GLOBAL CORPORATE STRATEGIES: VOLKSWAGEN GROUP CASE STUDY by Reason Chivaka

Executive Summary

The reputation of an organisation is one of its important asset (Gong, 2013).

The realisation of the importance of organisational reputation has motivated

the Volkswagen Group to adopt a strong Corporate citizenship and Corporate

Social Responsibility policy. As part of its corporate social responsibility, the

company is involved in various environmental campaigns and also the

development of environmental friendly products (Volkswagen Group, 2014).

Through its corporate governance strategy, the company promotes sustainable

growth, effective leadership and development.

The Volkswagen Group, promotes its global sales through a marketing strategy

which focuses on a large product mix. Through the utilisation of its resources,

the companys management is able to maintain its commitment to effective

organisational performance. The companys corporate governance strategy

encompasses corporate social responsibility and also focuses on sustainability

through various strategic partnerships (Volkswagen, 2007). Good governance

enables an organisation to extend the traditional governance view to cover

corporate social responsibility (Phl and Tolhurst, 2010). The goal being the

promotion of innovation and technologies which subsequently lead to the

development of a strong competitive advantage.

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This kind of governance stresses on sustainability through complex

partnerships and allies to promote innovation and technologies necessary to

develop a competitive advantage over its competitors in the automobile

manufacturing industry. Consequently, the Volkswagen Group has been able

to outwit most of its competitors in the automobile manufacturing industry.

The company has also been able to survive the various challenges

associated with major car recalls.

Introduction

The operational environment which most organisations are operating is

challenging such that, most of them are being liquidated (Gong, 2013). The

automobile manufacturing industry is one of the most competitive industry in

the world and survival in such a fast paced and turbulent operational

environment, automobile manufacturing companies need to develop strategies

that promote a competitive advantage (Holweg et al, 2009). To develop a

sustainable competitive advantage, the Volkswagen Group adopted a portfolio

of manufacturing concepts and integrated organisational perspective. The

company implemented its global expansion strategy through the construction

of overseas manufacturing facilities and also through mergers and acquisition

strategies (Volkswagen Group, 2007).

The company focuses on constant improvement of its production strategy and

expansion of its manufacturing capacity in order to outwit its competitors

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(Volkswagen, 2014). The stiff competition within the automobile manufacturing

industry has been challenging for most companies to deal with (The Economist,

2012). As a result, the Volkswagen Groups strategy was integration of quality

throughout its manufacturing processes in order to effectively deal with

competition. The automobile manufacturing industry is characterised by

strategic alliances and various corporate social responsibility strategies (Holweg

et al, 2009). The Volkswagen Group developed and adopted various strategies

such as superior innovation and environmental leadership with the aim of

positioning itself as a major player within the automobile manufacturing industry

(Pohl and Tolhurst, 2010).

The aim of this assignment is to examine the various strategies developed and

adopted by the Volkswagen Group. The first part will examine the companys

portfolio perspective and competitiveness, whilst the companys technological

innovation will be addressed in the second part. This will then be followed by

the companys corporate governance and corporate social responsibility. The

fourth part will focus on the authors personal reflections which will then lead

to the conclusion.

Integrated Organisation Perspectives and Competitiveness

The automobile manufacturing industry is characterised by rapid social and

technological changes, intense and brutal competition (Holweg, et al 2009). In

order to address these challenges, the Volkswagen Group, developed various

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strategies to safeguard not only its competitiveness but also sustain its going

concern (Pohl and Tolhurst, 2010). To ensure that it remains competitive and

realise its goal of being one of the top players within the automobile

manufacturing industry, the company adopted an integrated management

system (IMS) (Volkswagen, 2007). The system is incorporated in the

management of the companys product ranges. According to De Wit and Meyer

(2010), an integrated management system holds an organisations various

business units together towards a common core thereby generating synergies

that helps it to outwit competitors. Pardy and Andrew (2009), said that,

organisations face various challenges but integrated management system can

provide solutions to these challenges. Asif et al (2008) summed up the benefits

of an integrated management system as elimination of duplicate processes,

enhancement of customer satisfaction and reduction of manufacturing and

operational costs. This is an ideal strategy for the company given the fact

that, it places strong emphasis on achieving the highest level of quality,

promotion of the environment and increasing its sales to 11 million by 2018

(Volkswagen, 2007).

