Harvard Case - Ferrari: Shifting to Carbon Neutrality
"Ferrari: Shifting to Carbon Neutrality" Harvard business case study is written by Raffaella Sadun, Elena Corsi, Leila Doumi. It deals with the challenges in the field of Strategy. The case study is 34 page(s) long and it was first published on : May 15, 2023
At Fern Fort University, we recommend that Ferrari adopt a multi-pronged strategy to achieve carbon neutrality while maintaining its brand image and competitive advantage. This strategy will involve leveraging its core competencies in innovation and performance, embracing a holistic approach to sustainability, and engaging stakeholders in the transition.
2. Background
Ferrari, a renowned Italian luxury sports car manufacturer, faces the challenge of achieving carbon neutrality by 2030. The company's iconic brand is synonymous with performance and exclusivity, but this image is increasingly at odds with growing environmental concerns. The case study highlights the company's internal debate about how to balance its commitment to sustainability with its core values and business model.
The main protagonists are:
- John Elkann, Chairman of Ferrari, who is driving the company's sustainability agenda.
- Benedetto Vigna, CEO of Ferrari, who is responsible for implementing the company's strategic vision.
- Ferrari's engineering and design teams, who are tasked with developing innovative solutions for carbon neutrality.
3. Analysis of the Case Study
To analyze the case study, we will utilize several frameworks:
1. Porter's Five Forces:
- Threat of new entrants: The luxury sports car market is relatively niche, with high barriers to entry due to significant capital requirements, brand building, and technological expertise. However, the emergence of electric vehicle manufacturers like Tesla and Lucid Motors poses a potential threat.
- Bargaining power of buyers: Ferrari customers are highly discerning and price-sensitive, but their loyalty to the brand is strong. This gives Ferrari some leverage, but it must remain responsive to customer demand for sustainable luxury.
- Bargaining power of suppliers: Ferrari has a strong supplier network, but the increasing demand for rare earth metals and other materials used in electric vehicles could create supply chain challenges.
- Threat of substitutes: The growing popularity of electric vehicles and alternative mobility solutions presents a potential threat to Ferrari's traditional business model.
- Competitive rivalry: The luxury sports car market is highly competitive, with rivals such as Lamborghini, Porsche, and Aston Martin vying for market share.
2. SWOT Analysis:
Strengths:
- Strong brand image: Ferrari is a global icon, known for its performance, exclusivity, and heritage.
- Strong financial position: Ferrari has a solid financial base, allowing it to invest in research and development.
- Innovative culture: The company has a history of technological innovation and engineering excellence.
- Loyal customer base: Ferrari customers are highly engaged and passionate about the brand.
Weaknesses:
- Dependence on internal combustion engines: Ferrari's current business model relies heavily on gasoline-powered vehicles.
- Limited experience in electric vehicles: Ferrari lacks extensive experience in developing and manufacturing electric vehicles.
- Potential for reputational damage: Failing to address sustainability concerns could damage Ferrari's brand image.
Opportunities:
- Growing demand for electric vehicles: The global market for electric vehicles is expanding rapidly.
- Technological advancements: Advancements in battery technology and electric powertrains offer exciting possibilities.
- Increased focus on sustainability: Consumers are increasingly demanding sustainable products and services.
Threats:
- Government regulations: Stringent emissions regulations could impact Ferrari's product portfolio.
- Competition from electric vehicle manufacturers: Established and emerging electric vehicle manufacturers are challenging Ferrari's dominance in the luxury performance market.
- Economic uncertainty: Global economic instability could impact consumer demand for luxury goods.
3. Value Chain Analysis:
Ferrari's value chain is characterized by its emphasis on design, engineering, and manufacturing. The company's core competencies lie in its ability to create highly desirable and exclusive products. However, its value chain needs to adapt to the changing landscape of sustainability and customer expectations.
4. Business Model Innovation:
Ferrari needs to explore business model innovation to achieve carbon neutrality while maintaining its brand image and profitability. This could involve:
- Product diversification: Expanding into electric vehicles, hybrid models, and sustainable materials.
- Service offerings: Providing personalized experiences, maintenance packages, and digital services.
- Partnerships: Collaborating with technology companies, research institutions, and sustainable material suppliers.
4. Recommendations
Ferrari should implement the following recommendations to achieve carbon neutrality while preserving its brand image and competitive advantage:
1. Develop a comprehensive sustainability strategy: This strategy should be aligned with Ferrari's core values and mission, and it should encompass all aspects of the company's operations, from product development to supply chain management.
