Ducatti

Student #: 14025147, 11209559, 14027895, 14024392

Introduction:

“…everything should be continuously rediscussedвЂ¦Ð²Ð‚Ñœ

Frederico Minoli (Gavetti, 2004, pg.861)

In the summer of 1996 Frederico Minoli was appointed as the CEO of Ducati in order to lead the company into a new era of profitability and to establish Ducati as a brand to contend with in the sports motorcycle segment. In the years preceding the revolutionary turnaround, the company changed hands a number of time which resulted in a lack of overall strategic direction. Minoli was faced with a company which, despite having a team of top engineers, had gained a reputation for average quality as a result of inefficient production and poor management. Until 1996 it was driven by the imaginations of its engineers rather than by goal-oriented strategic decisions. Minoli described Ducati’s top management as operating in “a structured chaos” (Gavetti, 2004, pp.861). He believed that by incorporating certain basic structural changes and by redefining company’s strategic goals, it could be turned into a profitable brand-driven company.

Ducati’s turnaround focused on brand building which was supported by the reconfiguration of a number of activities ranging from increased efficiency in the production process to broadening its customer base. Having almost doubled its market share in 2001, Minoli wanted to find new sources of growth. Among others he considered the cruiser market, currently dominated by Harley Davidson. His goal was to compete directly with Harley Davidson in Europe by introducing a cruiser that combined Ducati’s high performance engine with its own unique design.

This essay will begin with a SWOT analysis of Ducati as it stands at the end of its turnaround program. The analysis will bring to light Ducati’s strategic position in the industry as well as any potential that the company may have built up to further diversify into other, related markets such as the cruiser market. This will be followed by a study of the cruiser market using Porter’s Five Forces Framework (pp.118-119 in Stonehouse et al, 2004). The report will assess whether or not Ducati has built up the capabilities to diversify into the European cruiser market successfully.

It must be noted that this report provides a preliminary assessment of Ducati’s ability to enter the cruiser market based on a thorough examination of the company’s attributes and a preliminary study of the broad characteristics of the market. It hopes to lay the grounds for a more detailed analysis of cruiser market that goes beyond the scope of this paper.

1. SWOT

The following SWOT analysis will provide insights into Ducati’s internal strengths and weaknesses at the end of the turnaround as well as the opportunities and threats posed by the external environment in which the company operates.

Strengths

• Technical Excellence

• Efficient Value Chain ensure quality

• Strong Brand

• Location Advantages

• Effective management

• Strategic Alliances Weaknesses

• Narrow Target Audience

• Polarized sales

• Low economies of scale

• Sparse Dealer Network

• Limited Growth since yr. 2000

Opportunities

• Fast growing segment

• Customers of Japanese motorcycles have low brand loyalty

• Reduction in international trade barriers Threats

• Low price of competitors

• Competitors enjoy lower costs

• Competitors have high economies of scale and low cost of capital

1.1. Strengths:

1.1.1. Technical Excellence: Post turnaround Ducati has invested heavily in R&D and is manned by a team of top and passionate engineers. The company’s products are differentiated from those of their competitors by the Desmodronic distribution system, L-twin engine, tubular trestle frame, Italian style and unique sound (Gavetti, 2004, pg 863).

1.1.2. Efficient Value Chain ensures quality: The company has strict selection procedures for suppliers of component, reducing their numbers by almost 20%. Ducati has two potential suppliers for every component and maintains short term contracts with all except a few key suppliers, thus giving the company more flexibility, bargaining power and increasing competition among suppliers to improve quality. The platform approach to production results in increased accountability of the main component supplier who is responsible for sub-component suppliers.

As of 2001 87% of production has been outsourced; standardized production of cylinder heads and crank shafts increases efficiency. The platform production approach reduces transaction costs and in-house quality control ensures consistent high quality products.

A high quality dealer (in terms of technical assistance and display space) with an increased number of registrations per year (14 to 150) reinforces dealer’s commitment to Ducati.

1.1.3. Strong Brand: High brand loyalty (approx 60% repurchase intentions in Europe) reinforced by “World of Ducati” and company sponsored events. In addition, co-marketing arrangements associate Ducati with premium, fashionable products.

1.1.4. Location Advantages: High concentration of suppliers and related industries results in increased competition, lower costs and innovations on the parts of suppliers and gives Ducati access to a larger pool of knowledge.

1.1.5. Effective and Flexible Management: New management introduced fresh and innovative perspectives, provides potential for new and creative avenues of growth.

1.1.6.