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Private Equity Transforms Aston Martin
James Bond would have wanted one: the new Aston Martin Valkyrie. Its naturally aspirated 6.5 L 1130 bhp Cosworth engine peaks at over 11,000 rpm, producing a top speed of 250 mph.
But even if M. would have signed off on the $3.4m price tag, all 150 are already sold. Bond would probably have had to settle for a DB 11, for a shade under $250k. Aston Martin, founded in 1913, boasts a distinguished racing record, winning Le Mans three times, and periods of stable if not spectacular retail success. It also went bankrupt seven times in its first 100 years. Currently, however, it's on track to becoming a global brand worth over $6.4b.
The Aston Martin Story of Failure, Recovery, and New Expansion Plans
After several cycles of success and failure spread over the first 100 years of the company’s existence, the Italian private equity fund Invest industrial signed a deal on 6 December 2012 to buy a 37.5% stake in Aston Martin, investing £150 million as a capital increase, kicking off a turnaround at Aston Martin in 2012, and bringing in a new CEO, Andy Palmer from Nissan in 2014. Sales continued to decline through 2016, however. The DB9 failed to generate sufficient funds to develop next-generation models, leading to a downward spiral of declining sales and profitability. Pre-tax losses for 2016 increased by 27% to £162.8 million, the sixth year Aston Martin continued to suffer a such a downturn. Meanwhile, not surprisingly, employee morale plummeted.
Aston Martin returned to profit in 2017 after selling over 5,000 cars. After reporting a full-year pre-tax profit of £87 million, the firm launched an IPO on the London Stock Exchange on October 3, 2018, under the name Aston Martin Lagonda Global Holdings plc. To date, over $650m has been raised for designing and building new models, including the Valkyrie (under development since 2016). The Valkyrie sold the entire planned production of 150 cars, leading Palmer to admit underestimating customer interest by factor of six. Current plans for new vehicle development include the Valhalla (price tag $1.1m), and a revival of the fabled Lagonda brand.
Current strategic plans consist of a major shift to becoming a global luxury brand, including speed boats, aircraft, bicycles, clothing, and real estate development, mostly on a licensing basis. There has also been an effort to increase the appeal of cars and other products to women, primarily in partnership with the London-based luxury clothing firm Hackett London. In October 2018, Aston Martin announced it was opening a design and brand studio in Shanghai.
The casual observer might reasonably assume that Aston Martin’s history of success, failure, recovery, and recent successful entry into a whole new era of growth, is analyzable in terms of standard financial modeling (SFM) and they would be partly right, as the foregoing account reveals.
However, throughout this turbulent period of strategic and financial development, the Aston Martin leadership also focused on the firm’s culture, especially staff morale and the firm’s overall “style” or way of presenting itself to the world. CEO Palmer described employees as “always good... but [with] their tails between their legs, behaving like lost souls. I needed to give the company something to get its swagger back.” Palmer’s solution was to focus everything on the development of an exciting new model. “Every turnaround plan needs a flag to rally around and to a large extent the Valkyrie has been that flag,” he noted.
It would be all too easy, given the weight most corporate leaderships place on conventional SFM, to dismiss this focus on culture as a minor supplement to the main action as it were, nice to have but not essential. To see why and how it is essential, let's first briefly present an overview of Business Ingenuity’s Strategic Framework depicted in figure 1.
All strategic elements (Vision, Product, Operations, KPIs), internal style and mood, and relevant entities within the external ecosystem are dynamically and reciprocally interlinked, each potentially shaping and changing the other elements to which they are linked. We illustrate this below in the case of Aston Martin.
The Aston Martin Culture
CEO Palmer chose the Valkyrie project primarily as a way of transforming mood. Driving the numbers was secondary. As Palmer himself later ruefully admitted, “I realized I could have sold that car five or six times over and you kick yourself.” Which is to say, in terms of conventional SFM he made a mistake. But it would have been an even bigger mistake to focus on developing the company’s less exciting models (as the subsequent market failure of the DB 9 showed). Instinctively, Palmer recognized what BI’s Strategic Framework formalizes, namely that getting the culture right is more of a priority than conventional SFM. Put differently, one of the key advantages of BI’s framework is that it demonstrates how to shift strategic priorities in ways that open the path to real success, thereby performing a key design intervention role.
The numbers tell the story. When the Valkyrie project, which drained much needed financial resources away from more mundane model development, got started, Aston Martin was still making a loss. Currently, it has a valuation of $6.5 billion.
As Peter Drucker famously said, culture eats strategy for breakfast.
More specifically, as Palmer correctly intuited, the excitement generated by the Valkyrie rippled through the company, shifting the mood from resignation to confidence, passionate engagement and, and eventually ambition. It also transformed Aston Martin’s overall style (by which we mean the way a company discloses itself to the world) to one of design flash and sizzle—aka sexy.
Shifting mood and style lie the very heart of the holy grail of strategic-level cultural transformation. Unlike conventional past and current treatments, which largely rely on presenting lists of desirable corporate cultural traits, BI’s Strategic Framework models them, for the first time placing the challenge of developing corporate culture on the same level as standard modeling, such as SFM. It thereby puts the full power of theoretically based generative modeling at the disposal of CEOs and their strategic development teams. No list of traits, however insightful, can come close to matching that power.
