development lead time
even in other competitors.

Rationale

There are several reasons for us to make such recommendations:

1. BMW has not experienced revolutionary change in the product development process,
which can be proven by the fact that BMW had only changed their development
process twice in the last 40 years. As a result, changing process would entail changing

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 habits which had worked so well in the old sequential development plan. Also, more
team coordination and other parallel activities to be performed and therefore need is
to change the culture of organization. Therefore, pilot project should be conducted by
use 3-series.
2. Senior managers should fully consider and anticipate the outcome of any strategic
change. There are many unanswered questions related to the new development
process and thus it cant be tested on future initiatives. Company executives are not
very sure of the success of the new development process. If BMW really uses the
latest and revolutionary 7-Series platform as a breaking-point for the new digital
technology, the whole development team will be pushed towards the ambitious goal,
which may cause demoralization amongst the developers and engineers. Moreover,
there seems no way back if the project cannot be implemented as planned because the
project would have a psychological impact if the change is not successful as the firm
expect, it will ruin the current good condition of the firm and cause the production
processes slower than before. Even worse, they will lose part of market share. In our
point of view, senior managers should avoid to make such a ruthless and aggressive
decision when the company is running successfully.
3. In a purely technological perspective, it is a more appropriate idea to make changes to
derivative 3-Series than 7-Series. 7-Series is still at the early stage of its development
and there would be quite a few technological problems occurring in the later
processes. If BMW uses 7-Series, probably everyone will be too busy with the other
technological problems to pay enough attention to the digital process itself. In this
experiment, the impact on the result from one variable (the new digital process) would
be ambiguous because of other variables (the other technological problems). Whereas,
if the derivative 3-Series, there will be no such ambiguity because most of its
technological problems had already been solved as it is a derivative product. And
also, how effectively and efficiently the new digital process can shorten the
development period will be measurable.

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