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 the app as well. Once your car gets shipped, you get logistics information. And what they do essentially is they have an internal system, which they’ve created a really amazing system that has something like 150 milestones, internal milestones of the company that they track and collect data on. They decide to make 11 of those milestones available to the buyer. And so you can now see it live. You can see how many days actually your car sits at the port.
BRIAN KENNY: I don’t know if that’s a good thing or not.
STEFAN THOMKE: Well, that’s the issue, right? And you could see when it’s supposed to arrive at the dealer and you see how many days it’s behind and you see when it gets stuck at a port and if the ship that the car is on actually goes down, you can see that as well, which by the way has happened.
BRIAN KENNY: And that happened, right?
STEFAN THOMKE: Yes, it happened.
BRIAN KENNY: That’s described in the case, yeah.
STEFAN THOMKE: And I think the idea is that they want to be more transparent with their customers and actually show sort of what’s going on in this whole process rather than keeping them in the dark basically from the time that they answer, order the car, until they get it.
BRIAN KENNY: Yeah, it’s a double-edged sword, though, right? Because the more transparent you are, the more you’re maybe showing your faults and your warts to the customer.
STEFAN THOMKE: Absolutely, and that’s the gist of the discussion. How much information do you want to show, and is this the right kind of information that you want to show? Do customers really want to know and do they have to know how many days the car is stuck at a port? And so we have a pretty interesting discussion in the classroom on that, and some people will say, the more, the better. We need to be completely transparent with customers and then let the customer figure out how much they want to know. And then versus others will say, no, no, no, no, no. What we do is we don’t want to share all this information with customers. That’s company internal. Customers don’t know how to use that information. Making a car is probably one of the most complex products you’ll ever make in the world, and there are delays as we’ve seen, because supply chain delays, COVID happened, the war in Ukraine. I mean, there are lots of different reasons why they can’t get parts. Then there may be a supplier has a fire. So there are a lot of things going on and how do you make it reliable? And so you may create some anxiety. So the question is, what is then a luxury experience given that you have this tool available?
BRIAN KENNY: And the other thing about luxury, so the case talks about the custom models of the 911 that they’re making, which are super exclusive, super high end, which in some ways seems to conflict a little bit with what they’re trying to do is to make the car more accessible, a luxury experience, more accessible to a broader market. How do they sort of balance the exclusivity piece with the accessibility piece?
STEFAN THOMKE: Yeah, it’s very difficult because they’re all sold through the same dealers, so you want to have the most high end, most exclusive cars sold through the same dealer and the entry level car as well, and you want to make sure that the experience is pretty amazing for someone who’s spending a lot of money on these cars. They don’t control the dealers, especially in the US by law, there are franchise laws here. They can’t really tell the dealers, for example, what price to charge. And so it gets really tricky and that’s also part of the reason why something like “Track Your Dream” is interesting. What they want to do is they want to build direct relationships with customers, and so how do you actually do that in an environment where most of your relationships are actually indirect, which is really true for a lot of auto companies, especially in the US where the relationship is actually in most cases not very direct.
BRIAN KENNY: How do the dealers feel about “Track Your Dream?” Are they fans of it or…
STEFAN THOMKE: I don’t know. I’ve been hearing mixed things. On one hand. One hand, the dealers will say, “Oh, it’s great, so at least the customers don’t call me all the time. They can look it up on the app.”
BRIAN KENNY: Of course, yeah.
STEFAN THOMKE: On the other hand, it’s also maybe a loss of control a little bit because you used to go to the dealer and the dealer would actually tell you where your car is, and now you go directly to the company and the company, you get the information. I don’t know quite honestly whether all dealers are super excited about it, but I’ve heard and I’ve talked to some people and they said it helps me a little bit with keeping the customers informed. Now, some dealers are amazing at informing customers anyway, so the additional value is actually not there because salespeople called, but then some dealers are not. They really do keep customers in the dark. So again, it’s about control. And the bigger thing is how do you build relationships with customers that you eventually you can monetize?
BRIAN KENNY: Right, right. It reminds me of the disintermediation. I think that was the word we used to use a lot in the beginning of the early e-commerce days, and it was-
STEFAN THOMKE: Not allowed to do this here. Franchise laws in the US.
BRIAN KENNY: Yes. Yeah, I guess, smart on the dealer’s part for that.
STEFAN THOMKE: Yeah, yeah, yeah.
BRIAN KENNY: Can we talk about the suppliers a little bit?
STEFAN THOMKE: Sure.
BRIAN KENNY: The case points out that I think 80% or something like that, of the parts that Porsche uses are coming from suppliers. I would imagine it’s pretty challenging to try and maintain the quality that you want to maintain to create the best experience with your suppliers. How do they manage that supply chain?
STEFAN THOMKE: Also very difficult, very challenging because a lot of the innovation comes through suppliers, supply innovation. When 80% of your parts are from suppliers, supply innovation plays a huge role, and the supplier base has been affected by all these changes. So first they had COVID, and then of course they also had the transition to EV. So many suppliers actually started to invest in EV capabilities and so haven’t reaped sort of the rewards of that. So the supplier base is also having more financial difficulties because of them trying to manage the same transition that the OEMs are trying to manage. And so it’s described in the case as well that they have to learn to work with suppliers, maybe that they have problems. Sometimes you have to send an OEM team actually to help the suppliers, to support the suppliers. You have to sometimes learn how to work with suppliers maybe that are not A+, because they’re going through their own transitions, and that’s all part of the game, especially when you’re trying to create something new like an EV sort of supplier infrastructure.
BRIAN KENNY: And just access to raw materials that you need to build the parts that go into the car.
