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How BMW successfully practices sustainable leadership principles

Article  in  Strategy and Leadership · November 2011

DOI: 10.1108/10878571111176583

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How BMW successfully practices
sustainable leadership principles
Gayle C. Avery and Harald Bergsteiner

Gayle C. Avery, Professor of hat can organizations do to develop the resilience required to withstand major
Management at Macquarie
Graduate School of
Management, Sydney
W global shocks? In recent decades, wars, oil crises, talent shortages and most
recently the 2008-9 global financial crisis (GFC) have tested the sustainability of
major enterprises. Some well-known corporations did not survive the GFC, and others had to
(gayle.avery@mgsm.
be bailed out by their governments. This case describes how one firm quickly rebounded
edu.au) and Director of the
after the GFC, showing how many of the company’s practices accord with principles
Institute for Sustainable
espoused in the authors’ Sustainable Leadership model.[1]
Leadership, is the author of
Understanding Leadership: Sustainable leadership requires senior executives to take a macro view of their enterprise,
Paradigms and Cases starting with the basic question, ‘‘What is the purpose of this firm?’’ We have identified two
(2004), Leadership for contrasting answers that distinguish sustainable or ‘‘honeybee’’ leadership approaches
Sustainable Futures: from non-sustainable or ‘‘locust’’ management. Honeybee leadership builds communities,
Achieving Success in a fosters collaboration among stakeholders and promotes long-term value. In stark contrast,
Competitive World (2005) the ‘‘locust’’ metaphor aptly conjures up images of swarms of voracious insects descending
and co-author, with Harald
on green fields and stripping them bare. Under locust thinking, almost any practice that
Bergsteiner, of Sustainable
achieves short-term returns for investors and bonuses for executives is condoned. By
Leadership: Honeybee and
contrast, honeybee leadership takes a broader perspective, considering the long-term
Locust Approaches (2010).
interests of a full range of stakeholders, not just investors. This is because honeybee leaders
Harald Bergsteiner is
Director of the Institute for
regard their firm as an interdependent part of a much wider community[2] and realize that
Sustainable Leadership their true goal should be to promote sustainable growth. Research shows that honeybee
and an Honorary Fellow at principles are more sustainable, more likely to lead to higher performance and are more
the Australian Catholic socially responsible than locust behaviors.[3]
University, Sydney In our 2011 article ‘‘Sustainable leadership: practices for enhancing business resilience and
(harrybergsteiner@
performance’’ in Strategy & Leadership, we describe 23 honeybee leadership principles
internode.on.net).
and practices. These principles and practices are derived from three sources: best practice,
what prominent management thinkers advise and what researchers around the world are
showing leads to enhanced organizational performance and resilience. While bad things
can happen to any organization – through poor strategic decisions, unforeseen events and
natural disasters – our research shows that honeybee practices promote sustaining
enterprises.
This BMW Group (BMW) case illustrates how sustainable leadership can be successfully
implemented, even in trying times. Despite the global financial crisis and the subsequent
recession, when other leaders chose to go into survival mode and abandon strategies to
achieve long-term goals, BMW stuck closely to its honeybee principles.

About BMW
Founded in 1916, BMW is headquartered in Munich, Germany. Today the company employs
around 96,000 people at 24 production facilities in 13 countries and operates a global sales

DOI 10.1108/10878571111176583 VOL. 39 NO. 6 2011, pp. 11-18, Q Emerald Group Publishing Limited, ISSN 1087-8572 j STRATEGY & LEADERSHIP j PAGE 11
 network in more than 140 countries. BMW produces cars and motorbikes under three
premium brands: BMW, MINI and Rolls Royce.
In an industry characterized by consolidation, BMW remains a highly profitable,
independent firm. Although badly hit by the GFC like the rest of the auto industry, BMW
emerged from the recession strongly, reporting the best results in its history in 2010. To put
this performance into perspective, while some other car companies, particularly German
producers, also performed well in 2010, two of BMW’s major US competitors were in
difficulty. General Motors (GM) and Chrysler had already been in financial difficulty for many
years and both entered Chapter 11 during the GFC to avoid total bankruptcy. GM was
essentially ‘‘nationalized’’ through huge financial bailouts from the US government, while the
Italian carmaker Fiat bought Chrysler, acquiring 52 percent of the company by buying out
the US Treasury’s stake in Fiat.
In 2010, BMW was worth about e40 billion. The company had been in a strong financial
position following a decade of continually rising revenues, before the GFC. The company
had continued to pay a dividend during the GFC, although profits fell sharply during these
years, as Exhibit 1 shows. In 2010, circumstances changed and most German car
companies began to recover strongly. BMW posted record revenues and after tax profit (see
Exhibit 1), issued its highest ever shareholder dividends and became the best performing
stock on the German stock exchange (DAX).

