QUESTION
Comment : This request is for the case ” Ducati” ( see attached) and the questions that I need help with are below:
“Step into the shoes of Federico Minoli, and consider:
1.How did Ducati become the second most profitable motorcycle maker in the world, despite its small scale?
2.What is the economic logic of Minoli’s turnaround (i.e., explain the details of the strategy employed)?
3.As of the end of the case, can Ducati sustain its position in the sport / performance segment?
Support your hypothesis by considering the generic strategies employed by Ducati and at least two of its major competitors, and discuss how the interplay of these strategies will (or will not) allow Ducati to maintain its position”.
PS. I am attaching the case “Ducati” and a few documents that can be relevant ( they were part of our class readings). Length about 3 pages Single spaces (or about 4 and half double spaced).
Attached Files
Ducati
https://drive.google.com/file/d/10g8NJjhRW3Fh7eQs2HpDIsk7waTGTUba/view?usp=sharing
Competitive Advantage
https://drive.google.com/file/d/1WcWxQ0vwK_Bk4mhlVKqyBf4gBLH6FOGe/view?usp=sharing
Generic Strategies
https://drive.google.com/file/d/16u_KIM7Cb-QMakoMBxgK7aZr-TfHVY6W/view?usp=sharing
Quantitative-Analysis of Competitive Position
https://drive.google.com/file/d/18BccK-nxEnTtCFW2lxy3KwbhyE8oXrEa/view?usp=sharing
Value Innovation
https://drive.google.com/file/d/1WEkVPWAwhBqhRP4TUV-2QvBWOg9IKb1O/view?usp=sharing
ANSWER
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How did Ducati become the second most profitable motorcycle maker in the world, despite its small scale?
Before Minoli took over the turn-around operations and strategy of Ducati it had already seen a shift from being a global leader and a sheer customer favourite to a company that was on the verge of bankruptcy. It was the capability of the new COE to see the infinite potential in the company and the pure dedication of its engineers and other employees who wanted to see Ducati succeed that helped it in becoming the second most profitable company in the world.
The major contribution to this achievement was from the brilliant operational processes that the company followed. Most of the parts of the motorcycle were developed by the suppliers of the company. A motorcycle was slit into components and their subcomponents. And these were to be delivered by the suppliers of the company. This reduced the work load on the company and at the same time it allowed the company to work on the core tasks like design and Research and Development which set the company apart from most of its competitors.
As most of the components were being delivered to the company thus, the actual time taken to assemble the products in the company itself was very less compared to the industry averages ad thus, there was a large amount of cost savings that helped in increasing the profitability of the company. This also helped in spreading the manufacturing overheads and expertise on the suppliers for which Ducati was no more as concerned and did not have to spend resources in perfecting the production of the components and sub-components. Almost 87% of the components were outsourced to outside suppliers of Ducati in 2001.
There was a further optimisation in the quality of the suppliers where it reduced the number of its suppliers from 200 to 130. Thus, the supplier market for Ducati became more competitive which further increased the quality of the products and reduced the prices for Ducati.
The next big step from the company was the increase in the standardisation of its products which reduced the variety of components that it had to deal with. As the variety decreased the expenses associated with the complex assembly procedures decreases as well because now a major portion of assembly was similar for multiple models. It was using far lesser number of crank cases and cylinder heads than any of its competitors in the market and that reduced the costs of the company considerably.
These are also the two components that were actually produced inhouse. As they were standardised it was cheaper to produce them, and these two components formed the heart of the Ducati motor cycles in their identity. This also improved the number of motorcycles that the employees of the company could produce while working on the assembly line. Finally, more than 87 motor cycles could be completed by a single employee as opposed to 76 earlier. This added the final push in increasing the profitability of the company to help it reach the optimal market position it enjoyed then.
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What is the economic logic of Minoli’s turnaround (i.e., explain the details of the strategy employed)?
Minoli on arrival realised there was no strategy in the company to manage its operations for a longer sustained duration. The company did not have any direction/objectives that the management of the company could look forward to while managing the company operations. Thus, he began by changing the management of the company itself. He was not just content with talent in his management team. The people had to also be passionate about Ducati and that was what will help them device innovative solutions in improving the situation of the company.
After employing a new management that Minoli trusted to help improve the situation of the company he moved to the tactical issues at hand and tried to solve them, department by department and looked at product categories that needed attention and the ones that could be ventured into. The first department he solved was the research and development department.
Research and development formed the core of the company. It was responsible to new improvement sin the products that the current Ducati customers loved, and the same department was responsible for the new products that the company needed to venture into new customer segments. Under Minoli’s leadership, the time to market reduced form a whooping 36 months to just 15 months which increased the returns on the research investments that were being made on the products.
Next Minoli moved to the distribution system of the company. Initially the company worked on a multi-franchise dealer system and has 165 dealers in Italy alone. This number was reduced to just 65 by Minoli and his team. This helped in improving the dealer quality. The number of registrations per dealer also increased from 2310 to 3250 which was much more profitable for the company. Later the company moved to single franchise model dealers as well and Ducati world stores which further helped in consolidating the brand identity of the company. The company was not looking for a mass market strategy but a targeted approach towards marketing and sales. It wanted to increase the customer experience which was the core of its proposition. The stores were personalised with the photographs of the Ducati products and its employees n one wall and the engines on other to make the stores attractive to the customers as well.
Apart from these, Ducati ventured into apparels and accessories. Not only these appealed to the owners of Ducati bikes but the customers who aspired for the bikes but couldn’t afford one were attracted to these products as well. Later Ducati ventured into new product segments like the ones in which Harley Davison existed to compete against them. Minoli has strategically decided the chain of action for the company which helped it achieve profits in all its operations and at the same time he cut out relations and activities which were not profitable for the company.
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As of the end of the case, can Ducati sustain its position in the sport / performance segment?
The sports/performance segment was dominated by the competitors of Ducati like Harley Davison and BMW. The bikes in this segment were generally in the price range of over $10000. The bikes competed over their performance and the brand identity for which their motor cycles stood for in this segment. The three brands had their own niches and the customer profiles of the 3 did not overlap much. Thus, the customers did not see them as a substitute for each other which is a good prospect for Ducati.
The major mass market in the sports and the hyper sports segment was controlled by Japanese companies like Honda and Kawasaki. The attractiveness of Ducati in these segments is due to the fact that it has continuously been participating in races and also winning most of them. We have seen that is has won most of the races over Honda in the Word Super Bike Championship and that was the major brand proposition of the bikes to its customer segment in the sports category.
The push for winning the races was not just from the side of the customers but also from the side of the employees. The current engineers of the company are highly motivated in making better and better engines and designs for Ducati bikes so that it can take part in many more races and continuously beat the Japanese manufacturer in the races This also proves that Ducati is capable of beating the best Japanese technology and stays ahead of the market in term of its designs. This is one of the biggest advantages that Ducati has which will help it keep its dominant position the sports/performance category in the years to come.
Apart from that, the products of Honda and Kawasaki are neither as desirable nor as niche as the designs of Ducati which increases the attractiveness of the products of Ducati. The uniqueness of the Ducati engine sounds itself is a proposition to its customers. Due to this, the Ducati products are not substitutable by the Japanese products as well.
Th marketing campaigns like Ducati/People has also helped in consolidating its customer base. Its new methods of taking parts in the races where all its customers can now identify with Ducati where they can socialise with the team members before and after the race have allowed its customers to feel more attached to the brand which pushes it ahead of its current competitors. With such strategies employed the company is ready to sustain its position against its competitors.
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