A strategy is the adoption of courses of action and the allocation of resources necessary to achieve the organisation's goal (Barnwell and Robbins, p. 147). This chapter will focus on the car manufacturers analysis through Miles and Snow's, Bartlett and Ghoshal's, and Porter's theories that were discussed by Barnwell and Robbin.
Since the Volkswagen Group is a multi-divisional company, there may two different levels of strategy be considered. Whereas the corporate level strategy would focus on the general direction of the company as a whole including all divisions, the business level strategy refers to individual brand units such as Skoda and Audi, addressing their specific environment individually. The business level strategies will most likely differ from each other but also from the corporate level. The following analysis considers both strategy levels in all theories.
MILES AND SNOW
According to Raymond Miles and Charles Snow's definition of four strategic forms of organisations these can be differentiated as Defenders, Prospectors, Analysers, and Reactors. Each of these forms evolves to different perceptions of the environment and displays the organisation's role in the market. (Barnwell and Robbins, p.156)
The corporate level strategy, in this case, resembles characteristics of both an Analyser and Prospector. While the enterprise is continuously searching for new product and market opportunities, it tries to minimise risks and maximise chances by awaiting the success of innovations to be proven before making a move. Instead of building a new division or creating new concepts, the VW Group prefers purchasing established brands such as Bugatti in the sports car market segment, which displays the company's sense of safety. On the contrary, after the diesel emission scandal, its strategy moved more towards being a Prospector, as the company considers becoming a provider of electronic cars with a new battery technology by 2025. (Volkswagen AG, 2018) The strategies on the business level vary from brand to brand. As Skoda defends its market segment with quality products in the low end of pricing (Business Case Studies, nd), Lamborghini is a prospector in the sports car market as it innovates the engines and pushes its unique market position through an extensive brand building marketing strategy (Marketing91, 2018).
Organisations can be competitive on three different levels, according to Michael Porter's theory. Some companies may create an advantage with a cost-leadership, differentiation or focus strategy, while some other may be stuck in the middle. (Barnwell and Robbins, p.162)
Beginning with the corporate level, we suggest that the Volkswagen Group uses a combination of a focus-differentiation strategy. With an emphasis on differentiation, the Group aims to stand out with quality products, a neat image and constant innovations in all its divisions. Adding to this, it also caters tailored products that are valued by customers in various segments with its several brands, focussing on more than one group of customers. As an example, Lamborghini targets upper-class sections of the society with premium sports cars. The car brand VW, on the other hand, creates a competitive advantage with a focus on environmental-friendly technologies in a different price segment. However, SEAT most likely adopts the cost-leadership strategy (The Telegraph, 2018). Thus, different approaches can be distinguished on the business level.
BARTLETT AND GHOSHAL
The last theory in this matter believes that globalisation has an impact on an organisation's strategy and structure. Bartlett and Ghoshal defined four different international strategies dependent on the need for local responsiveness and cost reductions. They propose global, transnational, international and multi-domestic strategies. (Barnwell and Robbins, p.165)
The Volkswagen Group as a whole aims for maximum local responsiveness with customised products. Thus, it resembles the characteristics of the multi-domestic strategy. Some of the products are designed to meet local trends, requirements regarding the terrain the cars will be used in and local regulations. The VW Vento model is only sold in India, Malaysia, and Mexico for example. (Wikipedia, 2018).
Due to the fact, that the group unites several brands, the strategy on the business level varies again. On the one hand, luxury car brands such as Lamborghini or Audi, follow a global strategy, which means, that they sell commonly known products around the world. Their success is based mainly on brand recognition. However, the production processes are divided into sub-parts, depending on the costs of labour or resources. A high need for cost reduction is a characteristic mentioned by Bartlett and Ghoshal.
On the other hand, as has already been mentioned, VW is more personalised and multi-domestic.
THE CRISIS: What happened in 2015?
The Environmental Protection Agency located in Washington noticed that some Volkswagen models enclosed a software, that was able to recognise test situations. Thus, as soon as a certain car was checked on emissions, the device changed the setting to environmentally friendly, improving the results. In contrary, on the streets, the same car would switch back to the initial setting and allow the car to run faster with an improved drive performance. This involved 11 million cars sold - 8 million of those in Europe and half a million in the U.S. - including some models from Porsche and Audi as the group announced during trials (Lyons S., 2015). The immediate reaction was an appropriate response to the accusation and a public apology, which was an important step in the recovery. It calmed down the press and car owners have been assured of the safety of their vehicles.
To come up with a well-planned recovery strategy, the group had to keep in mind, that there were not only consumers but other stakeholders such as employees, dealerships, and investors affected by the change. Thus, it took some time to develop the final “Together-Strategy 2025”.
In order to smooth things over, when the company had to focus inwards in order to discover what had happened and how it could happen in the first place, boundary spanners played a big role in separating the consumers' needs from the manufacturing process. For us, this would be the car dealerships who are at the front of answering questions, communicating with future and existing customers, and representing the brands.
Adding to this, the group made a domain choice to offer the European market some time to recover and therefore focused on China, as the scandal did not concern the nearly diesel free market there. (Financial Times, 2018). Thus, the group was also able to generate sales in the largest car market, while recovering in the western environment, where sales declined drastically.