Survival techniques
We believe that three major factors contribute to BMW’s resilience: its business model, its
creative initiatives and its sustainable leadership approach. These three factors are driven
by the company’s long-term strategy – creating dynamic performance and efficiency while
embedding sustainability in everything it does.
Business model: BMW’s business model embodies flexibility for customers, employees and
the company. Essentially, BMW only makes cars that customers have already ordered.
Following this principle allows the company to scale production and working times up and
down, depending on demand. As part of its business model, BMW has mastered a high
degree of mass customization so customers can specify exactly what they want in their car in
minute detail.

BMW manages its liabilities

GM’s woes are sometimes attributed to its huge financial pension, healthcare and other benefits
liabilities. While such obligations are burdensome, they do not totally account for the persistent loss
of market share and other problems besetting GM. BMW has comparable liabilities for its workers’
pensions, which it has secured in separate funds in various countries, including in the US, UK and
Germany. By the end of 2010, BMW had placed e5.2 billion in an external trust to cover future
pension payments just in Germany.[4]

Exhibit 1 BMW Group figures 2006-2010 (euro millions, workforce in no. of persons)
2006 2007 2008 2009 2010

Revenues 48,999 56,018 53,197 50,681 60,477

Capital expenditure 4,313 4,267 4,204 3,471 3,263
Depreciation & amortization 3,272 3,683 3,670 3,600 3,682
Equity 19,130 21,744 20,273 19,915 23,100
Profit before tax 4,124 3,873 351 413 4,836
Net profit/2 loss 2,874 3,134 330 210 3,234
Permanent workforce (persons) 106,575 107,539 100,041 96,230 95,453

Source: BMW Financial Overview, 2010

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PAGE 12 STRATEGY & LEADERSHIP VOL. 39 NO. 6 2011
 The business model allows for about 300 work-time patterns that enable optimal deployment
of BMW’s skilled workers – despite a heavily unionized workforce. In contrast to the
conventional three-shift model, these employee work patterns offer individuals considerable
flexibility so they can bank additional hours in busy periods and draw on them when work
slows. Sometimes the patterns are factory wide, such as at one plant in a rural location that
closes for the month of August to enable its workers to assist with local farm harvests.
Creative solutions: Maintaining the ‘‘BMW way’’ requires creative initiatives. For example,
despite the benefits of its demand-driven business model, in 2008 the company still needed
to reduce overheads and this included reducing staff. Normal attrition is 2.7 percent of the
full-time workers, but in 2008 staffing levels were reduced by twice that without sacking
anyone. Workforce reduction measures, conducted in close partnership with unions,
included seeking voluntary redundancies, encouraging early retirement and not filling
vacant positions or renewing contracts for temporary workers.

