Strategic Management for Volkswagen Group

Introduction

The Volkswagen Group is among the world’s paramount automobile or motorcar manufacturers and the substantial carmaker in Europe comprising of twelve brands which help in ensuring that mobility is environmentally safe, efficient and friendly. Its main objective and goal involves providing attractive, captivating and environmentally safe vehicles which can match the increasingly tough and competitive market in addition to setting world standards in the respective class. In this paper, we shall identify, analyze and evaluate the strategic planning and management approach of the company which is vital in ensuring the projected goals are met. Human resource managers have been pressurized after their management capability of their corporations being overly questioned hence the need to analyze their strategic approaches and formation process (Freeman, 2010 p.20-56).

Task 1

Chart Showing Volkswagen’s Key Action Areas

1.0 Strategic Capability of Volkswagen Group

1.11.1 Analytic Presentation of Core Competencies

As defined by Prahalad, a core competency refers to a specific factor considered as central by an organization to the way the firm or its employees work. It fulfills three key roles such as; it is not easy for rivals or competitors to imitate, it can be reused widely for many products and markets, and it must contribute to the end consumer’s experienced benefits (Freeman, 2010 p.20-56). Since an organization’s competitiveness is derived from its core products and core competencies, its capacity to coordinate different production skills in addition to integrating streams of technologies is critical to its success and sustainability. Therefore, identifying a company’s core competencies provides an impetus for analyzing its internal factors hence a focus for internal development (Mollet, 2000 p.152-165).

1.1.1 Core Competencies and Core Products

Core competence 1: Volkswagen Group believes in customer satisfaction, therefore the organization anticipates the future needs and preferences of the customers; hence converting the needs into innovative technologies. Intensive research and networked cooperation both inside and outside of the organization ensures that future technological challenges are mastered enabling the firm to meet its customers wishes for individual and affordable mobility through sustainable mobility (Porter, 2008 p.23).Core Competence 2: Another:( Gouldson p.12-22)  product responsibility which means that manufacturers closely look at the effects which may be caused by their products directly or indirectly influencing the health and safety of the customers (Sidel109-250). As a result the organization manufactures quality products, especially automobiles which are safe. (Zwetsloot p.100)Since safety is a question of innovation, advanced driver assistance systems which aid the driver in identifying hazards and avoiding dangerous situations are integrated during development and fabrication of these vehicles

Core competence 3: Corporate responsibility too is another competency that VG enjoys as thousands of people are involved either directly or indirectly in production of their vehicles(Strohband et al, 2010 p.780). As pollutants are emitted, the company plays the role of corporate citizens looking for responsible ways of resolving this problem through the sustainability principle within its operation. On the other hand, Car-Net, Volkswagen’s apps and service, is a core product which provides useful features that bring convenience and comfort in user’s life as changes in traffic can be viewed instantly online (Strohband et al, 2010 p.891).

1.2 Environment Facing Volkswagen Group

1.2.1 Analytical Presentation of External Analysis Tool

Porter’s analysis tool indicates that there are five forces which provide the framework for modeling an industry. The five forces include; threat of substitutes, threat of new entrants, rivalry or competition, and both supplier and buyer powers. (Bose, 2008 p.510-528). Appropriate evaluation and analysis of these forces and the relationship between the company, its suppliers, distribution channels and customers lead to competitive advantage .Therefore; a strategic manager seeking to develop an edge over rival companies can use this analysis model in understanding the industry context in which the firm operates. External analysis process, evaluation and scanning of an organization’s diverse external or macro environmental sectors resolve the negative and positive trends or shifts that could affect organizational performance (Porter, 2008 p.23).

1.2.2 Environment

Different environmental elements are facing Volkswagen Group, namely; technology, competition, and consumers. New technologies and innovation are vital in VG’s business environment since they ensure the greatest competitive advantage. For the organization to withstand the highly competitive automobile industry, it needs to be abreast in utilizing recent technologies to edge off its rivals in the automobile sector (Porter, 2008 p.21-23).Additionally, the availability of substitute automobiles (Bose, 2008 p.700). which satisfy consumer needs poses a danger to Volkswagen Group. Therefore, maintain the customer loyalty, the company needs to distinctively manufacture sustainably safe and unique products which will keep off their customers from purchasing products from this companies (Porter, 2008 p.21-23).  Moreover, given that the firm’s strategic decisions and choices can be hugely impacted by these elements of external environment, the company’s executives must be fully aware of trends and changes in the environment around the organization such as the customers’ preferences, new innovations, recent technologies and what the competitors are up to (de Barros Jerônimo and de Medeiros, 2013 p.663-678).

