The global automobile industry is in a shambles, with a share in Ford Motor Company selling for less than a Starbucks latte, and GM and Chrysler fighting for their survival.
Somewhere in all this chaos the Porsche family has managed to create two highly-profitable automobile firms that are the world leaders in designing, manufacturing and marketing cars.
I think Jeremy Clarkson from the BBC Top Gear television show could probably explain their success, "For crying out loud! They make great cars!" Unfortunately, the recent media coverage on Porsche and VW seems to have missed this critical fact.
Porsche, which is jokingly referred to as "a hedge fund with a car showroom attached", does use hedging strategies but the reason these two companies are the targets of the financial speculators is because they have sound business models and good growth prospects.
The hedge funds do not care about Ford or GM because there is only one scenario for the future and it does not leave a lot to speculation. Unfortunately the hedge funds forgot about Porsche's secret weapon – committed family shareholders with a shared vision.
So how did Porsche, a speciality sports car manufacturer whose best-selling model is the 30-plus-year-old 911, position itself to acquire VW, its much larger sister company, to become the automobile industry leader?
There are never simple explanations for business success but there are critical behaviours that provide lessons for business families and perhaps all organisations to consider about improving long-term performance. Porsche is effective for a number of reasons including a strong alignment of its ownership and management groups based on what we describe as the Parallel Planning Process (PPP).
The PPP drives planning and decision-making around five critical factors: values, vision, goals, strategy and governance. At Porsche we would describe the five PPP factors as:
- Values: World-class management, engineering leadership, and a long-term ownership commitment.
- Vision: Unifying Porsche and VW under family ownership.
- Goal: Global industry leadership.
- Strategy: Brand differentiation based on performance and quality.
- Governance: Decision-making influenced by family values and vision.
The family's values and vision are the foundation for a planning process where each critical factor adds synergy based on a unity of purpose between the family and the business.
The Porsche family and specifically, Ferdinard Piech the VW Chairman, sees combining Porsche (the firm that bears his grandfather's name) with the much larger VW (founded by his grandfather) as making strategic sense and strengthening the family legacy. This visionary family leader championed the Porsche acquisition of VW but it is the non-family Porsche CEO, Wendelin Wiedeking and his management team, that delivered the successful outcome. It is also important to recognise that the manufacturing synergies between the two companies would not be a strong enough reason for the merger.
There is no value in slamming hedge funds because they can play an intermediary role in the world economic system but perhaps the best way to control their actions is not more regulations but more firms like Porsche.
Short sellers are not a threat to well-run and profitable companies that create value for their stakeholders through growth and increasing their stock price. The financial crisis is a serious challenge and despite all the protests and charges that Porsche took financial advantage of the hedge funds the fact is that Porsche beat them at their own game.
Putting things in perspective, the real lesson we should consider is how more companies can become driven by a long-term visions and values that create economic and social value. Andrew Jackson, an early US president, is quoted as saying, "One person with conviction (a vision) is a majority" – perhaps we should update this idea for our purposes and recognise that a "business family with a vision is also a majority"?
- Randel S Carlock is the first Berghmans Lhoist chaired professor in entrepreneurial leadership at Insead and directs the Wendel International Centre for Family Enterprise.