However, BMW was reluctant to lose too many of its highly skilled workers, who would be
needed immediately when conditions improved. Therefore, rather than terminate workers,
the company collaborated with the German government to shift many workers to a four-day
work week. BMW paid wages for four days and the government agreed to pick up the tab for
80 percent of the fifth day. This meant that employees lost only 20 percent of one day’s full
pay, gained a three-day weekend and retained their jobs. The government benefited by not
having to pay a full week’s unemployment benefits to terminated workers, and the company
reduced its wages bill while retaining its skilled workforce.
BMW also took a creative approach to the management of suppliers during the recession.
BMW partners with suppliers over the long term, learns from them and helps them optimize
their products and services to meet the automaker’s own needs and standards. This makes
these suppliers highly valuable to the firm. However, the GFC created financial difficulties for
some auto suppliers. BMW applied its risk management system to identify suppliers in
danger of insolvency and then extended expert advice, loans and other assistance to keep
these suppliers afloat.
Sustainable leadership practices: As Exhibit 2 shows, sustainable leadership principles can
be depicted in the form of a four-tier pyramid, the lower three tiers constituting the
23 honeybee practices and the top level indicating the resultant organizational performance
outcomes. At the base of the pyramid are 14 foundation practices – so-called because they
can be embarked upon at any time management decides to do so. The next tier contains six
‘‘higher-level practices’’ whose emergence depends on various combinations of the
foundation practices being in place. At the third level, three key performance drivers reflect
the intended customers’ experience: systemic innovation, staff engagement and quality of
products and services. The model is dynamic and the various practices influence each other
in multiple ways.
BMW provides an example of a firm operating on honeybee principles over several
decades. This case offers brief examples of how BMW applies the 23 principles, with
particular emphasis on actions taken during the GFC. Throughout this case, the numbers in
parentheses refer to the sustainable element numbers in Exhibit 2.

‘‘ Rather than terminate workers, the company collaborated

with the German government to shift many workers to a
four-day work week. BMW paid wages for four days and the
government agreed to pick up the tab for 80 percent of the
fifth day. ’’

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VOL. 39 NO. 6 2011 STRATEGY & LEADERSHIP PAGE 13
Exhibit 2 Sustainable Leadership Pyramid

SUSTAINABILITY

brand & reputation

customer satisfaction
financial performance
long-term shareholder value
long-term stakeholder value
PERFORMANCE OUTCOMES
strategic, staff quality
systemic engagement
innovation

21 22 23 KEY PERFORMANCE DRIVERS

devolved & self- team enabling knowledge trust
consensual management orientation culture retention
decision- and sharing
making

15 16 17 18 19 20 HIGHER-LEVEL PRACTICES
developing amicable long-term internal valuing CEO and ethical long-term considered indepen- environ- social stakeholder strong,
people labor retention of succession people top-team behavior perspective organizat- dence from mental responsi- approach shared vision
continuously relations staff planning leadership ional change financial responsi- bility
markets bility
1 2 3 4 5 6 7 8 9 10 11 12 13 14
FOUNDATION PRACTICES © Harald Bergsteiner
Source: Avery and Bergsteiner (2011)

This case has identified three foundation elements in operation at BMW: how the company
strove to retain its workforce during the GFC (3); how it considers and assists other
stakeholders where necessary, such as its customers and suppliers (13); and how its
systems, processes and values align with its shared vision of having the premium brand in
each vehicle class (14). In developing and applying its work-time patterns and in reducing
staffing levels during the GFC, the company capitalized on its amicable relationships with
unions (2). This is partly a consequence of German law, which mandates that employees
constitute 50 percent of the Supervisory Board, ensuring that the company works closely
with representatives of labor.
Another foundation element already identified is long-term thinking (8). A long-term
perspective underpins many of the decisions that BMW management made during the GFC,
such as retaining its skilled workforce and helping suppliers survive. In the product area,
BMW invested in hydrogen cars over two decades ago, aware that it might have to wait
20 years or more for hydrogen filling stations to become widespread. Another example of
long-term thinking is that in 2006, the Supervisory Board appointed a relatively young Board
of Management team so that the members could develop together, work as a team (6) and
bring considerable experience with them to any future crisis.
A key honeybee practice is making ongoing training and development (1) available to all
staff members, not restricting it to special groups. BMW invested e179 million in employee
training in 2010, the equivalent of a small university’s budget. Even during the global
financial crisis, formal training per employee averaged about 1.6 days per year increasing to
2.4 days in 2010, while the company continued its apprentice and graduate development
programs. A strong focus on developing and retaining staff throughout the enterprise
supports a succession planning policy (4) of promotion from within the firm, since BMW
prefers to develop its own managers. Among other things, this helps protect BMW’s unique
culture (18).
BMW has been recognized in many ways for two other foundation practices, its ongoing
social and environmental sustainability programs (11, 12). These programs date back to the
early 1970s when BMW first anchored an environmental protection policy within its
organizational strategy. The company now regards environmental sustainability as core to all

