Another BMW success article. source: http://www.businessweek.com/magazine/content/06_42/b4005078.htm

The Secret of BMW’s Success

BMW’s reputation for innovation can be traced to its equally innovative lateral management techniques

At 4:00 p.m. on a Friday afternoon, when most German workers have long departed for the weekend, the mini-cafés sprinkled throughout BMW’s sprawling R&D center in Munich are jammed with engineers, designers, and marketing managers deliberating so intently it’s hard to hear above the din. Even the cappuccino machine is running on empty. It’s an atmosphere far more Silicon Valley than Detroit.

“At lunch and breaks everyone is discussing ideas and projects all the time. It’s somewhat manic. But it makes things move faster,” says BMW chief designer Adrian van Hooydonk.

The intense employee buzz at BMW is hot management theory in action. Top consultants and academics say the kind of informal networks that flourish at BMW and the noise and borderline chaos they engender in big organizations are vital for innovation—especially in companies where knowledge sits in the brains of tens of thousands of workers and not in a computer server. Melding that brain power, they say, is essential to unleashing the best ideas.

HANDS ACROSS DIVISIONS. “Cross-functional teams look messy and inefficient, but they are more effective at problem solving,” says James M. Manyika, a partner at McKinsey & Co. in San Francisco who has studied the effectiveness of such networks. Companies such as BMW that leverage workers’ tacit knowledge through such networks “are widely ahead of their competitors,” Manyika adds.

BMW is one of a handful of global companies including Nokia (NOK ) and Raytheon (RTN) that have turned to networks to manage day-to-day operations, superseding classic hierarchies. Those pioneering companies still turn to management hierarchies to set strategic goals, but workers have the freedom to forge teams across divisions and achieve targets in the best way possible—even if that way is unconventional.

And they are encouraged to build ties across divisions to speed change. “Good companies have this lateral ability to communicate across divisions and silos, not just up and down the hierarchy. That’s what makes BMW tick,” says chief financial officer Stefan Krause.

LIGHTNING-FAST CHANGES. Speed and organizational agility is increasingly vital to the auto industry, since electronics now make up some 20% of a car’s value—and that level is rising. BMW figures some 90% of the innovations in its new models are electronics-driven. That requires once-slow-moving automakers to adapt to the lightning pace of innovation and change driving the semiconductor and software industries. Gone is the era of the 10-year model cycle.

Now automakers must ram innovation into high gear to avoid being overtaken by the competition. That’s especially true in the luxury-auto leagues, where market leaders must pulse new innovations constantly onto the market, from podcasting for cars to infrared night vision systems.

By shifting effective management of day-to-day operations to such human networks, which speed knowledge laterally through companies faster and better than old hierarchies can, BMW has become as entrepreneurial as a tech startup, consultants say. “Not many large companies take on lateral communications the way BMW does. It’s a knocking down of barriers, like Jack Welch did at General Electric (GE ) to make a boundaryless corporation,” says Jay Galbraith, a Breckenridge (Colo.)-based management consultant.

MOBILE-PHONE MESSAGES. BMW’s ability to drive innovation even pervades its marketing division. “People talk about innovation in products, but what’s underestimated is innovation in processes and organization,” says Ernst Baumann, head of personnel at BMW, which has its share of radical new ideas.

To reach a younger crowd of potential buyers for its new 1 Series launch in 2004, BMW used mobile-phone messages as the main source of buzz, directing interested people to signups on BMW’s Web site for pre-launch test drives in August that year—something unheard of in the industry at the time. The experimental tactic worked: BMW sparked responses from 150,000 potential customers—and sales of the 1 Series took off when it was launched in September, 2004.

In 2001, BMW stunned the advertising world by investing ad spending normally set aside for Super Bowl spots in short films that had nothing to do with telling consumers about its cars. The slick, professionally made films were pure entertainment, like its series of short films, The Hire, starring Clive Owens, and they cost a bundle: $25 million.