1.2.3 Importance of the Elements of External Environment

With a clear understanding of where a company’s power or competencies lie, executives can take advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps (Jenkins, 2006 p.241-256).  Analyzing the element of external environment facing VG, the company can identify its strength, weaknesses, opportunities and threats. Opportunities often arise from favorable external trends while threats emanate from negative trends. Identifying these aspects of external environment early enough enables the managers to redesign the organization’s current strategy so as to benefit or gain advantage from these opportunities and elude the threats (Porter, 2008 p.3-37).  Furthermore, understanding the organization’s strengths helps in determining its ultimate profit hence the executives’ strategic goal will involve finding a position in the industry where the company will best defend itself against the negative elements in its favor.  The success or failure of the organization will depend on different forces taking prominence in shaping competition in the industry hence defining the firm’s future (Davenport, Leibold and Voelpel, 2007 p.167-247).

1.3 Issue relating to ethics and social resaponsibility

The PESTEL analysis is a tool or a framework used to scan the organization’s external macro environment while ethics and social responsibility are the factors which represent the culture of the society that a company operates within (Porter, 2008 p.14). The PESTEL tool stands for political, economic, social, technological, environmental and legal analysis. These factors affect and determine an organization’s external environment, and should be understood while analyzing how the company can achieve optimum performance. Ethics refers to the moral principles or values that govern the conduct of an individual and their judgments about what is right or wrong (Beam, 1995 p.86-88). Therefore, depending on ethics and social responsibility, decisions taken by the organization after analysis of this tool will be influenced by the company’s culture and will affect the overall future performance.

1.3.1Ethical and SR Problems

Despite Volkswagen’s Group, corporate social responsibility commitment to local well-being beyond the factory gates, it has recently been involved in a cheating scandal on the emissions testing of 11 million diesel-powered automobiles (Moraga Gonzalez, Sándor and Wildenbeest, 2015 p.14-17). Additionally, it installed a code functioning as a “defeat device” which is unethical and illegal. Using the PESTEL analysis tool, the organization violated social, environmental and political rules. A social responsibility problem facing Volkswagen Group is the carbon dioxide emission which is a globally threatening pollutant due to its adverse effects towards global warming (Strohband et al, 2010 p.891). However, this social responsibility problem too is encountered by other automotive manufacturing companies. According to PESTEL analysis tool, the environment is affected and therefore the organization needs to respond quickly to avert the effects caused by carbon dioxide emission to the environment. As a result, Volkswagen Group has taken initiative of going “green” whose objective focuses on manufacturing environmental friendly and safe engines. Currently, the Group is participating in controlling carbon dioxide emissions in the atmosphere as well as environmental conservation through adopting environmental laws and regulations hence manufacturing vehicles which comply with such regulations (Strohband et al, 2010 p.891).

1.3.2 How Macro Environment Elements Shape the Future Strategy

Analysis of external environmental factors such as political, economic, social, technological, environmental and legal will play a critical part in shaping the future strategy of any organization (Sidel p.323). Volkswagen Group is present in over 150 countries throughout the world; hence any decision taken by the company will involve the various elements of macro environment surrounding it (Strohband et al, 2010 p.891). For instance, different countries have different and unique policies; and since the automotive industry is closely related to these policies, Volkswagen’s future strategies will be greatly affected. Additionally, a country’s economic, social and legal requirements will impact VG’s decision making processes. If the country’s economy fluctuates negatively, then Volkswagen will focus on manufacturing lower segment cars that will be affordable by the people (Kerr et al, 2008 p. 121-418). Technological advancements and new environmental standards define the customers’ needs therefore shaping the car industry; and consequently modeling the future strategy of the organization. Any strategy adopted by the company will be the outcome of considering, analyzing and evaluating the divergent elements of macro environment (Minadeo, 2013 p.35-78).