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PAGE 14 STRATEGY & LEADERSHIP VOL. 39 NO. 6 2011
 aspects of its operations. Sustainability principles apply throughout BMW’s supply chain, in
the design and operations of its products and processes and in having nearly all parts of
BMW vehicles and production waste recyclable. Water and energy consumption have long
been minimized during production, as has waste. For example, scrap from BMW’s new
carbon fiber car bodies is reused in the production process. Progress is monitored in regular
sustainability reports the company issues. In recognition of these efforts, the Dow Jones
Sustainability Index has awarded BMW the global supersector leader rating for automobiles
and parts every year since 2005.
Valuing employees (5) is another honeybee foundation practice widely applied at BMW.
Basic benefits include protective clothing, maternity leave and sick pay, participation in a
staff share scheme, holiday bonus and an annual bonus based on the company’s success
each year. All employees normally participate in the company’s profit-sharing plan. However,
during the GFC, no performance or holiday bonuses were paid to the workers in 2008 and
2009 – but in 2010 employees received a special ‘‘makeup’’ payment in recognition of their
sacrifices over the previous two years. Together with other bonuses paid in 2010, every
worker received an extra 1.6 month’s salary.
Managing change in a systematic way (9) is a BMW practice, as evidenced by the
company’s collaboration with the unions in reducing staff and using its risk management
techniques to support suppliers during the GFC. Another example comes from BMW’s
approach to its aging workforce. Joachim Milberg, Chair of the Supervisory Board, in his
March 2011 report to shareholders acknowledged the implications of a changing workforce:
‘‘It is imperative that we continue to build up and maintain expertise and acknowledge the
importance of further training. These issues represent a major challenge for the future, not
least because of the demographic aging of society.’’ In the case of BMW, this means that by
2020, 45 percent of the workforce will be aged 50 or over. The skills, experience and wisdom
of its older employees are valued by the company and so BMW wants to keep them healthy
and productive. Therefore, in 2007 at its largest plant in Dingolfing near Munich, BMW built
an experimental production line staffed with older workers whose task was to optimize their
own workplace. Many suggestions came from the participants that have since benefited the
entire workforce. For instance, providing seating on the production line temporarily relieves
muscle and joint strain as does installing softer flooring pads and table heights adjustable to
each worker’s size. Production line monitors are angled and the font size enlarged
appropriately for aging eyes, while magnifying glasses are provided in case an employee is
unable to read the engraved part numbers. Special shoes were designed to relieve aching
feet. About 70 small but significant suggestions like these came from workers in designing
their future work environments; implementing the ideas sent signals that employees are
valued (5). Production outcomes were favorable as well. As the Harvard Business Review
reported in 2009,[5] productivity of the older workers jumped 7 percent.
BMW values its independence from the financial markets (10). Although BMW is a listed
company, the Quandt family’s ownership of a controlling interest since 1959 keeps BMW
largely independent of financial capital market pressures. Its strong financial track record
helps the company borrow at favorable rates and its long-term perspective helps insulate it
from the short-term pressures of the capital markets.
As for ethical behavior (7), BMW has taken various steps to promote an ethical workplace
and responsible governance. In addition to a code of ethics and an Ethics Advisory
Committee, the company has established independent and anonymous external contact

‘‘ In 2007, BMW built an experimental production line staffed

with older workers whose task was to optimize their own
workplace. ’’

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VOL. 39 NO. 6 2011 STRATEGY & LEADERSHIP PAGE 15
 points for employees and other stakeholders to report any form of suspected misconduct or
impropriety. It has also committed itself to respecting the rights of whistleblowers and others
filing reports. In 2011 for example, the international sustainability rating organization oekom
awarded BMW an A þ on corporate governance and business, which also covers board
independence and effectiveness, shareholder democracy, executive compensation,
shareholder structure and business ethics.