BALANCING ACT. The risky bet triggered serious consternation at BMW’s Munich headquarters. “You have to worry when your marketing team goes into the business of making films,” says Krause, who noted that Internet-driven businesses were imploding left and right in 2001. Given those conditions, “Who cares how many clicks you get.”

Few large companies are willing to embrace the lack of organizational clarity and nebulous structures that drive innovative ideas. At most companies, headquarters would have put the kibosh on the short-film idea, which has since been widely imitated. Researchers say most experiment with networks on a small scale and very few use the practice to full effect since doing so means an uncomfortable balancing act between hierarchy and discipline on one hand, and free-wheeling networks that can veer toward near-chaos.

But for innovation-driven companies, networks that enable entrepreneurial risk-taking are a silver bullet. “The ideas are richer, they implement more effectively, and there is less resistance to change,” says Rob Cross, assistant professor of management at the University of Virginia.

IDEAS FIRST. How does BMW manage discipline with creativity and keep the anarchy of networks from careening out of control? Workers at the Bavarian automaker are encouraged from their first day on the job to build a network or web of personal ties to speed problem-solving and innovation, be it in R&D, design, production, or marketing. Those ties run across divisions and up and down the chain of command.

When it comes to driving innovation, forget formal meetings, hierarchy, and stamps of approval. Each worker learns quickly that pushing fresh ideas is paramount. “It’s easier to ask forgiveness for breaking the rules than to seek permission,” says Richard Gaul, a 33-year veteran at BMW and former head of communications at the $60 billion automaker.

BMW’s complex customized production system, the polar opposite of Toyota’s (TM ) standardized lines, is easier to manage if workers feel empowered to drive change. Like Dell Computer (DELL ), BMW configures its cars to customers’ orders, so each auto moving down the production line is different.

FORGET OLD-SCHOOL RIGIDITY. Making sure the system works without a hitch requires savvy workers who continually suggest how to optimize processes. “Networks can do things that hierarchies cannot, because hierarchies lack the freedom. With a network you get the powerful ability to leverage knowledge quickly to bear on solving problems,” says Karen Stephenson, management consultant and Harvard professor. “A network is the only way to effectively manage BMW’s kind of complexity.”

By contrast, companies that don’t have lateral nimbleness are crippled in fast-moving technology-driven industries. Rigid hierarchies that stifle fresh ideas and slow reaction times are one problem facing General Motors (GM ) and Ford Motor (F ).

Once giants like GM were king, dominating the market with their huge volume and purchasing muscle. Big is no longer the ticket to success, and the slow-moving bureaucracies that big companies are saddled with are now a major handicap. “Lean is passé. What is in is lean and agile: the ability to shift and adjust as circumstances in the market change,” says David Cole, partner at the Center for Automotive Research in Ann Arbor, Mich.

KNOW THY CONSUMER. BMW managers, by contrast, even talk about the “physics of chaos” and how to constantly nurture innovation and creativity by operating on the very edge of chaos without getting out of control. “Discipline and creativity are not a paradox, there is a borderline case of self-controlling systems,” says Gaul. “Where you break rules you have to be very disciplined.” That’s the industry’s next kaizen—the art automakers will be forced to master in the 21st century.

The novel advertising scheme developed back in 2001 is a good example. Jim McDowell, then U.S. vice-president of marketing, was confident the project, dubbed “Big Idea,” and kept under tight security in “War Room” No. 6 at BMW USA’s Woodlake (N.J.) headquarters, would create just the kind of consumer buzz that BMW wanted—and would ultimately be more cost-effective for BMW than Super Bowl advertising. The idea was to give film directors a BMW car around which a compelling short film was to be made. Many of the tales centered on life-and-death chase scenes, but several were humorous or even melancholy.

McDowell figured if The Hire, took off and the films were downloaded from BMW’s Web site by 1 million to 2 million viewers, BMW would chalk up the same number of eyeballs as a snappy advertising campaign aired during the Super Bowl, but would reach a higher percentage of BMW-type customers, progressives with a nose for cinema, technology, and high bandwidth. “If you really understand your consumer, you can be very clever about how to communicate. You can change the whole paradigm,” says McDowell, who is now executive vice-president at Mini.