As we will see in a moment, such power is largely constituted by the fact that the reciprocal dynamics of BI’s framework are law governed. Before analyzing that in detail, let's first consider Aston Martin’s external cultural shift, the pivot to becoming primarily a branding company.
Transforming External Culture
Shortly after CEO Palmer’s appointment, Aston Martin announced plans to turn itself into a global luxury brand. In doing so, it was aligning its strategy with an emerging trend, initiated by Nike, of reframing manufacturing companies as brand promotion firms. This in turn was associated with the advent of the so-called “experience culture.”
Here too, then, culture dictated both strategy formation and execution. BI’s Strategic Framework points to the importance of integrating emerging external business culture trends into strategy formation (i.e., defining the game you’re in) and execution. It appears that in this case, Aston Martin’s pivot to branding has been largely responsible for the company’s current multi-billion-dollar evaluation.
The Law-Governed Nature of the Strategic Framework
Effective models are typically grounded in theory, the more scientific the better. Financial modeling, for example, is firmly based on decades of development in academic financial theory. In this regard BI’s Strategic Framework is no exception. The dynamic interactions between the various elements in Fig. 1 (external culture, style, mood, and the four key elements) can be modeled using established laws of dynamic network science (DNS), a well- defined subcomponent of the powerful new science of complexity.
For the sake of brevity, we’ll shift full analysis of the nature and operation of DNS laws to the theory paper. Here we’ll simply note the relevant laws and their specific application to Aston Martin’s breakthrough turnaround.
The Mood/Style Internal Cultural Shift
The transformation of mood from resignation to confidence, passion, and ambition was contagious, as the network principle of strong ties operating in a community of practice (see footnote 11) would predict. Within such a network (all the evidence points to Aston Martin having a good teamwork structure, even during prior periods of failure), resilience increases. This is essential for maintaining the organizational viability needed to sell and deliver products and services that customers continue to buy at a price that affords acceptable profits. Consequently, the DNS Law of Increasing Returns (IR) kicks in, as confidence, collaboration, and communication all benefited from improving morale.
Starting in 2017, this led directly to the company’s return to profitability and exponential valuation growth. In less than the space of a year, as DNS laws predicted, the company went through a tipping point (TP), i.e., a qualitative shift driven by the recurrence of quantitative changes outlined above. What tipped was cultural maturity, as illustrated in fig 2. By the time of its 2018 IPO, Aston Martin was in effect a completely different company. More to the point, Aston Martin had transitioned from Tribal to Synergistic. Insular functions had become fully aligned – and in the process it had become significantly more stable and capable of deploying a more ambitious global strategy.
The External Cultural Shift: The Pivot to Branding
Whereas resilience is fundamental to performance in the current horizon, adaptability is essential for staying abreast of changes in the ‘eco system’ and investing in capabilities that afford 'turning on a dime' when threats and opportunities dictate. Adaptability correlates with the DNS Law of Hotspots: the more distant a locus of high energy/activity/interest (aka ‘hotspot’) is, the greater and more valuable will be the resulting transformation. Fig. 3 diagrams this type of linking.
The notion of global branding supported by networked manufacturing had little initial overlap for Aston Martin - but linking to the hotspot that branding became over the past decade fueled Aston Martin’s pivot, transforming itself once again, both culturally and strategically.
Beginning in 2015 Aston Martin, represented by “A” in fig 3, characterized by a set of strong internal ties, began connecting to “B”, the emerging corporate cultural hotspot of the Experience Economy/Global Branding - composed of various closely connected strong ties of ideas, concepts, principles, and practices. These began to infuse Aston Martin’s conventional manufacturing company culture. The more Aston Martin aligned with core features of the branding hotspot, the more all aspects of its Strategic Framework (Fig. 1) were transformed, predictably triggering a tipping point. Now marketing took a more prominent role, whereas engineering had previously held the senior seat at the table. Share of market supplanted racing statistics as the important KPI. The outcome was a transformed culture that could now focus fully on the multiple new opportunities that this tipping point brought with it, as well as on the risks this shift inevitably entailed.
Summary
The new disciplines of complexity science and DNS allow us to see and accurately explain Aston Martin’s two remarkable transformations. This represents an exciting breakthrough in strategic and socio-cultural technology; one that finally opens the way to solving the puzzle of corporate success and failure that business analysts and consultants have struggled with for so long.
Prior attempts to address this issue, from Kotter and Heskett’s original 1992 book, through Collins to Gelfand, Groysberg and others, have all noted the importance of the link between culture and exponential growth/financial success. Their proffered solutions, however, have for the most part consisted of descriptive/prescriptive lists of characteristics they regard as essential to growth. While often insightful, they lacks the dynamic generative power found in complexity science and DNS.
By contrast, BI’s Strategic Framework successfully integrates true cultural modeling with conventional SFM. The benefits of this approach, as explained by Aston Martin’s success, are:
radically improved strategic design, intervention, and redefinition
effective and insightful management of cultural transformation (e.g., moods, style, maturity) and its integration into SFM, leading to enhanced resilience enhanced adaptability via alignment with external emerging trends risk reduction improved integrated metrics triggering of powerful tipping points in cultural maturity
More case studies and product information on Business Ingenuity’s Cultural Alignment Analyzer (CAA) can be found in the Resource section of our website.
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