Summary

Strategic capability involves different skills and resources that lead creation of an organization long term competitive advantage. Identifying and analyzing the company’s external and internal environment will help in developing new capabilities in response to changing customer demands or competitive threats; failure to which can place the organization at risk of becoming obsolete. As a result, Volkswagen is working towards ensuring it utilizes its core competencies and strengths while focusing to optimize its opportunities, minimize its weakness in addition to addressing viable techniques to encounter its threats. Moreover, the organization realizes that in order to maintain its good performance and profitability; all elements of both micro and macro environment have to be adequately addressed as well as improving its research and development techniques towards achievement of its goal.

Task 2

2.1 Future Strategies

Organizations will need greater agility, better complex collaboration across organizational boundaries, enhanced collective learning, and overall greater strategic synergy to be successful in the future (Davenport, Leibold and Voelpel, 2007 p.167-247). Some of the plausible future strategies that Volkswagen Group can adopt are: corporate, business unit and functional strategy. We shall analyze these strategies using three approaches namely; first, second and mixed approach.

2.1.1 Inside -Out Approach

Inside-out efforts involve changing value assumptions and beliefs about how best to achieve effective direction, alignment, and commitment throughout the organization (Kerr et al, 2008 p. 511-548). It is a strengths-strategy approach which begins with the organization and its own understanding of growth, and then moving outward impacting the interpersonal relationships, team and the organization at large. Applying the inside-out approach, Volkswagen will use its core competencies and resources as its main drivers of shareholder value. This approach which relies on internal orientation seeks to establish what the company can do with its existing resources and how to streamline operations through right sizing and repressed expenditures (Becker, 2002 p.2-4). The production and manufacturing processes are the biggest core competencies. Appropriate utilization of this competency can lead to the development of many techniques which enables the organization in producing automobiles at a larger scale. Additionally, Volkswagen has vastly adopted new innovations and technologies which are vital in manufacturing cars which are environmentally safe, friendly and meet consumers’ needs. (Kerr et al, 2008 p. 530-600). These core competencies have led to integrated sophisticated features into the various Volkswagen’s brands allowing road navigation and online traffic notifications.  Volkswagen’s personnel must therefore operate first from levels of effectiveness before teams and organization’s reach peak performance. Volkswagen’s executives must encourage their employees to understand and leverage their own strengths as well as comprehending the organization’s core competencies which act as great milestones towards optimum performance of the organization.

2.1.2 Outside-in Approach

Outside-in efforts, in contrast, are changes in structure, systems, and processes that essentially involve conforming behavior to new external demands. This approach states that successful companies start with an external market orientation and vigilantly studying customer trends in order to design their strategy. Customer trends are therefore used as the guide post for product and service development (Fleisher and Bensoussan, 2003 p.457). With this approach, Volkswagen’s management teams will step outside the company and look first to the market. This approach focuses on utilizing the growth strategy which aims in satisfying the customers’ needs through production of customer appealing products, that is, automotive brands that match their tastes and preferences. The VG’s managers will ask the following questions; what problems do our customers get from our products?  What can we do to better solve their problems and meet their emerging needs? Capitalizing on the customer as an asset turns customer value into valuable customers. Moreover, Volkswagen Group in this approach will move or shift the customer from focusing on a single transaction or purchase to a sense of loyalty to the company thus accelerating profits. Since it has been noted that companies while using the outside-out approach innovate into new value for customers, VG’s executive must ensure that these new values are uniquely differentiated from those of their rival firms. Therefore, Volkswagen must not only win the battle for current customers’ needs but must also drive its growth by innovating new value for current customers as well as attracting new customers (Kerr et al, 2008 p. 511-548).