SNOWBALL EFFECT. McDowell didn’t take any half-measures. He went after talented directors such as John Frankenheimer (The French Connection) and Ang Lee (Crouching Tiger, Hidden Dragon), and signed up stars such as Madonna, Clive Owens, and Gary Oldman—giving them complete artistic freedom, aside from the BMW model that starred in each film. No advance advertising heralded the Internet launch of the films.

The buzz started slowly with the first film but grew to avalanche proportions by the time Madonna’s short comedy film about a cranky diva was released, overwhelming BMW’s expectations and forcing the automaker to add servers as fast as it could.

But it didn’t stop there. As the short-film gambit rocketed around the blogosphere, national TV broadcasters flooded McDowell’s office with requests for interviews on CBS, Entertainment Tonight, and Fox News. The novelty of an automaker producing films fanned public interest and stoked downloads.

“EXPERIMENTAL ENVIRONMENT”. After one year, the number of viewers who had visited BMW’s Web site to download The Hire shot to over 21 million, and with three more films added in 2002, it rocketed to 100 million, sparking a Harvard Business School case study. One million enthusiasts ordered a DVD with all eight films.

McKinsey’s Manyika, who has studied networks extensively, says knowledge forced through a company top-down drives “conformity, consistency, and efficiency.” That’s better suited to companies that make a standardized widget than a complex, electronics-driven product that requires constant innovation.

Companies such as BMW have to tap into tacit knowledge to spark fresh ideas. “It’s more of a learning and experimental environment. It’s building on what people know. It’s learning instead of instruction,” says Manyike.

HOW IDEAS TRAVEL. For academics and consultants studying the phenomenon of corporate networks, the most fascinating element is the “node” or the broker individual who can join two separate clusters with different pools of knowledge. Such a broker may have once worked in purchasing but now sits in R&D. As such, he or she can bridge the two worlds by “reaching across the white space of disconnected people,” says Ronald S. Burt, a sociologist at the University of Chicago, who is studying the impact corporate networks have on performance.

That linkage speeds learning throughout companies—a vital tool to industries that should continually innovate. “People exposed to a diversity of information are at higher risk of seeing a new angle, a better way to frame ideas,” says Burt. And companies that recognize and tap such social capital “have better growth rates and better patent rates. Formal structures decide who to blame. Informal structures decide how to get things done,” he says.

 

Yet another BMW article on Business Week to add to the collection. Source: http://www.businessweek.com/autos/content/oct2006/bw20061005_473123.htm

BMW by Design

BMW’s California-based Designworks designs cars — but also cell phones, planes and coffee makers

Walk into Designworks USA’s corporate-style sprawling glass and concrete building in a nondescript office park in Newbury Park, Calif., and it’s not surprising to find a Formula One race car just off the reception area to greet visitors. After all, the design studio is part of BMW.

Wander around as far as the watchful security-minded staffers allow, and curiosity leads you to displays of cell phones, a cardiac exercise machine, bicycle helmets, a John Deere backhoe, photos of an airplane interior, and one of the HP Photosmart picture-printing kiosks found at drugstores. There’s even a Nilfisk brand carpet cleaner. What’s all this got to do with “The Ultimate Driving Machine?”

BMW bought Designworks in 1995 at the behest of chief designer Chris Bangle, who wanted a design post in California conveniently near the Art Center College of Design in Pasadena (which he attended), and a full-service design studio that gets at least half of its business from clients other than the German carmaker.

FIRST CLASS. While hatching designs for BMW as important as the current 7 Series sedan, 1 Series sedan and hatchback, and X3 sport activity vehicle, it’s still the only studio of its kind in the auto industry driving innovation and cross-fertilization among products as diverse as vacuums and luxury cars. “We get to design around lifestyle changes in all these categories, and pretty much everything is being defined as a lifestyle brand these days,” says Alec Bernstein, Designworks’ director of advanced communications.

