BRIAN KENNY: Listeners to Cold Call know that every episode is based on a business case written by a Harvard Business School faculty member. There are about 15,000 cases actively available through Harvard Business Publishing and another 45,000 or so retired cases in the collection. But here’s a fun fact. Of those 60,000 or so cases, there is just one that has a single word as its title, “Porsche.” A brand synonymous with speed, performance, and exhilaration. A brand that according to Interbrand stands head and shoulders above the competition as the most valuable luxury and premium brand in the world for the seventh consecutive year. A brand born of humble origins, namely the Volkswagen Beetle, that has become an icon of high-performance sports cars the world over. Today on Cold Call, we welcome Professor Stefan Thomke to discuss the case, “Porsche.” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR podcast network. Stefan Thomke’s research focuses on the process, economics and management of business experimentation and innovation. He is a second-time guest, I think, on Cold Call. Stefan, welcome back.
STEFAN THOMKE: Thank you. Thanks for having me.
BRIAN KENNY: The last time you were here, we were talking about booking.com. That was a fun conversation.
STEFAN THOMKE: Excellent.
BRIAN KENNY: Yeah, this is completely different than that one.
STEFAN THOMKE: Very different.
BRIAN KENNY: I think. I’m going to ask you at the outset, are you a Porsche enthusiast?
STEFAN THOMKE: For sure. Yes. Full confession. Full confession.
BRIAN KENNY: And what does that mean? Tell our listeners, in what way are you a Porsche enthusiast?
STEFAN THOMKE: Well, in a number of ways. Of course, love the products, love the products. There’s something really unique about them, but there’s also a personal connection here. I grew up near sort of the Porsche factory or headquarters, just about 35 miles away from them. And so when you grow up in that area, you see these cars all the time. So you see the evolution of these products over the years, and you do have neighbors who work for the company too, and to talk about that and sometimes take one of these products home. And I remember when we were kids, we were just staring at these cars and seemed like out of this world, and it was a dream. It was a dream just to not own one, but just sit in one of these cars. And so that’s a really personal connection.
And then there’s another story which I remember very vividly, and in 1993, I had sort of this rare opportunity to be a passenger in one of those cars. And in fact, it was the cup car of the winner of Le Mans on the test track in Weissach, which is not far from my home. And that was the first time in my life that I realized what these cars are capable of. Basically you have a driver who does not brake. As you go through course, your hand was shaking when you got out of the car and you’re sort of thinking, wow. Most of these cars are driven maybe at 10 or 20% of what they’re capable of.
BRIAN KENNY: Well, I love this, the one name title in the case, just “Porsche,” it’s like Sting or Prince. Everybody knows what it is. You don’t have to explain it. So it’ll be a lot of fun to talk about it here. And the case was really interesting. I’m going to ask you to start just by telling us what the central issue is in the case and what your cold call is when you start the discussion.
STEFAN THOMKE: Well, the central issue of the case is how do you actually grow this company? So the company has gone public and you’re the CEO of this company, and you look at the world around you, there’s a lot going on in the automotive industry ranging from disruptions, electrification, global trade wars, China and so forth. And so I start out in this case with this cold call and saying, imagine you’re the CEO, what’s happening around you? How do you assess the situation? And we do a SWOT analysis. The central theme of the company is trying to understand their strategy, their growth strategy, as they’re sort of going forward, as they’re trying to improve their profitability, they’re already very profitable and understand sort of what they call a luxury strategy. Now it seems a little odd, right, because we think of them as a luxury product.
But they don’t really think of themselves that way. They think of themselves as a sports car company. And so the product is definitely what we would probably call a luxury product, but perhaps the whole experience, the customer experience is not. And so they’re trying to retool the company to create a luxury company or luxury strategy, which we try to define and it seems often a bit of a nebulous thing. And then we go into the operational details of what does it actually mean? How do you actually improve the customer experience, what’s not working in the customer experience? We create customer journeys and we have a look at one of their initiatives called, “Track Your Dream,” where they’re trying to fill some of the gaps that they’re actually finding in the marketplace in terms of customer interactions on the customer journey. And then we sort of look at how do we actually monetize that? And so it’s a lot of issues in 90 minutes to cover, but generally a lot of enthusiasm.
BRIAN KENNY: And we’re going to dive a little bit deeper into some of the things that you just mentioned. I always am curious about what motivates faculty to write a case about something. Why do they think it’s going to be a good case and why do they think it’s going to work. Here, I think we understand some of your motivation as you described it, but at the same time, it seems like the brands that have the most amazing staying power, some of these legacy brands also are the brands that continue to innovate all the time. They never sort of rest on their laurels, and it sounds like that’s Porsche.
