The theme of this article encompasses the Volkswagen corporation after the emissions scandal which has a negative influence on the company and reputation. It will include the analysis of the issues behind VW scandal from four aspects, namely management, leadership, marketing and CSR. Each part includes background and the scandal consequences. In accordance with unfavorable conditions, the article will give recommendations in separate fields, in order to reduce its losses and return reputation.
Managing the organisational structure is a requirement to ensure the proper functioning of the organisation. Wrong organisational structure will result in different degrees of loss and low efficiency (Capon, 2009). According to the Volkswagen Scandal, which it not only exposes a conservative corporate culture but also reveals the existence issues of a classical Bureaucratic structure of the enterprise. Thus, this bureaucratic structure has adverse impacts on the organisation after the scandal. Finally, some recommendations will be shown in this article through organisational restructuring to achieve the company\'s innovation and profitability.
Volkswagen company is influenced by the German culture on their business, which established the top-to-bottom management. Germans firmly believe that the family business is the pillar of its economic development. Also this company has inherited the Porsche and Pierre families' heritage (Weidenfeld, 2015). These cultural and economic factors proved that the company has a stable and independent management. As a result, those conditions help them develop to be a traditional bureaucratic management model, which is defined that Volkswagen company has many levels of management within the environment. In the internal environment, each department has an organisational chart, followed with strict procedures, policies and constraints (Gerth and Weber, 1958). In this case the top managers have great control over policies and make faster strategic decisions. However, this so-called \"stability\" comes from ownership and government oversight of corporate governance. From the one hand, VW's Board of Supervisors is responsible for the management committee. For example, 10 of the 20 seats in the organisation are German, as four of the remaining 10 are from the Porsche and Piech families who were attempting to buy the whole share, and the rests are politicians (Collingridge, 2015). In fact, German government owns 18% of the total stake (Bloomberg BusinessWeek, 2005). Additionally, analyst Bernstein pointed out that Volkswagen produces less cars than peers. Toyota in 2014 that a VW worker produced 15 cars at the same time, with the twice as many as Toyota workers. Then in 2015, the return on sales of the core VW brand was 2.5%, Toyota is 10.1%. There also has a hierarchical problem of VW on the basis of above evidence, where the factory committee has vetoed the cost reduction plan before submitting the cost reduction plan to the factory or senior management. A former Volkswagen manager said it was necessary to report issues to the committee before making any decisions, then they could inform to the management at all levels. Even most promotion opportunities are decided by them (Collingridge, 2015). As a result, it can be argued that this bureaucracy model has led to inefficiencies that are not only in production and in time-consuming costs to deal with issues, but in most cases senior management rejected corporate innovation. After the scandal, the company suspended some employees for regaining the trust of the public and the government. By combining operations in the United States, Canada and Mexico, the company structure was simplified under a new North American branch. The car brand Porsche and other sports car branches such as Bugatti and Bentley are assigned into one group. Volkswagen diversified its management structure by giving sector managers more autonomy (Ruddick & Farrell, 2015).
Although the company took a series of reforms after the incident, the effectiveness and independence of the company are likely still to be questioned. The characteristics of the Board of supervisors are still consisted of the majority of internal members. Despite the board of supervisors which are composed of representatives of shareholders and employees, they still share the common values and interests. In that case, the traditional top-to-bottom management remains unchanged. Therefore, the Board of Supervisors should ensure that management\'s transparency and should train the talent of new employees, which improve innovation. In addition, the best measure is that to reduce or replace the government occupancy in the total shares. Therefore, it is necessary to develop from the pyramid structure to the flat one, which means to decrease the number of managers, so that employees will be more autonomy and sense of engagement. The limitation of these suggestion is that those practices still need to experience some process. After all, the family business has a strong economic accumulation in history, the vast majority of internal employees have been accustomed to the previous management behaviours. In practice, there will have controversies between traditions and innovation.
“Leadership is a process of social influence, which maximizes the efforts of others, towards the achievement of a goal” (Kevin Kruse). Technically a leader could use only influence to manage others but, leadership is all about utilising the maximum potential of a person in the most efficient way to maximise profitability of an organisation (Kruse, 2013).
The Volkswagen company is controlled by several highly active and influential people in the automobile industry and the government. With such powerful influence, it is bound that problems in management could lead the company to such a scandalous step. Yet, the problem of several ownership was not the only issue that lead to such a corporate wrongdoing (Elson, Ferrere and Goossen, 2015).
The problems at Volkswagen was the result of three major factors comprising of the board of directors. Firstly, the presence of dual-class shareholders, the fact that Porsche and Piëch families own 50.7% of the voting rights they have an undisputed advantage in all the major decision making of the company policies (Elson, Ferrere and Goossen, 2015).
