Wednesday, April 16, 2014

Back in the Race: Peugeot & the Coherence Premium

Source: http://luxurycarbrand.blogspot.com/2013/10/peugeot-logo.html

What is Peugeot Citroen good at? Currently the French automaker is trying to answer that existential question. Through the company’s over-extension of its product line, Peugeot Citroen has experienced record losses of $10 billion over the past two-years. Peugeot Citroen’s lack of focus and resulting profit losses has become the impetus for “Back in the Race,” a rescue deal with the French government and China's Dongfeng Motors. (1) Now that Peugeot Citroen knows it is going to live to see another day, the new CEO, Carlos Tavares has to re-strategize the business model to ensure that the company is on the road to recovery (sorry-couldn’t help myself with the bad pun).

Taking what seem to be key themes from Leinwand and Mainardi’s “The Coherence Premium” article, the central focus of Peugeot Citroen’s strategy is to simplify and figure out what they’re good at. (2) Tavares plans to decrease the total number of automobile models from 45 to 26 by 2020. Tavares says, “We are going to focus the creative power of our teams on a more limited number of products that people want to buy.” (3)

This is an interesting hiccup in Peugeot Citroen’s road to coherence. Instead of having a strong product initially, they had to almost lose everything to reevaluate their operations. Right now, Peugeot Citroen is taking the time, with a smaller product mix, to figure out what they are really good at and will work to develop those areas to establish themselves in the automobile market. “If you have less cars, you will do a better job and the cars will be more competitive. By doing this you will have more attractive products,” said Tavares. (4)

Along with the company’s more refined focus on their product, they seek to reduce their dependence on the European automobile market, expand their presence in China, and turn-around loss making operations in Russia and Latin America. (5) Tavares realizes this can only be achieved by changing Peugeot Citroen’s corporate culture. This new culture will emphasize profits and a globalized approach. (6)

Based on the four main prongs of the Back in the Race strategy, it looks like Peugeot Citroen has completed step one of reaching coherence: they are clear about how they plan to create value in the market place. (7) Based on the emphasis on corporate culture change, they are trying to shape their capabilities systems, and the final step, is the product, which is central to the strategy. Will Peugeot Citroen’s attempt at coherence put them Back in the Race?

References:
1) “Peugeot Citroen outlines recovery plan,” BBC, April 14, 2014, accessed April 15, 2014, http://www.bbc.com/news/business-27020021.
2) “The Coherence Premium,” Paul Leinwand and Cesare Mainardi, Harvard Business Review, 2010.
3) “Peugeot Citroen outlines recovery plan,” BBC, April 14, 2014, accessed April 15, 2014, http://www.bbc.com/news/business-27020021.
4) Ibid.
5) “Peugeot Sets Out Recovery Plan: ‘Back in the Race’,” David Pearson, The Wall Street Journal, April 14, 2014, accessed April 15, 2014, http://online.wsj.com/article/BT-CO-20140414-700857.html.
6) Ibid.

7) “The Coherence Premium,” Paul Leinwand and Cesare Mainardi, Harvard Business Review, 2010

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