The adoption of an integrated management system means that, its business

is not a group of loose units but it is a compact organisation which is led

from the centre (De Wit and Meyer, 2010). As a result, the company is able

to develop a joint competitive strategy which is supported by business unit

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level strategies thereby enabling it to increase its economic efficiency and

improvement of product and production quality (Brem and Tidd, 2012).

The strategy adopted by the company values environmental protection through

manufacturing of environmental friendly cars which have less fuel consumption

systems. In January 2014, one of the UK newspapers, the Daily Mail reported

that, the company was selling one of the lowest fuel consumption car that is

able to do about 313 miles per gallon (www.dailymail.co.uk). This showed the

seriousness of the companys policy on environmentally friendly products. Such

low fuel consumption cars reduce the levels of carbon emission released in

the atmosphere (Pohl and Tolhurst (2010). However, in 2015 the company had

to deal with the diesel gate scandal after being accused of manipulating fuel

systems of its diesel cars (www.bloomberg.com).

The integrated management system adopted by the company enabled it to

respond quickly and efficiently to the needs of its clients. According to De Wit

and Meyer (2010), in an organisation held together by an in integrated

management system, the core competences can be quickly deployed across

the organisations business units. In the case of Volkswagen, the company is

able to quickly deploy its resources thereby improving the effectiveness of its

global production activities and improve the quality of its products. The

perspective adopted by the company helps it to save valuable resources as

only one person manages the integrated management system. Good planning

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and resources allocation promotes efficient and effective workflow and

operational efficiency (Lynch, 2006) as witnessed within the Volkswagen Group.

The integrated management system adopted by the company has its fair share

of problem. The system does not come cheap, it is a very expensive system

to implement and sustain

( Pardy and Andrew, 2009). The integrated management system is not easy to

implement as there is no universally defined methodology of implementing and

managing the system (De Wit and Meyer 2010). Managing the quality

management system and the environmental and health system can be

conflicted within the company thereby causing challenges.

Portfolio Organisational Perspective

The Volkswagen Group activities show evidence of the portfolio organisation

perspective. This means that, the company has a large mix of product ranges

(Informing Science Institute, 2007). The idea behind the portfolio perspective is

responsiveness rather than synergy (De Wit and Meyer, 2010). Companies that

adopt the portfolio organisation perspective have a strong conviction that,

separate business units have their own characteristics and should have their

own business strategies (De Wit and Meyer, 2010). In the case of the

Volkswagen Group, it has a big product mix and unique brand portfolio. The

companys aim is able to produce products that cater for the needs of its

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global markets and fulfil the needs of various global consumers (Volkswagen,

2007). The company has been able to diversify its products offering thereby

improving its sales and revenue and its aim is to increase sale to 11 million

by 2018 (Volkswagen, 2018).

The companys strategy of adopting a large product mix has presented it with

various challenges. Volkswagen employs various managers who are tasked with

product development. The cost of employing these managers, the cost of

introducing new products and the level of advertisements required to market

the products in global markets are huge. According to Brem and Tidd, 2012)

Volkswagen incurs huge costs for marketing new products globally. The other

problem associated with this strategy is that, failure of one of its products

can negatively impact its reputation and image globally. For example the diesel

gate scandal nearly affected most of the Volkswagen groups brands. The

Independent newspaper reported in October 2015 that, the scandal was likely

to extend to some of the brands such as Seats, Skoda and Audis

(www.independent.co.uk).

From the above evaluation the company can simultaneously adopt both

strategic perspectives it has skilled and experienced human resources and the

capacity to develop new products ranges and the financial muscle to effectively

market them globally (Ulrich and Smallwood, 2013). The production of

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environmentally friendly cars supports the companys position as a leader for

protection of the environment.

Technological Innovation, Strategic Alliances and Merges and Acquisitions

The Volkswagen group has embraced mergers and acquisitions and strategic

alliances for a long time (Volkswagen Group, 2007). According to De Wit and

Meyer (2010), strategic alliances enable a company to access skills and

resources that are in other companies. Given the fact that, strategic alliances

have inherent risks most companies do not find them an attractive option

(Lynch, 2006). However, during the past decade companies have realised that

strategic alliances can be a source of sustainable competitive advantage (De

Wit and Meyer, 2010). On the other hand, mergers and acquisition strategy

involves combining two or more companies into one entity (Inkpen and

Ramaswamy, 2006). Most acquisitions can be hostile or friendly depending on

whether the target company is resisting or accepting the acquisition (Gong et

al , 2013). Most mergers and acquisitions are done to achieve strategic

objectives (Roberts, et al, 2012).