Higher-level practices
In addition to practicing the 14 foundation elements in the sustainability management
pyramid, BMW also has put in place six higher-level practices (see Exhibit 2). Among these
are a performance culture (18) based extensively around teamwork (17). For example,
remuneration is derived from performance at the individual, team and company levels, the
latter recognized through bonuses based on firm performance. Compensation is intended to
promote not only an individual’s personal achievements, but also contributions to
cooperation within the team and to corporate responsibility. Teams operate throughout the
organization, from the highly collaborative self-managing production teams to design teams
and administration groups. Collaboration occurs across the various plants, with suppliers,
and on new products and other initiatives with competitors such as Daimler and Peugeot. At
BMW important decisions can be devolved (15) to the lowest level on the production lines,
making work teams self managing as far as possible (16). This includes deciding on training
needs and process improvements within teams. Individual workers are expected to
understand the company’s strategy and business issues. This is only possible with a skilled,
dedicated and loyal workforce focused on achieving the company’s vision. A workforce thus
prepared can be trusted (20). At BMW, individual workers are empowered to stop the
production line, if necessary, without permission from a supervisor. Another aspect of the
BMW culture is that employees share knowledge (19) and learn from each other through
continuous improvement initiatives.
Finally, the Sustainable Leadership Pyramid proposes three key performance drivers for
honeybee organizations: innovation, staff engagement and quality. At BMW each of these
drivers is both central to the customer’s experience and integral to the culture. Innovation
(21), core to achieving the company’s premium brand strategy, is expected to come from
every worker via quality circles and other continuous improvement programs. Under BMW’s
‘‘i-motion’’ program, employees can receive substantial payments for innovative ideas that
improve work procedures, safety or efficiency. In addition, over 9,000 people worked in
BMW’s research and innovation network at 11 sites in five countries during 2010. In that year,
expenditure for research and development rose by 13.3 percent to e2,773 million. Among
the innovations in production are electric vehicles, hybrids and hydrogen cars.
Although direct measures of staff engagement (22) at BMW are not available, indirect
indices suggest that engagement is high, starting with BMW’s low levels of staff attrition. In
the 2010 Universum rankings, students placed BMW as the fifth most attractive employer for
engineers and twelfth in the world among commercial organizations. In the USA, Bloomberg
reported that BMW ranked 21st for the top 50 employers among college graduates.
The company strives for premium quality (23) in everything it does – from training through to
its financing division, both of which have been recognized for their performance. The BMW
approach to quality control is to audit vehicles at every stage of the manufacturing process:
the production of parts, components, in the assembly plants, as well as materials and
components from suppliers that must meet specified quality standards. An alternative
approach adopted by some other manufacturers is to make a car and then check it for
quality at the end of the production line, leading to costly repairs, warranty claims, recalls
and waste – and angry customers. All members of BMW’s staff are fully responsible for the
quality of their work and can be penalized for passing poor quality on to the next team. In
2010 the German automobile club ADAC analyzed over 4 million break-down events of 98
car models using ISO 9001:2000-certified statistical procedures. BMW’s cars were rated
among the most reliable.[6]

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PAGE 16 STRATEGY & LEADERSHIP VOL. 39 NO. 6 2011
‘‘ In 2011, the international sustainability rating organization
oekom awarded BMW an A 1 on corporate governance and
business, which also covers board independence and
effectiveness, shareholder democracy, executive
compensation, shareholder structure and business ethics. ’’

The above examples provide a glimpse into the honeybee practices of one firm that
emerged successfully from the GFC in 2010. Regarding the five performance outcomes on
the sustainable leadership pyramid, BMW clearly exceeded expectations in 2010 on
financial returns and shareholder value (see Exhibit 1). On brand and reputation, a 2010
study released by research-based consulting firm Reputation Institute revealed that BMW is
considered the world’s most reputable company in the automotive sector. Overall, BMW was
ranked fourth worldwide behind Google, Apple and the Walt Disney Company. Clearly BMW
provides long-term value for all its stakeholders – suppliers, shareholders, employees and
customers – as is expected of a sustainable enterprise. BMW’s business model, innovative
approach to problem-solving and adherence to sustainable leadership practices underpin a
capacity to survive crises such as the GFC.