Secondly, having the government as a major shareholder in a public corporation damages and complicates the ultimate goal of shareholder return. With the government representatives on board the other members are forced to include them by making decisions under constrains of the government's incentives namely jobs (Elson, Ferrere and Goossen, 2015).
And lastly, the German corporate model of co-determination which allows the inclusion of labour representatives on the board presenting difficulties for employees in monitoring the functioning effectively. As it is management's duty to prevent and penalise misfeasance and shrinking, set compensation and coordinate labour. But now, with labour representatives on board, the party which is vulnerable the most is also the one responsible for preventive monitoring (Bainbridge, 1998), cited in (Elson, Ferrere and Goossen, 2015). Which in turn, creates a conflicting environment between shareholders and labour representatives (Elson, Ferrere and Goossen, 2015).
No doubt, Volkswagen cannot run away from the misery they have created but some of these solutions can help them overcome the downfall and build back the trust in their consumers.
1. Volkswagen should change the dual-class shareholding system preventing accumulation of power in the hands of few influentials.
2. It should also regulate the shareholding in the hands of the government and see to it that the ultimate mission of corporations which is returns to shareholders is not influenced by government at any level. The public shareholders should also have a significant role in decision making.
3. The company should also amend its Co-determination policy which will prevent labour representatives to take undue advantage of the policy.
4. The Leaders and Managers should come forward and accept the mistake as a company by being fully transparent and honest, not blaming this on the lower level engineers (Cavico and Mujtaba, 2016).
5. Volkswagen officials should cooperate with the Government regulators and come up with a genuine plan to fix the affected vehicles, reducing the emissions in compliance with pollution standards (Cavico and Mujtaba, 2016)
6. The company should offer a “buyback” of affected vehicles at a reasonable price to put them out of circulation (which might actually be cheaper than fines), helping the company to rebuild consumer trust (Cavico and Mujtaba, 2016).
7. Leaders should also strongly communicate with employees, that they have a moral and legal duty to report any wrongdoing assuring anonymity during this process will be respected completely (Cavico and Mujtaba, 2016)
These are some of the possible solutions Volkswagen should apply in order to achieve the goal of effective leadership and also regain the trust and loyalty of its consumers.
In the last 60 years, Volkswagen has become a global brand. Providing innovative marketing strategy, Volkswagen had occupied leading positions of the world\'s best marketing campaigns and companies. Such success was based on several approaches, namely branding, product marketing and loyalty marketing (Reichheld and Teal, 1996). However, during the last decade marketing decisions at VW were historically decentralized. In other words, each market developed its specific marketing strategy and marketing budgets were set by sales. For instance, in India a new advertising campaign around the tagline ‘Das Auto' had little meaning, ‘das' was a common name for a person and ‘auto' meant service station (Hill, 2014).
Luca de Meo was a chief marketing officer (CMO) of VW Group, a veteran of the European auto industry with an experience at Fiat, Toyota and Alfa Romeo (Hill, 2014). The marketing team headed by Luca de Meo released the new Think Blue game, which promoted environmental suitability for drivers. As a result, more than 160.000 people visited the BlueMotion website during the one month campaign, and there were written approximately 6.000 posts on Facebook within the first day (Ryan, 2014). This campaign gave the potential buyers a chance to interact directly with the brand. Such an innovative decision combined with Volkswagen's Global Social Media Campaigns, including platforms such as Facebook, YouTube and Twitter helped the company to attract new loyal customers (Czinkota and Ronkainen, 2013). Such clients are willing to purchase more frequently; spend money on trying new products or services; recommend goods and services to others; and give companies useful suggestions (Roustasekehravani et al., 2014). Consequently, brand loyalty improves the image and profitability of a company.
In 2015, Volkswagen's Emission Scandal ruined VW reputation and caused many loyal customers to change their opinion about the corporation (Topham et al., 2015). Since then, the scandal leads to a 13.7 drop in reputation globally and company's rank position changed from #14 to #123 (Global RepTrak, 2016). In addition, important consequence of the scandal is the ‘free fall' of customers' trust in the brand of Volkswagen (Sharman, 2016). During a crisis, the public discusses the problem online and often questions the causes of the crisis and responsibilities of the organization towards consumers and other stakeholders (Schwarz, 2012). This fact dramatically damaged VW reputation by unending discussions in social media, challenging arena for crisis communication for organizations, because they cannot easily control the sentiment and the direction takes in the social media.
Toyota's largest-ever recall of vehicles in the United States in 2009-2010, the company has been trying to recover its brand equity and rebuild consumer trust. Based on consumer attitudes toward the Toyota brand, achieving its pre-recall popularity is a long process (GfK MRI Starch Advertising Research, 2012). However, the company appears to be on track to regain its footing via a combination of quality advertising promotion around ‘trust', including aftersales service and smart pricing (Forbes, 2012).