2. Invest in research and development: Ferrari needs to invest heavily in developing electric powertrains, battery technologies, and sustainable materials. This will require collaboration with leading technology companies and research institutions.
3. Embrace circular economy principles: Ferrari should adopt a circular economy model, focusing on reducing waste, reusing materials, and extending the life cycle of its products.
4. Engage stakeholders: Ferrari should actively engage with its customers, employees, suppliers, and investors to build consensus and support for its sustainability goals. This includes transparent communication, stakeholder feedback mechanisms, and collaborative initiatives.
5. Leverage its brand image: Ferrari's iconic brand can be a powerful tool for promoting sustainable luxury. The company should use its marketing and communication channels to showcase its commitment to sustainability and inspire its customers to embrace a more sustainable lifestyle.
6. Implement a phased approach: Ferrari should adopt a phased approach to achieving carbon neutrality, starting with incremental changes and gradually scaling up its efforts. This will allow the company to manage risks, learn from experience, and adapt to changing circumstances.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations are aligned with Ferrari's core competencies in innovation and performance, while also addressing the growing importance of sustainability.
- External customers and internal clients: The recommendations address the needs and expectations of Ferrari's customers, employees, and stakeholders.
- Competitors: The recommendations help Ferrari to stay ahead of the competition in the luxury sports car market, which is increasingly focused on sustainability.
- Attractiveness: The recommendations are expected to be financially attractive, as they will help Ferrari to reduce costs, improve efficiency, and generate new revenue streams.
- Assumptions: The recommendations are based on the assumption that technological advancements in electric vehicles and sustainable materials will continue to progress, and that consumer demand for sustainable luxury products will continue to grow.
6. Conclusion
Ferrari has a unique opportunity to become a leader in sustainable luxury. By embracing a multi-pronged approach to carbon neutrality, the company can maintain its brand image, enhance its competitive advantage, and contribute to a more sustainable future.
7. Discussion
Alternatives not selected:
- Maintaining the status quo: This would be a risky strategy, as it would expose Ferrari to increasing regulatory pressure and reputational damage.
- Focusing solely on internal combustion engines: This would be unsustainable in the long term, as the market for gasoline-powered vehicles is shrinking.
- Acquiring an electric vehicle manufacturer: This could be a costly and complex strategy, with potential integration challenges.
Risks and key assumptions:
- Technological risk: The development of electric powertrains, battery technologies, and sustainable materials could be delayed or encounter unforeseen challenges.
- Market risk: Consumer demand for sustainable luxury products could be lower than expected.
- Regulatory risk: Government regulations could become more stringent, impacting Ferrari's product portfolio.
Options Grid:
| Option | Advantages | Disadvantages | Risks |
|---|---|---|---|
| Multi-pronged sustainability strategy | Aligned with core competencies, addresses customer needs, competitive advantage | Requires significant investment, potential for disruption | Technological risk, market risk, regulatory risk |
| Maintaining the status quo | Low investment, minimal disruption | Unsustainable in the long term, reputational damage | Regulatory pressure, market decline |
| Focusing solely on internal combustion engines | Familiar technology, existing infrastructure | Unsustainable in the long term, market decline | Regulatory pressure, market decline |
| Acquiring an electric vehicle manufacturer | Rapid entry into the electric vehicle market | Costly, complex integration | Technological risk, market risk, regulatory risk |
8. Next Steps
Ferrari should implement the following steps to achieve carbon neutrality:
- Year 1: Develop a comprehensive sustainability strategy, conduct a feasibility study for electric vehicles, and establish partnerships with technology companies and research institutions.
- Year 2: Begin pilot production of electric vehicles, implement circular economy principles in manufacturing, and launch a public awareness campaign about Ferrari's sustainability goals.
- Year 3: Expand production of electric vehicles, introduce sustainable materials into its product portfolio, and engage with stakeholders on sustainability initiatives.
- Year 4-5: Continue to scale up electric vehicle production, optimize its supply chain for sustainability, and monitor progress towards carbon neutrality.
By taking these steps, Ferrari can position itself as a leader in sustainable luxury and ensure its long-term success in the evolving automotive industry.
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Case Description
A sports car manufacturer commits to carbon neutrality and to electrifying a large part of its car fleet.
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