Perhaps the design generating the most excitement around Designworks this year is the interior of Embraer’s line of light corporate and personal jets. No wonder designers are giddy, as well as sentimental. BMW started out as an aviation company nearly a century ago (BMW’s familiar logo depicts a plane propeller in motion), building high-performance plane engines, before it went into autos.

It was a BMW engine, for example, that powered Manfred Albrecht Freiherr von Richthofen (The Red Baron) to fame and glory. And Embraer, the Brazilian aviation company, last December shelved its own design after Designworks spent about $20,000 to create a foam and plywood prototype that utilized seats from BMW’s Mini Cooper.

ALREADY A FAN. The Embraer 100 and 300 very-light-jets (VLJs) are the aviation company’s first foray into small, four-to-eight-passenger jets, a fast-growing segment of plane manufacturing (because of the rising nuisance factor of commercial air travel). Companies and well-heeled individual pilots are increasingly choosing to bypass two-hour departure procedures and other commercial hassles in favor of flying in style.

Besides liking the actual design, Embraer was attracted to Designworks’ experience in designing luxury cars. Most of the owner-operators of VLJs have one in the garage. “The cockpit and instrument cluster Designworks did is based more on automobile sensibilities than inspired by a fighter jet, and we were very attracted to that,” says Luis Carlos Alfonso, senior vice-president, corporate aviation market, for Embraer.

The irony is, since Designworks led BMW on the creation of the current 7 Series sedan, the reaction has been polarizing because of what many see as an overly complicated electronic interface in the center console, called iDrive, which controls on-board telematics, radio, climate, navigation, and more.

ARTFUL DESIGN. The interior of the Embraer Phenom 100, the less expensive of the two jets, aimed more at owner-operators than corporate fleets, has drawn great praise at aviation shows. Features singled out by customers and reviews: A bamboo floor option—the most hotly debated feature inside Embraer—more spacious passenger leg room than Embraer had engineered in-house or competitors have; a cockpit chair that slides back far enough to allow a pilot to pivot out of his chair instead of having to climb out, as is the case with most small jets; and a panoramic windshield that wraps around the pilot.

Artful design hasn’t been part of the small-plane market up to now. Even the steering yoke of the Phenom, with its triangular center, was inspired by a trip one of the Designworks designers made to Embraer’s Brazilian headquarters where he couldn’t help being struck by the abundance of bikini bottoms on the nearby beach.

Is there synergy between designing plane interiors and cars? Consider that the same designer who led on the Phenom’s interior also worked on the interiors of the Mini Cooper and Rolls Royce Phantom (Rolls is part of BMW too).

INFORMATION OVERLOAD. Verena Kloos is president of Designworks, and the German-born former Mercedes-Benz designer says she loves the profit-driven learning that benefits her studio, as well as corporate parent BMW. “We do a cell phone, or a graphic interface for a coffeemaker, or a photo-developing kiosk, and that informs how we manage in-flight entertainment systems for Embraer and that cycles back to what we do for BMW.” This way, she says: “We have to prove out our designs constantly to clients and there’s no safety net. It keeps us honest. These are not fancy design exercises, which get tiresome,” she says. Working on cars alone, she points out, can be stagnating because a designer typically only gets his or her work “proved out” every few years.

Design, says Kloos, is being driven today by making a lot of information more easily accessible to the consumer. She’s not kidding. The 7 Series iDrive system manages some 700 separate functions. The system has gone through two modifications since 2002, and BMW has developed a new system for the new 7 Series due out next year.

TACTILE TOUCHSTONE. With all that digital information needing to be designed and packaged, it’s both fitting and ironic that Kloos’s private passion is collecting paper. She has art objects sprinkled around her office made from recycled paper. “I love the idea of paper. It’s tactile. With so much of what we do today built around a digitized world, we need more tactile experiences.”