The Volkswagen Group faced with a problem of establishing credibility to its consumer and stakeholders. And the marketing team has already taken attempts to rebuild trust with a new brand campaign. They focus on people and their relationship with their car rather than technology. The new TV ad concludes with the message: ‘It's more than just a car. It's a lifelong companion.' In its print ads, the message is even more direct: ‘It's more than just a car. It's keeping your promises.' It also drops Volkswagen's long-standing tagline ‘Das Auto', what should be done a long time ago.
There are no set guidelines on what to do when a company's reputation is damaged. One of the possible solutions could be re-branding, the company under a new name. In this case, the corporation could be smaller and more productive, it is easier to speed up efficiency programs and potentially save the company. In the 1990's ValuJet succeed in rebranding after the crash of Flight 592 in the Florida. Their massage reflected a break in the past and emphasized safe cost-efficient air travel. However, at the same time it is risky and expensive, but lead to reducing the negative publicity that was caused by the VW scandal. The experience of Toyota has shown that recovery takes an extended period of time. However, if marketing strategy is focused on advertising promoting and aftersales service in order to satisfy deceived customers, the brand will be back on track.
In addition the marketing team should take into account cultural and language aspect of each particular market. In addition, according to the previous experience, company should use innovative solutions such as computer games. Most adults up to the age of 30 – 40 years old grew up with video games and this trend will become stronger.
In conclusion, it is worth mentioning that Volkswagen marketing strategy should pay more attention to social media. By monitoring social networks in suitable ways, organizations can reduce the reputational damages (Denis et al., 2014).
In the business world, a company is required interaction with many sectors. Business for profit only be not assure the growth and sustainable development. Especially, when the business impact on all sectors, including social and environment. CSR or Corporate Social Responsibility is the way that business take responsibility for society and environment, by operating under ethical principles and good management that lead to sustainable development (Visser, 2014).
Volkswagen caught cheating with the software that is equipped to test pollution emission. The software that's installed in the car will be able to detect if the vehicle is not in normal driving conditions then it will fully open emissions control. So, when the authorities are checking the pollution emission, it can be determined in accordance with the emission standards for pollutants as required by law. The environment responsibility is not industrial company's responsibility, any person or company who\'s involved with the environment play a crucial part in taking care of this world.
The company decided that even though the cars emitted 40 times the legal limit of nitrogen oxide, it did not matter. According to the company's code of conducts, it claimed that the company supported the strategy of environmentally friendly cars, which led the company to be number one car-makers (Volkswagen sustainability report 2013, 2013). The head of CSR was appointed to keep the company's image clean by claiming that their core objective is environmental friendly, while it's actually gaining as much profit as possible. The former CEO Martin Winterkorn signed the older version of conducts but it disappeared from the later version in September 2015 (Hardyment, 2015). The company claimed that there were more than 74,000 employees trained in the company's code of conduct in 2014. There also were 140 cases investigation on anti- corruption and 365 cases of suspected fraud (ibid, 2015). However, the problem of emission was never caught. This shows that the company distort the information it shared and, therefore, everyone was unaware of what was really going on.
The company should have a firm act on the issue. First of all, the scandal must be responsible by the organization as a whole by planing on how to decrease the emission and meet the regular legal standards. It also need to fix the bad reputation by making notable, continual research and development investment to put itself in a leader position in technology development to decrease emission while improving performances of the vehicle (Du and Merrill-Sands, 2016). Furthermore, the company need to build a strong explainable structures and practices, and encouraging better changes in culture corporation in order to provide stimulating short-term gains in check and prevent any fraud in the future. Volkswagen scandal is an example of business social responsibility and sustainable development bad approach. A company cannot gain its true value by deceiving stakeholders and don't take sustainability seriously. Social responsibility and sustainability in a company's culture and strategies is an important part to build up business value. By doing so, a company can receive a better corporate image, employee morale, customer loyalty, as societies will have the advantages of saving the power and resources of environment (Visser and Hollender, 2011).
In term of brands, Forbes, the US magazine, ranked Volkswagen's brand value as 67th of the world. It was a large company that raked in the 14th of Global 2000 by FORTUNE magazine, sales ranked in 7th of the world. The company's profit ranked in 23th and 69th in assets, and market capitalization as 53rd in the world. All the values mentioned above took a long time building for hundreds of years. As a result, of the scandal, especially damaged brand image, the number of car sales declined. Furthermore, consumers will lose confidence and pride in using the brands that are considered highly polluted. Therefore, the scandal the impacted on both Volkswagen and related brands. However, right solutions may lead to rapid recovery.
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