The Volkswagen group has been growing through acquisition and mergers.

For example, it acquired Skoda during the 1990s and Skoda has been

existing as a brand during. Felicia part of the Skoda brand had a big impact

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when it was released on the market. This demonstrated that the company

has the ability to deploy intelligence innovations and technologies through its

acquisition strategy (Volkswagen, 2014). The strategy has enabled the

company to produce quality products due to its innovation and technological

superiority emanating from its strategies. Additionally, the group was able to

strategize and started using each others parts, coming up with a series of

new and quality brands in the market.

According to the Economist (2012), the Volkswagen group acquired Ducati, a

motor bike manufacturing company. MAN and Scania which manufacture lorries

are other brands that are helping the company to consolidate its position. The

company is now able to manufacture vehicles that meet the needs of various

global markets (http://www.volkswagenag.com/brands_and_products). Due to

intense competition, some of the strategic alliances focus only on cost

reduction, innovation and technological promotion (Roberts et al, 2012).

According to Rodenberg (2007), the companys strategy leans more on

innovation and superior technology. The growth, sustainability and success of

the company is derived from the success of its various brands (Rodenberg,

2007). Superior innovation has enabled the company to produce products to

existing and new clients. The strategy of acquisition and mergers has enabled

the company to enhance its superior innovation thereby staying ahead of

competition.

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Additionally, the company has been involved in a number of strategic

alliances with other automobile manufacturers across the globe. The alliance

between the company and Suzuki that was aimed at promoting innovation

was the most remarkable. However, the strategic alliance failed thus leaving

the company with challenges on how to expand in major emerging markets

(Chester, Yoshio & Vanessa, 2011). Through partnerships, the company has

been able to use a variety of patents thus, benefiting from the intellectual

property of other companies is able to access their patents and copyrights

thereby promoting innovation (Das 2012, p. 51).

The company has the right mix of resources in addition to capabilities to bring

the digital mobile technologies together in order to achieve its aims and

intentions. The company has the human resources skills and technology to

keep on pushing with its strategy and realise its goal of being a major player

within the automobile manufacturing industry. The digital mobile technologies

are now part of the force that drives innovation hence the companys strategies

of forming alliances with other digital businesses to effect change and shape

experiences together (Gong, 2011). Through its strategies such as car shopping

sites, the company demonstrates that it has ability to promote advertising

using IT to connect the car technology with the mobile technology.

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Corporate Governance, Corporate Social Responsibility (CSR), Sustainability and

Leadership

Corporate responsibility (CSR) refers to the practice whereby organisations

integrate societal and environmental concerns in their operations (Growther

and Aras, 2008). These concerns and initiatives are meant to benefit the

society (Mallin, 2007). This non-profit action involves the sharing of value by

the business and the society (Dosi, Teece & Chytry 1998, p. 258). There are

many types of CSR activities done by businesses globally and which focus on

the environment, philanthropy and ethical labour practices (Pohl & Tolhurst

2010, p. 199). The statement by Volkswagen entitled, Corporate Social

Responsibility and Sustainability, (Volkswagen Group, 2014), is devoid of the

true meaning of corporate social responsibility. Corporate social responsibility

is supposed to be done because it is morally upright but the statement reflects

that the company is employing this because it makes good business sense

(Lee & Kotler, 2013). In other words, the company stresses more on what it

will attain that is being the most successful company rather than what can

benefit the global societies, thereby not reflecting contributions to sustainable

development, which includes health and the warfare of the society. For instance,

the statement reflects the careful use of resources by the business, implying

that, it is more of business oriented rather than being society oriented and is

only aimed at promoting and boosting the reputation of the companys brands.

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On the contrary, Corporate governance refers to the processes and

mechanisms by which organizations and corporations are directed and

controlled (Mallin, 2007). It is the identification of governance structures that

demonstrate how rights and responsibilities are shared among the

organizations different participants such as managers and directors (Tricker

2012). Corporate governance also refers to the system of practices and rules

by which a company is controlled and directed (Ulrich & Smallwood, 2013).