In a digital world, it’s easy to get caught up in the sheer abundance of what each new invention can do. But like each successful design, whether it be a car, plane or cell phone, she adds, paper is made one sheet at a time.

 

Found this article on the net…

source: http://www.businessweek.com/magazine/content/06_42/b4005072.htm?chan=top+news_top+news+index_top+story

BMW’s Dream Factory

Sharing the wealth, listening to even the lowest-ranking workers, and rewarding risk have paid off big time.

The car looks like the victim of some mad scientist’s experiment gone awry. Inside a research lab in Munich, a BMW 5 Series sedan is splayed open, with electronic gadgets and wires spewing in all directions. The project: an onboard computer that will recognize you, then seek out information you want and entertainment you love. While you sleep, your BMW will scour the Net — via Wi-Fi and other connections — collecting, say, 15 minutes of new jazz followed by a 10-minute podcast on the energy industry. It may sound far-fetched, but for BMW’s research wizards it’s yet another way to woo customers by personalizing cars. This intelligent machine will grow to know you better every day, constantly learning what you like by monitoring your choices. The brains of the system might even tag along with you on a business trip in the form of a “smart card,” instructing the Bimmer you rent in Beijing to load up your daily fix of news and music. When Hans-Joerg Vögel, the 38-year-old project chief, hops in the car’s front seat and fires it up, his excitement is palpable. Launching into a riff on the wonders of melding the virtual world with the nuts and bolts of an automobile, Vögel says the next generation of BMW 5 Series and 7 Series sedans will be the most Net-savvy cars on the road. And if he’s right, it’ll be because Vögel had the vision to see the importance of the technology and the gumption to build it so everyone at the automaker could recognize its potential. “We are encouraged to make decisions on our own and defend them,” says Vögel. “Risk-taking is part of the job.”

Vögel’s project is only a tiny part of BMW’s vast innovation machine. Just about everyone working for the Bavarian automaker — from the factory floor to the design studios to the marketing department — is encouraged to speak out. Ideas bubble up freely, and there is never a penalty for proposing a new way of doing things, no matter how outlandish. BMW, says Ulrich Steger, a professor of management at the International Institute for Management Development in Lausanne, Switzerland, is “a fine-tuned learning system.”

True Believers

That’s no small accomplishment, and it has fueled BMW’s growth over the past decade from a boutique European automaker to a global leader in premium cars. Although BMW, with $59.2 billion in sales last year, is much smaller than its American rivals, the U.S. auto giants could still learn a thing or two from the Bavarians. Detroit’s rigid and bloated bureaucracies are slow to respond to competitive threats and market trends, while BMW’s management structure is flat, flexible, entrepreneurial — and fast. That explains why, at the very moment GM and Ford appear to be in free fall, BMW is more robust than ever. The company has become the industry benchmark for high-performance premium cars, customized production, and savvy brand management, making it the envy of Mercedes-Benz (DCX ), Audi, and Lexus and the subject of Harvard Business School case studies. Even mighty Toyota Motor Corp. (TM ) regularly dispatches engineers to BMW’s factories to see how the company cranks out 1.3 million customized cars a year.

Few companies have been as consistent at producing an ever-changing product line, with near-flawless quality, that consumers crave. BMW has redefined luxury design with its 7 Series, created a mania for its Mini, and maintained some of the widest margins in the industry. A sporty four-wheel-drive coupe and a svelte minivan called the Luxury Sport Cruiser are slated to roll off the production line in 2008. Those models promise to continue BMW’s run of cool cars under its new chief executive, Norbert Reithofer, who took over in September. (His predecessor, Helmut Panke, stepped down upon reaching the mandatory retirement age of 60.) Says Reithofer: “We push change through the organization to ensure its strength. There are always better solutions.”