2.1.3 Mixed Approach

This is a combination of both inside-out and outside-in approaches. As discussed earlier, the inside-out approach starts by evaluating what the organization possesses before looking at anything else. In this case, VG will look into its operations in terms of its core competencies, resources, talent, customer relationships and distribution channels and how these could be leveraged (Bose, 2008 p.510-528). Therefore, VG must ask the following while applying the inside-out approach; how have we progressed or regressed over the past few years? What are we good at? What are we passionate about? What do we love to do? How do we leverage our strengths and compensate or eliminate our weaknesses? The organization will in turn take account of its resources and look at providing them more efficiently. However, this approach is by nature limiting and it demonstrates slowness in adopting changes in the market place. On the contrast, companies using the outside-in approach focus on creating and nurturing their customers by providing high caliber customer value. They put themselves in the position of their customers, and view themselves from their perspective (Bose, 2008 p.510-528). Volkswagen Group stands out among their competitors and create new value to attract new customers as well as retaining their esteemed customers. Integration of both approaches in a systematic way will lead to optimum performance and increased profitability (Harris, Forbes and Fletcher, 2000 p. 125-145).

2.2 Best Plausible Strategic Approach

The best plausible strategic approach that can be adopted by Volkswagen is corporate strategy. This strategy consists of three categories namely; growth, stability and retrenchment strategies. It defines what businesses the organization should participate in, how it should be carried out and how it relates to the entire society in addition to acquisition and allocation of resource to each business unit (Summers and Scherpereel, 2008 p.1299-1312).

An organization’s strengths provide competitive advantage which leads to the company remaining abreast in the market with respect to its competitors. Therefore, understanding a company’s strengths and core competencies can lead to high profitability and optimum performance as well as retaining its market shares (Kitchen, Brignell and Jones, 2004 p.19-30). As we have seen previously, Volkswagen has a number of strengths which comprise of strong portfolio automobile brands, strong global presence, that is, it operates in over 150 countries; strongest market in China, over 350,000 employees globally, well performing brands, and strong research and development processes in engineering; which provide production capabilities and efficient automation thus keeping pace with the growing global market. However, for Volkswagen to adequately exploit these strengths it must ensure that both internal and external environments are appropriately analyzed.

Although, all Volkswagen’s strengths are equally important, the most significant that will empower the organization to move forward is research and development process. Looking at the current global market, the consumers’ tastes and preferences are changing daily due to new advancements in technology and innovations. As such, the technological element of macro environment has greatly affected what customers demand compelling organizations to search for the best ways through which they can satisfy them as well as attracting potentially new customers. Hence, the research and development strength can enable Volkswagen’s Group to innovate in new technologies thus manufacturing highly sophisticated and differentiated automobiles which are a match to their competitors’ cars.

Through research and development Volkswagen can continue controlling the global market by producing sophisticated products that satisfy their customers. With the new environmental standards, automobile companies are expected to manufacture environmentally safe and friendly products which emit less amounts of carbon dioxide (Osterwalder, Pigneur and Tucci, 2005 p.1). Companies must therefore take the social responsibility by ensuring their automobiles comply with environmental laws. As a result, Volkswagen research and development team must work closely with the new technologies which lead to production of e-gas engines. This will lead to customer satisfaction, global market growth, customer loyalty and overall growth of Volkswagen Group. Therefore, for the organization to grow, it must ensure that it utilizes its strengths to exploit its opportunities.

2.2.1Approach Corporate Strategy

As corporate strategy deals with growth of the entire organization, acquisition and allocation of resource, its capability and competence, its competitors and the wider environment (Wright, Snell and Jacobsen, 2004 p.36); it would be viable if Volkswagen adopted it. Every organization takes pride in its growth, profitability and performance which are the core values of corporate strategy (Cadle, Paul and Turner, 2010 p.63-95). Since Volkswagen Group would be interested in its growth and a high global market share of its products, it must apply the inside-out approach of utilizing its core competencies in order to produce highly performing brands. This strategy is both doable and achievable but it still has its limitations given than it does not concern itself with the organization’s functional or operational activities. However, Volkswagen Group should also put into account functional activities such as production, research and development, marketing and human resource which concern with the organization’s internal resources and processes which efficiently and effectively deliver the company’s strategic direction. Thus for the profitability of the Volkswagen’s Group, different strategies must be incorporated for optimum growth of the company. Corporate strategy will bring the firm’s desired outcomes if the company will apply functional or operational strategies interchangeably by integrating the company’s core competencies, strengths and the internal resources towards exploitation of the possible opportunities (Wright, Snell and Jacobsen, 2004 p.36).