STEFAN THOMKE: But what motivates me here, clearly the brand itself, it’s a fascinating story. There’s clearly an emotional connection to it as well, an admiration for the products and trying to understand where that name recognition comes from. How do you create such a brand over time? And in their case, it’s what I call incremental innovation because if you look at their core product, the 911 Carrera, has been a product of evolution because you look at it and they always refine it. They always make it better.
There’s a saying always that the latest one is always the best one. And of course there’s a lot of innovation that also happens under the skin when you look at sort of telematics and all sorts of things that are happening to this company. But okay, so it’s fascinating trying to understand what has been driving this company, what has made it so great, and what has it made so iconic in the eyes of their customers.
BRIAN KENNY: And you mentioned to me also that you had a chance to go to the factory, so you sort of had a deep look at this and you said it was a pretty intense case-writing experience. Can you talk a little more about that?
STEFAN THOMKE: Oh yeah. I mean, to write a really good field case can take a long time, and for us, the whole process was at least a year from the time that we approached the company until we finally had the case signed off, done. And it involved a lot of different things, lots of background research, of course. Then we did interviews there. My co-author, Daniela Beyersdorfer, from the Research Center in Paris. And we did many, many interviews with all the executive team members, we also interviewed engineers, product leaders. It was a long, long list of people. We went to the factories. We went to the development center in Weissach as well. And it was kind of for me, amazing to see these places because the last time I saw them was 30 years ago, just see how they’ve changed. And then at the end when we came out of this, we had several hundred pages of notes and that we had to distill to a 15, 16 page case study with exhibits.
BRIAN KENNY: That’s a great glimpse into the kind of work that goes into case research generally speaking. Maybe you can help us just sort of situate Porsche in the landscape in which it competes. Where do they sit amongst the Lamborghinis and the Ferraris, but also the Teslas and the other cars that they’re competing with?
STEFAN THOMKE: Yeah, I mean, I would say they’re a volume premium producer as opposed to a Ferrari or so. They make a little bit more than 300,000 cars a year. So clearly a lot of volume behind it. Whereas Ferrari makes maybe a little over 10,000 or so. So the volume actually matters. Their premium, they cover quite a bit of range. They’re super high-end. Some of the most expensive models can easily cost you $300,000 or more. But they also have in quotes, entry-level models, which tend to be maybe closer to a hundred thousand, but you can get into the cars less than a hundred thousand, say a Macan or so. And so they try to cover a very, very broad range, but within each sort of segment, they try to be sort of a premium performer, premium car, but also a performance car. So it’s not just an SUV, but it’s a Porsche SUV that has certain performance requirements.
BRIAN KENNY: So we talked about the 911 a little bit. That’s been their bread and butter for decades at this point, but they have pushed in to other areas. What is the sort of strategy that they’re thinking about behind these efforts to innovate in the marketplace?
STEFAN THOMKE: Well, first of all, cover these segments with innovative products and get a good margin out of that. That’s been pretty much their strategy. Stay true to the tradition. The 911, again, has been around for over 60 years, but that’s their core car that it saved the company a number of times. If you look back in the early 1990s, the company was in trouble and it was the 911 and then another car called the Boxster, which is now called the 718, that actually saved them. But the 911 has been a constantly successful car. It’s always a best-selling car. There’s always more demand for it than they probably could supply. And so a lot of that is sort of at the core. But then of course they have SUVs, they have a Cayenne, they have an entry-level Macan, they have again, a roadster, which is the Boxster 718. So they try to cover a lot of segments. So their strategy has been essentially to cover many different segments. And then of course there’s the EV segment, which has been a new one for them and has also been probably one of the more challenging for them.
BRIAN KENNY: Yeah. And we hear that a lot, and we’ve covered other cases about automobile manufacturers that are moving into EVs and the tremendous strain that it puts on their resources. They have to think differently about every aspect of the vehicle. They need a new supply chain, they need new suppliers. How’s Porsche thinking about all that?
STEFAN THOMKE: It’s kind of interesting because we often criticize companies for being too slow when these innovations come. They were actually quite fast. In fact, they announced the first concept car, the EV concept car, in 2015, so 10 years ago, and were pretty quick to execute. But yes, they faced all these challenges, a completely new supply chain. What even made it sort of more difficult for them is that they set the requirements to be much higher than all the other EVs out there because it had to be done the Porsche way, and that meant specifically to go to an 800-volt structure.