STEFAN THOMKE: And volume.
BRIAN KENNY: And volume.
STEFAN THOMKE: Yeah, volume. If you don’t have the EV volume yet, then it’s kind of harder for the suppliers to invest, and so they have to manage that. So you have to imagine in all this context here, so the suppliers are having difficulties, so there are a lot of challenges if you’re sort of the CEO then. Demand in China has gone down, then China is competing with you as well. They’re creating their own EV industry, and they’re quite successful at it because the numbers there are pretty good, so they’re pushing really hard to go through this transition fast. Then of course, now we have the issue of tariffs. There are so many issues that are going on right now, and you’re the CEO of this company and you’re trying to manage all this. And then there’s also the connection to Volkswagen as well, which is having its own difficulties.
BRIAN KENNY: Yeah. Describe that relationship. I know that I mentioned in the introduction that actually the first Porsche was built on the Beetle platform. How strong is the relationship now?
STEFAN THOMKE: It’s strong. They’re connected. The CEO of Porsche is also the CEO of Volkswagen.
BRIAN KENNY: Wow, there you go. It’s about as strong as it gets.
STEFAN THOMKE: Yeah, yeah, so he has both companies in mind when he makes decisions, and so of course they’re trying to use the synergies between these companies, but sometimes maybe if you go too fast on the synergies, maybe you’re also slowing yourself down. Sometimes it’s better maybe just to do things in separate ways so you don’t get too attached, and so they’re trying to kind of balance that as well at the same time. So it’s an interesting time. At the same time, they have this hugely loyal fan base. I mean, they’re diehard Porsche fans. They have races. The products are iconic, and so I think, again, recommitting to these iconic products is probably going to be sort of the way they’re going to go and probably scale back some of the things that they’ve done.
BRIAN KENNY: Yeah, we talk about heritage brands on the show quite a bit, and that challenge is always how do you hold onto what is special about the heritage that makes that emotional connection with your customers, while at the same time innovating and always improving, and it’s a really difficult tension to manage, right?
STEFAN THOMKE: Imagine, Brian, you’re the person who is in charge of the 911 and the marching order is to go and change it, but don’t change it.
BRIAN KENNY: Yeah, yeah. Exactly, exactly.
STEFAN THOMKE: And so that’s really the challenge.
BRIAN KENNY: So if you’re the CEO and you’re sort of looking out over the next decade, what do you think are the opportunities out there? We’ve talked a lot about the challenges and the risks, but what are the opportunities that they should be looking at?
STEFAN THOMKE: I mean, what makes Porsche, right? There are three things that really make the company. It’s the brand, it’s the products, and the people. And so that’s also the opportunity at the same time to go out. I think they will stick of course long-term with EVs. And the EVs, I already told you, I think the EV products, I think the Taycan just is an amazing product. I’ve driven it. It’s direct steering. It really feels like a sports car even though it’s a very heavy car. And just to continue to stay true and making iconic products that really drive like sports cars, no matter which segment they go into.
The opportunity is again, making sure that they get some of the very best people, which they have traditionally. They’re rated as among the very top employers in Germany. Every engineer who graduates from a university wants to work for them. And the brand, you keep on investing in the brand, building the brand, and then going to these different segments. The US is a big market. We’ll have to see how that plays out now with what’s going on in the background with tariffs and all that. But they’ll master that. It’s probably going to focus, that’s going to affect probably more some of the lower end cars, maybe not the high-end cars where there’s a lot of demand for. And I’ll give you an example. They had a limited car, the 911 S/T that just came out. They limited it to 1,963 units because the 911 was born in 1963.
BRIAN KENNY: What was the price point on that?
STEFAN THOMKE: Oh, once you customize it, you easily hit $300,000. You go over $300,000 when you add tax and so forth. So this is not an inexpensive car, but it’s an iconic car and it’s every journalist who drives the car is just blown away by it. So, you have to keep on making cars like that. The question is, should you limit it maybe to 1,963 cars? Maybe it should have done four or five thousand or so, because I imagine the margins are very high on these cars. So, keep on making these cars, but then also sort of take advantage of some of the technology changes that are happening around us. And there are a lot of people there, I think, who love technology. So they’re not averse to any of these things, whether it’s EV or any other technologies, and I think they’ll continually lean into it and stay the course which they traditionally have done.
BRIAN KENNY: Stefan, this has been a great conversation as I knew it would be. So one last question for you. I always like to end by asking you, if you want our listeners to remember one thing about the “Porsche” case, what would it be?
STEFAN THOMKE: The one thing to remember is products. I always tell in my class of participants as well, if you make an awesome product, you can get away with a lot of things. You probably get away with maybe average marketing, average finance, average, a lot of things. But if your product is no good, it’s going to be really, really hard to keep your customers. So, stay committed to your products. So for all of your listeners, when you think about how you spend your time and if you look at your calendars of the week, how much time do you spend on making sure that your products or your experiences for your customers are really amazing? That I think is something that I would focus on, and that’s what the company has traditionally focused on.
BRIAN KENNY: That’s great. Stefan, thanks for joining me.
STEFAN THOMKE: Thanks so much for having me.
BRIAN KENNY: If you enjoy Cold Call, you might like our other podcasts, After Hours, Climate Rising, Deep Purpose, IdeaCast, Managing the Future of Work, Skydeck, Think Big, Buy Small, and Women at Work. Find them on Apple, Spotify, or wherever you listen. And if you could take a minute to rate and review us, we’d be grateful. If you have any suggestions or just want to say hello, we want to hear from you, email us at [email protected]. Thanks again for joining us, I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School and part of the HBR Podcast Network.