Virtually everyone at BMW is expected to help find those solutions. When demand for the 1 Series compact soared, plant manager Peter Claussen volunteered to temporarily use his brand new factory — which had been designed for the 3 Series — to crank out 5,000 of the compacts, and he quickly figured out how to do it while maintaining all-important quality. Last year line workers in Munich suggested adding a smaller diesel engine in the 5 Series, arguing that it would have enough oomph to handle like a Bimmer and be a big seller among those on a tighter budget. They were right. And Panke once insisted that all six members of the management board take an advanced driving course so they would have a better feel for BMW cars.

Much of BMW’s success stems from an entrepreneurial culture that’s rare in corporate Germany, where management is usually top-down and the gulf between workers and managers is vast. BMW’s 106,000 employees have become a nimble network of true believers with few hierarchical barriers to hinder innovation. From the moment they set foot inside the company, workers are inculcated with a sense of place, history, and mission. Individuals from all strata of the corporation work elbow to elbow, creating informal networks where they can hatch even the most unorthodox ideas for making better Bimmers or boosting profits. The average BMW buyer may not know it, but when he slides behind the wheel, he is driving a machine born of thousands of impromptu brainstorming sessions. BMW, in fact, might just be the chattiest auto company ever. “The difference at BMW is that [managers] don’t think we have all the right answers,” says Claussen, manager of the company’s new Leipzig factory, a 21st century cathedral of light and air designed by avant garde architect Zaha M. Hadid. “Our job is to ask the right questions.”

It may sound trite, but it sure seems to work. Last year the company sprinted past its stumbling archrival, Mercedes-Benz, in global sales of its BMWs, Minis, and Rolls-Royces. (The German company bought the Rolls name in 1999.) More impressive, BMW’s 8.1% operating margins make the automaker one of the most profitable in the industry. In the first half of 2006, BMW’s sales rose 10.2%, to $32 billion, while pretax earnings jumped 44.5%, to $3.2 billion, despite a strong euro and punishing increases in raw material costs.

That’s not to say this freewheeling idea factory hasn’t made its share of blunders over the years. In 2001, BMW alienated customers with its iDrive control system. The device was designed to help drivers quickly move through hundreds of information and entertainment functions with a single knob, but it proved incomprehensible to many buyers. That misstep could seem minor, though, if BMW were to fail to artfully navigate the challenges ahead. Rival Audi is narrowing the gap with BMW in Europe by churning out a new generation of stylish, high-performance cars that have topped consumer polls. Toyota’s Lexus also has BMW in its sights as it makes a move to gain in Europe with sportier, better-handling cars. “We will be challenged — no question,” says Reithofer. “We have to take Lexus seriously.”

A profit squeeze could just as easily trip up the company in the eyes of investors. To prove he has the right stuff, Reithofer is going to have to boost margins even as the cost of materials soars. Down the line the high price of oil and concerns about global warming could make “the ultimate driving machine” a lot less appealing when compared with gas-sipping, eco-friendly cars. The premium market “means extravagance by definition,” something consumers may start to reject, says Garel Rhys, a professor of automotive economics at Cardiff University in Wales. Yet BMW’s greatest danger could be its own growth and success. Says Ralf Kalmbach, a partner at Munich management consultant Roland Berger: “Losing its culture to sheer size is a major risk.”

In BMW’s favor is an enduring sense that things can go badly wrong. New hires quickly learn that the BMW world as they know it began in 1959. That’s when the company nearly went bankrupt and was just a step away from being acquired by Mercedes. That long-ago trauma remains the pivotal moment in BMW folklore. “We never forget 1959,” says Reithofer. “It’s in our genes, and it drives our performance.” If it weren’t for a bailout by Germany’s wealthy Quandt family — still the controlling shareholder, with a 46.6% stake — and a pact with labor to keep the company afloat, BMW wouldn’t exist today. “Near-death experiences are very healthy for companies,” says David Cole, a partner at the Center for Automotive Research in Ann Arbor, Mich. “BMW has been running scared for years.”