Learning from BMW’s example

Why don’t more executives adopt sustainable leadership principles? Among the many
reasons are:
B Short-term thinking underlies almost every action in locust firms irrespective of
undesirable long-term consequences with regard to staff engagement, quality of
products and services and innovation, thus putting the very survival of the enterprise at
risk.
B Changing an organizational system from locust to honeybee principles is a big
undertaking that requires hard work, patience, persistence and a great deal of sensitivity.

Moving towards ‘‘honeybee’’ leadership

What should managers caught in a locust enterprise do to change the leadership towards
more sustainable principles? The first step is to conduct an audit of the extent to which the 23
practices on the Sustainable Leadership Pyramid are routinely implemented in the firm.[7]
Ideally many different employees from various functions and at different levels should be
asked for their opinions. For example, training and development should be routine and cover
technical and ‘‘social’’ skills for every worker, from apprentice through to middle and senior
managers. Just running a few ad hoc skills courses or management training sessions is far
from best practice. Similarly, just having a company vision on paper that most people are not
aware of and do not work with every day does not justify calling it a ‘‘shared vision.’’
Based on the feedback from the audit, the firm should assess which foundation practices it
needs to implement. An excellent place to start is in developing a compelling and effective
10-20 year vision of the future; then bring employees, investors, suppliers and other
stakeholders on board to participate in this exciting future. This is a vital first step in moving
away from short-term thinking. Be forewarned, however, that speculators and traders
focused on short-term gains may sell their stock. This requires leaders to continually make
clear to the markets where the company is going and to pursue its strategy without buckling
under the pressures of the financial markets. Ultimately, this will make the company more
attractive to long-term, patient capital. Policies on ethics, staff training and development,
valuing people, social and environmental responsibility, can be introduced as needed – as
the BMW case shows, over time they will become part of the DNA of your organization.

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VOL. 39 NO. 6 2011 STRATEGY & LEADERSHIP PAGE 17
 Notes
1. Avery, G.C. & Bergsteiner, H. 2011. Sustainable Leadership: Honeybee & Locust Approaches.
Routledge.
2. Albert, M. 1993. Capitalism vs Capitalism: How America’s Obsession With Individual Achievement
and Short-term Profit Has Led It to the Brink of Collapse. New York: Four Walls Eight Windows.

3. Much of the research evidence is summarized in Avery, G.C. & Bergsteiner, H. 2011. Sustainable
Leadership: Honeybee & Locust Approaches. Routledge.
4. Statement made by Dr. Friedrich Eichiner at Annual Accounts Press Conference 2011, accessed at
www.bmwusanews.com/newsrelease.do;jsessionid ¼ 2395F812AA589D27B7CB2684575AD4B2
?&id ¼ 577&mid ¼ 8 July, 2011
5. Champion, D. 2009. ‘‘How BMW is planning for an aging workforce.’’ http://blogs.hbr.org/hbr/
hbreditors/2009/03/bmw_and_the_older_worker.html (accessed 18 July, 2011).
6. www.adac.de/infotestrat/unfall-schaeden-und-panne/pannenstatistik/ (accessed 18 July, 2011).
7. We have developed a questionnaire for this purpose.

References
BMW Financial Overview (2010), accessed 3 August, 2011 at www.bmwgroup.com/e/nav/index.html?./
0_0_www_bmwgroup_com/home/home.html&source ¼ overview
Avery, Gayle C. and Bergsteiner, Harald (2011), ‘‘Sustainable leadership practices for enhancing
business resilience and performance’’, Strategy & Leadership, Vol. 39 No. 3, pp. 5-15.

Corresponding author
Gayle C. Avery can be contacted at: [email protected]

To purchase reprints of this article please e-mail: [email protected]

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PAGE 18 STRATEGY & LEADERSHIP VOL. 39 NO. 6 2011

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