Pretty much every EV uses 400 volts. They learned from their racing car division motorsports, that 800 volts is actually a way better system, but they really had no suppliers who could actually supply parts that could work in an 800-volt environment. So they had to go out and had to ask the suppliers to retool for 800 volts. When you have 800 volts, you can actually save weight because you can make the cables to be smaller and all that because at a higher voltage, you can just move more energy around the car.
BRIAN KENNY: And you said you’ve driven one of these?
STEFAN THOMKE: Yeah, not have just driven one, I also bought one too. I was really curious about EVs. I think we all need to have an open mind here, and so I was thinking about that first. My left brain kind of did an analysis of EVs. I looked at it and I said, well, it makes a lot of sense. It’s way more efficient than an internal combustion engine. Efficiency difference is something like 50% or so. It’s kind of amazing. And so it makes a lot of sense. It requires less maintenance, but the question I had, am I going to like it? Do I like the driving experience? Is it going to be convenient? Can I charge it? All these questions go through my head. Sometimes the only way to find out is just to do it.
And so that’s the reason why I did it, and I’ve been really, really impressed. I like it much more than I thought I would. Even though I was a diehard sort of internal combustion engine fan, I still drive cars with internal combustion engines, but the Taycan experience has been phenomenal. I enjoy it much more than I thought I would.
BRIAN KENNY: Yeah. You talked about beginning the class, talking about what the CEO of Porsche sees when he looks out there at the marketplace. I’m wondering what they see now when they look at the future of EVs, and I ask that in the context of the United States seems to be sort of stepping back from that. There was a lot of excitement. There were government mandates, those have been pulled away. The rest of the world might be quite different. What do you think he sees when he looks?
STEFAN THOMKE: Yes, so unfortunately they’re stepping back because I think the future will be EVs, the long-term future, but for a company, it’s all about timing. And so when they first launched the Taycan, it was a very successful product. There was a lot of demand, but now some of the markets pulled back. Some of the other markets have stepped on the accelerator. So China, for example, had made a huge commitment to EVs, and so now they’re facing competition there because they have EVs at a much lower price. So that’s a different kind of competition.
I think the picture is mixed in Europe. Some markets are pulling back, some of the markets are going ahead with it, but it creates an issue for a company like Porsche because they made a commitment, a public commitment to have 80% of their sales by 2030, just EVs. And if you follow the press releases lately, they had to make a change in strategy now because the market conditions just demanded it. And so they’re pulling back and they now have to reinvest in developing internal combustion engine platforms and things like that because I think they were just moving faster than the market.
BRIAN KENNY: And they’re not alone. We’ve heard that from other car makers as well.
STEFAN THOMKE: Yeah.
BRIAN KENNY: Let’s talk a little bit about the move towards luxury as they think about luxury, what does that mean in the context of a Porsche? How are they thinking about it?
STEFAN THOMKE: Well, that’s what we’re trying to figure out as part of the discussion. What does it mean? Because it’s a little bit counterintuitive to the participants when they first get into this because they first think of it as a luxury product. But again, luxury means more than just a product. They may have an amazing product, but there is a lot more to owning a car. It’s the whole experience is first of all, how you get to know the product? So the experience before you even own the product, before you can order the product. Then when you order the product, what happens until you actually get it? It’s not like in most cases that you walk up to the dealer lot and just pick one up. You want to have it customized.
You want to have a car, you’re not going to buy many of these cars. So you want to have the car sort of done in a way just for you. And so you customize it. Now you’re going to have to wait. It may take six months or maybe a year or so until you actually get your car. And then once you have the car, you have a post-purchase experience. So luxury means that all these experiences have to be amazing. And so we have it in the case, so if someone comes in and orders a car and then they don’t hear anything for six or 12 months and get no information, what’s actually happening to their dream, that’s not a luxury experience. And so part of the case is trying to kind of figure out how to solve these problems. How do you actually turn this into an overall luxury experience, not just the product?
BRIAN KENNY: Right. And this is part of the “Track Your Dream” program that they have. Can you describe that a little bit for our listeners?
STEFAN THOMKE: So the moment you walk in and you actually order a car, you get a number and you can go on an app and you can actually track the process of how your car gets to you. You get production pictures, so they show you what the car looks like in production. Once your car is done, you get a date when it’s done, you also get an expected date in