The story of 1959 is told and retold at each orientation of new plant workers. Works Council Chief Manfred Schloch, a 26-year veteran, holds up old, grainy black-and-white photos of two models from the 1950s. The big one was too pricey for a struggling postwar Germany. The other, a tiny two-seater, looked like a toy and was too small to be practical, even by the standards of that era. The company badly misjudged the market, he says. As if handling an ancient, sacred parchment, Schloch pulls out a yellowed, typewritten 1959 plan for turning the company around with a new class of sporty sedans. Schloch then hands out photos of Herbert Quandt and the labor leader of the period, Kurt Golda. “I explain how we rebuilt the company with Quandt’s money and the power of the workforce,” says Schloch. “And I tell them that’s the way it works today, too.”

Happy Workers, Better Cars

BMW derives much of its strength from an almost unparalleled labor harmony rooted in that long-ago pact. In 1972, years before the rest of Europe Inc. began to think about pay for performance, the company cut workers in on its profits. It set up a plan that distributes as much as one and a half months’ extra pay at the end of the year, provided BMW meets financial targets. In return, the workforce is hyperflexible. When a plant is introducing new technology or needs a volume boost, it’s not uncommon for workers from other BMW factories to move into temporary housing far from home for months and put in long hours on the line. Union bosses have made it easy for BMW to quickly adjust output to meet demand. Without paying overtime, the company can crank up production to as much as 140 hours a week or scale it back to as little as 60 hours. The system lets the company provide unprecedented job security, and no one at BMW can remember any layoffs — ever. Since 2000, BMW has hired 12,000 new workers even as General Motors Corp. (GM ) and Ford Motor Co. (F ) have slashed tens of thousands of jobs.

That helps explain why landing a job at BMW is to many Germans what getting into Harvard is for American high school students. The company’s human resources department receives more than 200,000 applications annually. Those who make it to an interview undergo elaborate day-long drills in teams that screen out big egos. For the lucky few who are hired, a Darwinian test of survival ensues. BMW promotes talented managers rapidly and provides little training along the way, forcing them to reach out to others to learn the ropes. With no one to coach them in a new job, managers are forced to stay humble and work closely with subordinates and their peers, minimizing traditional corporate turf battles. Anyone who wants to push an innovative new idea learns the key to success fast. “You can go into fighting mode or you can ask permission and get everyone to support you,” says Stefan Krause, BMW’s 44-year-old chief financial officer. “If you do it without building ties, you will be blocked.”

That BMW’s spectacular Leipzig factory was ever built is a testament to the power of such ties. When plant manager Claussen first proposed a competition to lure top architects, headquarters was aghast. “People said to me, ‘What’s wrong with these guys in Leipzig?”‘ recalls Krause. “‘We don’t need beautiful buildings, we need productive buildings.”‘ But Claussen convinced Krause and others that the unconventional approach wouldn’t just produce a pretty factory but one whose open, airy spaces would improve communications between line workers and managers and create an environment that helps the company build cars better.

Even before Claussen began pushing his architectural vision, others were busy designing the inner workings of the plant. Newly minted engineer Jan Knau was only 27 in 2000 when he was asked to come up with a flexible assembly line for the factory. Knau, then just a junior associate, rang up BMW’s top 15 assembly engineers, inviting them to a two-day workshop at a BMW retreat near the Austrian Alps. The calls paid off. After a series of marathon sessions that included discussions of every facet of the ideal assembly line, Knau sketched a design with four “fingers,” or branches, off the main spine. The branches could extend to add equipment needed to build new models, making it possible to keep giant robots along the main line in place rather than moving them for each production change, an expensive and time-consuming process.