This further implies that, there is need to balance the interests of many

shareholders in the company (Pohl & Tolhurst 2010, p. 199). Finally, corporate

governance also provides important framework in the attainment of a

companys objectives. This is what shows that, the company does not only aim

at profitability, but also to be a good corporate citizen.

The Volkswagen team is able to ensure that the values of the company

contribute to the benefit to the society (Volkswagen Group, 2014). The group

through its environmental strategy promotes the companys values and targets,

which involves reducing the amount of CO2 emissions, energy consumption

and water consumption and waste disposal products (Zimmerli, Holzinger &

Richter 2007). The aim is to make the Volkswagens team contribute to the

values of the company in an effective way. The senior management team also

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plays a role in climate protection, which helps to increase the companys value

(Volkswagen Group, 2014). The strategy development in the area of climate

protection, which has also been supported by international scientific experts

such as representatives of the International Energy Agency, has also provided

an ability to the Volkswagens team to contribute to the companys value in a

sustainable way.

Personal Reflection

The case study has enhanced my understanding of the nature of the

automobile manufacturing industry, corporate strategy and how an organisation

can survive in a turbulent operational environment. The competition within the

industry coupled with global recession challenges and depressed demand affect

profitability hence automobile manufacturing companies develop and implement

various strategies to deal with the turbulent and innovative challenging

environment (Holweg, et al 2009). Strategic alliances, mergers and acquisitions

are some of the common strategies used by the automobile manufacturing

companies to drive growth and ensure sustainability (Holweg, et al 2009). The

case study has also improved my understanding and appreciation of the

importance of corporate social responsibility. Many automobile manufacturing

companies participate in various corporate social responsibility activities as a

way of brand publicity, promotion and marketing as well as appreciating and

supporting the community in which they operate (Wether and Chandler, 2011).

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In the case of the Volkswagen group, its corporate social responsibility activities

have been instrumental in brand promotion, market development and client

loyalty within its global markets. The companys environmental protection and

management through production of low carbon emission cars help to promote

societal wellbeing and sustainable development (Visser, 2010).

I also learnt that, strategies such as mergers and acquisition, good corporate

leadership and strategic alliances are key to organisational growth and

sustainability (DAmato et al, 2009). Within the automobile manufacturing

industry, such strategies can minimise the competitive challenges faced by

companies. Furthermore, such strategies support innovation and are ideal for

companies that want to diversity their products and brand offering (Gong,

2013). The Volkswagen group has been able to diversify thus helping it to deal

with the competition and also protect its intellectual property.

Good corporate leadership supported by skilled, experienced and innovative

driven teams and robust strategies promotes the growth and sustainability of

an organisation (Lynch, 2006). These views are supported by evidence from

the Volkswagen group case study. On the other hand, corporate governance

which is defined as a set of relationships between an organisations

stakeholders and other interested stakeholders ( Mallin, 2007) is key to the

proper management of an organisation. Good corporate governance ensures

that, an organisation is properly run, accounts are properly prepared and

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audited, resources are properly allocated and managed (Wether and Chandler.

2011). Consequently, an organisation is able to save time, material and financial

resources and does not usually experience high human resources brain drain

(Inkpen and Ramaswamy, 2006). The Volkswagen group is an example of a

company with strong corporate governance structures and systems.

This case has imparted me with valuable knowledge on how corporations are

managed, strategies developed and implemented.

Conclusion

Most companies are facing challenges globally. The environment in which the

Volkswagen Group operates is one of the most volatile and fast paced such

that in order to survive, various strategies have to be developed (Holweg et

al, 2009). The strategies range from intensive advertising through utilisation of

all forms of media and robust corporate social responsibility policies and

activities (Volkswagen, 2014). The idea behind all this is to increase publicity

of its wide range of products, promotion of client loyalty and increasing of

sales and revenue.

Diversification of products has also helped the company to increase its revenue

through sales of a wide range of products. The integrated management system

and organisational management which emphasises on quality and its corporate

social responsibility activities which supports environmental protection has

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brought benefits to the company. The companys corporate governance systems

and structures promotes organisational development, growth and sustainability.

Consequently, the Volkswagen group has been able to wither the turbulent

automobile industry challenges and has over the years been able to meet the

expectations of its shareholder and the community in which it operates globally.

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