As the full consequences of the scandal were evident, the Volkswagen group began to rebuild the trust in its brands. Anything that might have referred to ‘clean engines' or ‘low emission' was removed to let consumers slowly forget about the diesel-gate. In order to become relevant again, the brand spent 388 million dollars on measured media in 2015 alone with continuing expenses in 2016 and 2017 (Schultz E.J., 2017), (The Drum, 2017).
The campaign focussed less on “Das Auto” with its technology and the related fun to drive, but more on “Think New” and what special time one could have in the car as a lifelong companion. (Vizard S., 2016).
Maybe one of the reasons why the group could survive such a turbulent time was the ability of the management to see the crisis as a cause to address issues, that the company was unable to work on before.
Instead of emptying cash reserves, the company paid off more than half of the litigations by cutting costs and simplifying processes. Thus, it reduced administrative expenses and reduced manufacturing options such as the number of steering wheels a customer could choose from to increase efficiency which led to an improved profitability. In the end, the group was able to generate the required money and a business that is a lot more profitable (Financial Times, 2018).
“We must increase efficiency considerably – across the entire value chain and all brands.”
Thomas Sedran, Head of Group Strategy (Volkswagen AG, 2018)
With reference to this statement, the Volkswagen group emphasises that each brand is part of a community, and the group intends to place the well-being of the enterprise over the individual brands, that should work as equals towards a common goal.
The future program TOGETHER-Strategy 2025 envisions the company to become a world-leading provider of sustainable mobility. In order to transform this vision into reality, there are four main elements that will be focused on as has been mentioned in the official statement. (Volkswagen AG, 2018).
‘Excited customers' involves the company to cater to diverse needs and innovative mobility solutions. By exceeding expectations in terms of service, solutions, and quality of their products, the group intends to excite loyal customers and win new ones.
As an ‘Excellent employer', the group plans to satisfy and motivate its employees with an attractive working environment, outstanding leadership and corporate cultures. To Volkswagen, this will be the best way to retain the workforce and attract new talents for a sustainable future.
After the scandal, a special focus lies on the regaining and strengthening the trust of customers and restoring the group's public image. To exercise responsibility regarding the environment, safety and society is, therefore, the main approach. The company tries to reduce its carbon footprint and pollutant emissions, then it offers its customers maximum product safety with an outstanding process quality and as a modern, transparent and successful enterprise, it tries to learn from the past and be a ‘Role Model' for others.
‘A sustainable growth' is essential to stay relevant for shareholders and new investors. By interest payments, debt repayments and strengthening investments, the group will show its ability to meet obligations.
Following this, 16 group initiatives divided into four key building blocks should be implemented until 2025. Most initiatives will concern the core business “cars” itself. Nine out of 16 initiatives will focus on battery solutions, streamlining the components business, self-driving systems, new partnerships with regional players for more insight in a market segment, a sharpened positioning of brands and a new platform to learn from user experiences are only some of the many interesting examples.
Another important block is the “mobility solutions business”. The group realised that shuttle services on demand are a growth market. MOIA is the group's mobility company that provides innovative transport services from 2016 onwards. Moreover, mobility and vehicle on-demand services will be implemented across all brands.
The third pillar is “Secure funding”, which means the group intends to cut costs by improving operational processes leading to significant savings. Further, by integrating group and brand strategies with planning processes the VW group will be able to increase the quality of strategic movements.
Last but not least, a ‘digital transformation' will connect activities across divisions, but also enforce new technologies to be used that allow the group to remain competitive.
Naturally, there are different approaches to these main strategic goals within every brand. The needs and capabilities differ. However, all of them focus on innovative advancements. Especially electric cars and battery technologies are of special interest for all of them. AUDI overlooks the latest project to develop a group-wide self-driving system. All changes are driven by digitalisation, sustainability, and urbanisation.
In 2017, the Volkswagen group successfully reached a combined group sales of 10,7 million cars (Reuters, 2018). Especially Porsche and Audi contributed to the expected total revenue of 220 billion euros. Compared to 2016, the first full year after the dieselgate, this means an increase of around 3 billion euros earned.
Evidently, the new leadership in Europe and the U.S., the enterprise transformed into a new company with diesel almost gone and a close focus on electric car solutions. While the group is still working on these innovations, the individual brands did not fail to launch relevant products that consumers around the world are willing to buy. Especially the Chinese market increased exceptionally last year. VW outrun Toyota as the largest auto company in the world in 2017 as well (Traugott J., 2018). As a matter of fact, the carmaker was not just outrunning Toyota by volume, but also increasing its profitability and developing new innovations than any other competitor. By 2025, the enterprise will have spent 20 billion euros on electrification technology and 14 billion euros on self-driving and car sharing systems (Financial Times, 2018).
With reference to “outlook”, the Volkswagen Group is financially and strategically in a stable position. However, there are certain areas for concrete action to improve.
Focus more on the affordable segment of the passenger vehicle market.
In the times of uncertainty, the luxury brands contributed a lot to this quick recovery, at least financially. However, there is a rising demand for affordable cars, that should not be overlooked. Volkswagen could use its knowledge from other divisions to become a prospector in the passenger vehicle market with a price range at the lower end and thus create and maintain a high market share (Traugott J., 2018).
As has been mentioned, AUDI overlooks a research group, that focuses mainly on automation, batteries and artificial intelligence. Spreading this knowledge again will lead to positive spillover effects throughout the enterprise. Also, Porsche should pass on its hybrid technology. Since the strategy 2025 emphasises unity, this certainly will be a part of the change anyway.
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