Task 3

3.1 Strategy Formation

Mintzberg suggests that the conventional way of thinking about strategy implementation focuses only deliberate strategies. He claimed that some organizations begun implementing strategies before they clearly articulated mission, goals, or objectives. In this case strategy implementation precedes strategy formulation. He argued that getting the right strategy needed a more in-depth evaluation. He therefore approached strategy formulation by developing the 5 Ps: plan, ploy, pattern, position and perspective (David, 2009 p.104-114).

3.1.1 Intended Strategy

As we discussed earlier, corporate strategy is Volkswagen’s intended strategy. This strategy is concerned with growth of the company and an increased market share in the global market (Rothaermel, 2012 p. 56-61).  Therefore, applying Mintzberg strategy formulation technique; Volkswagen’s managers must clearly understand each P that is, (Plan, Ploy, Pattern, Position and Perspective) in order to develop a robust business strategy that takes full advantage of the organization’s strengths and capabilities. In addition, while applying the inside-out approach previously addressed, Volkswagen’s managers should explicitly comprehend Mintzberg’s strategy formulation process to maneuver through the entire implementation of corporate strategy. However, during implementation of one intended strategy other strategies may arise causing the organization to create a balance between those strategies (Johnson, Scholes and Whittington, 2008 p.55-57).

3.1.2 Emergent Strategies

Emergent strategy is the view that strategies emerge over time as intentions collide with and accommodate a changing reality (Paauwe and Boselie, 2003 p.56-70). Implementation of emergent strategies involves the allocation of resource even though an organization has not explicitly chosen its strategies. Most companies make use of both deliberate and emergent strategies. Whether deliberate or emergent, a strategy has little effect on an organization’s performance until it is implemented. To determine the feasibility of the emergent strategy, Volkswagen must analysis the PESTEL and Porter’s Five Forces tools. PESTEL tool analyzes the macro environment while Porter’s Five Forces analyzes the internal environment (Thompson and Martin, 2010 p.86-88). Therefore, as Volkswagen seeks to strategically plan for the best of action which it must take, it must thoroughly identify, evaluate and analyze each tool. These two environments, that is, micro and macro must be accounted for since they will determine Volkswagen’s strengths and weaknesses in addition to its threats and opportunities; factors that will enable the company to adopt the most appropriate action or approach.

3.1.3 Intended and Emergent Strategies

From the previous discussion on corporate strategy (intended strategy) and functional or operation strategy (emergent strategy), we saw that the success and growth of Volkswagen Group is closely dependent on the course of action or approach that will be taken. The corporate strategy has so for led to the continued growth which has been witnessed within the organization and in the global market (David, 2009 p.116-200). However, corporate and operational strategies must be applied together to realize Volkswagen’s core business implying that one strategy will led to incorporation of the other. Volkswagen’s core business involves manufacturing and production of automotive products is affected hugely by the corporate strategy whose focus is growth and production of well performing brands in addition to attracting a large market share. An overview of the organization’s history shows that the productivity and existence of the company has been contributed greatly by research and development which lies within the operational or functional strategy (Thompson and Martin, 2010 p.130-188). This provides a sound prove that the organization cannot prosper without integration of the emergent strategies into its core business

3.14 Conclusion

An organization’s strengths provide competitive advantage which leads to the company remaining abreast in the market with respect to its competitors.

Strategic capability involves different skills and resources that lead creation of an organization long term competitive advantage. Identifying and analyzing the company’s external and internal environment will help in developing new capabilities in response to changing customer demands or competitive threats; failure to which can place the organization at risk of becoming obsolete. As a result, Volkswagen is working towards ensuring it utilizes its core competencies and strengths while focusing to optimize its opportunities, minimize its weakness in addition to addressing viable techniques to encounter its threats. Moreover, the organization realizes that in order to maintain its good performance and profitability; all elements of both micro and macro environment have to be adequately addressed as well as improving its research and development techniques towards achievement of its goal.

The best approach be adopted by Volkswagen is corporate strategy. This strategy consists of three categories namely; growth, stability and retrenchment strategies. It defines what businesses the organization should participate in, how it should be carried out and how it relates to the entire society in addition to acquisition and allocation of resource to each business unit (Summers and Scherpereel, 2008 p.1299-1312).