Leipzig opened in May, 2005, joining Claussen’s vision of teamwork enhanced through design to Knau’s smart engineering concepts. With pillars of sunlight streaming through soaring glass walls, architect Hadid’s design looks more like an art museum than a car factory. Open workspaces cascade over two floors like a waterfall. Unfinished car bodies move along a track, bathed in ethereal blue light, that runs above offices and a smart-looking, open cafeteria. If the parade of half-finished cars slows, engineers feel the pulse of the plant change and can quickly investigate the problem. And weekly quality audits — in a plaza workers pass on their way to lunch — ensure that everyone is quickly aware of any production snafus. The combination of togetherness and openness sparks impromptu encounters among line workers, logistics engineers, and quality experts. “They meet simply because their paths cross naturally,” says Knau. “And they say, ‘Ah, glad I ran into you, I have an idea.”‘

The flexibility of BMW’s factories allows for a dizzying choice of variations on basic models. At Leipzig, for instance, parts ranging from dashboards and seats to axles and front ends snake onto overhead conveyer belts to be lowered into the assembly line in precise sequence according to customers’ orders. BMW buyers can select everything from engine type to the color of the gear-shift box to a seemingly limitless number of interior trims — and then change their mind and order a completely different configuration as little as five days before production begins. Customers love it. They request some 170,000 changes a month in their orders, mostly higher-priced options such as a bigger engine or a more luxurious interior. There are so many choices that line workers assemble exactly the same car only about once every nine months.

That kind of individualization would swamp most automakers with budget-busting complexity. But BMW has emerged as a sort of anti-Toyota. One excels in simplifying automaking. The other excels in mastering complexity and tailoring cars to customers’ tastes. That’s what differentiates BMW from Lexus and the rest of the premium pack. “BMW drivers never change to other brands,” says Yoichi Tomihara, president of Toyota Deutschland, who concedes that Toyota lags behind BMW in the sort of customization that creates emotional appeal.

Bottom-up ideas help keep BMW’s new models fresh and edgy year after year. Young designers in various company studios from Munich headquarters to DesignWorks in Los Angeles are constantly pitted against one another in heated competitions. Unlike many car companies, where a design chief dictates a car’s outlines to his staff, BMW designers are given only a rough goal but are otherwise free to come up with their best concepts.

To get the most out of its people, BMW likes to throw together designers, engineers, and marketing experts to work intensively on a single project. The redesign of the Rolls-Royce Phantom, for instance, was dubbed “The Bank” since the 10 team members worked out of an old bank building at London’s Marble Arch, where dozens of Rollses roll by daily. “We took designers from California and Munich and put them in a new environment” to immerse them in the Rolls Royce culture, says Ian Cameron, Rolls’s chief designer. The result was the 2003 Phantom, a 19-foot edifice on wheels that remains true to Rolls’s DNA but with 21st century lines and BMW’s technological muscle under the hood. With sales of the $350,000 car running at about 700 a year, the Phantom is the best-seller in the superluxury segment, outstripping both the Bentley Arnage and the Mercedes Maybach.

Much of BMW’s innovation, though, doesn’t come via formal programs such as The Bank. In 2001 management decided to pull the plug on the disappointing Z3 sports coupe. But that didn’t stop a 33-year-old designer named Sebastian Trübsbach from doodling a sketch of what a Z3 successor might look like. Ulrich Bruhnke, head of BMW’s high-performance division, loved it. In Trübsbach’s drawing, Bruhnke saw a car that could rival Porsche’s (PSEPF ) Cayman S in performance but at a lower price. He persuaded a few designers and engineers to carve out some time for the renegade project. Next, Bruhnke gathered a team to map out the business case. The small group toiled for 10 months to build a prototype.

The moment of truth came in November, 2004, at a top- secret test track near Munich. Cars were lined up so the board could examine their styling and proportions in natural light. Only one was covered by a tarp. Panke approached the mystery model. “What is this interesting silhouette?” he asked Bruhnke, who invited his boss to take a look. Panke yanked back the cloth, exposing a glittering, bronze metallic prototype for what would become the Z4 coupe. Bruhnke breathed a sigh of relief when he saw Panke’s eyes light up as they swept over the car’s curved surfaces. Panke and the board quickly gave the go ahead, and the Z4 coupe sped to production in just 17 months, hitting showrooms this summer. Bingo. BMW’s idea factory wins again.