Volkswagen's Revival Strategy: Innovation and Management

Volkswagen, founded by Ferdinand Porsche in 1937，is a famous automobile manufacturer, locating in Wolfsburg, Germany. It has positioned itself to mass market and gradually become the Volkswagen Group, keeping a great share in industry. Even though the emission scandal has caused the plummet in stock price and funding difficulties, Volkswagen has rebooted its momentum by redirecting to SUVs and electric vehicles in product strategy, reorganizing the internal structure in management strategy and re-encouraging employees’ integrity in culture strategy. What Happened to Volkswagen’s Market and Brand? Europe is the largest market for this company, accounting for 61%, while the rest Asia, North America and South America accounts for 18%, 16%, and 5% respectively. The Volkswagen Group operates twelve brands. Four Germany brands are Volkswagen Passenger Cars, Audi, Porsche, and the Commercial Vehicle MAN. Three Italian brands are Bugatti, Lamborghini and Ducati. The rest are Bentley (UK), Skoda (Czech), Seat (Spain) and Scania (Sweden). Diversified brands have driven Volkswagen to a multi-national automobile group. However, diversity also brings about the operation challenge and more management cost. For example, the shocking news on Volkswagen about its out-of-limit nitrogen oxide emission along with software fraud, has caused the plunge in its stock price, leading to a great fine settlement and the difficulty in funding. How Volkswagen React to Public? Some have attributed the cause of the scandal to the no-error culture, which has been demanding and failure-abhorring, urging employees to find ways to cover the problem instead of solving them (Entrepreneur, 2016). If a multi-national group has too many brands to operate, the main tasks of top managers would be keeping the integration and smooth operation among different functions instead of updating product. More importantly, this hidden assumption influences the staff from base to top. To solve this management bug, Volkswagen reconstructed the function line, bringing about famous eight function lines. Four of them are projected into Group Brands, Volume, Premium, Sport & Luxury and Truck & Bus, which could be regarded as higher level of categories. Another four function lines are operational divisions, including Human Resources, Component & Procurement, Integrity & Legal Affairs, Finance & IT. The most symbolic department is Supervisory Board. The Group sets up a Supervisory Board with strictly selected members to enhance the internal management and behavior guidance. This independent board consists of 20 members with complicated criteria summarized as follows: Internationality with high degree No potential conflicts of interest Be independent according to the internal code Keep the board diversified and in trend With the Board of Management is positioned for Integrity and Legal Affairs, the Group has put in place the organizational prerequisites for centralized integrity management. This board function is responsible for planning, preparing and implementing programs and projects aimed at raising awareness of integrity (Volkswagen Annual Report, 2018). The Supervisory Board is charged with the mission to ensure the employees’ behavior complying with the Group principles and the ethical principles established therein and behaving correctly in accordance with rules. The internal management process of the Volkswagen Group is started on closer dovetailing of the Group’s brand strategies with the operational planning process. This enhances transparency when it comes to the financial assessment and the evaluation of directional decisions. As a result, the operational medium-term planning is conducted once a year, covering a period of five years, and is incorporated into the strategic planning as a key management element of the Group. Business Environment by PEST The United States Environmental Protection Agency, protecting human health and environment (EPA, 2020) and California Air Resources Board, protecting the public from the harmful effects of air pollution (CARB, 2020) have investigated the violation of nitrogen oxide emission of Volkswagen and exerted a financial punishment upon it (Shanghai Paper, 2020). European Commission sets its legislation and standards to reduce the emission of CO2 and NO2 emission and other matters like noise reduction and the elimination of fluorinated greenhouse gases (European Commission, 2020). Chinese emission standards are based on European regulations and a new version will be updated to European Act 6 in 2020 (DieselNet, 2017). Moreover, China will impose a ‘new energy vehicle quota’ from 2019 onwards。 As the global economy becomes increasingly interconnected, the Group business is not only exposed to macro-economic uncertainty, but also vulnerable to local developments. Any escalation of the conflicts in Eastern Europe, the Middle East or Africa, could cause upheaval on the global energy and commodity markets and exacerbate migration trends. However, the U.S. federal government has initiated a tax credit for plug-in electric vehicles purchased since the end of 2009. China is taking more aggressive actions to encourage electric vehicle purchases, through tax exemption from 2014 to 2020 and the customer subsidy program with a raising eligibility threshold (Environmental and Energy Study Institute, 2018). Exchange rate is another consideration since currency swing is always challenging the multi-national business for it increasing the costs of import and export. From social view however, the scandal punches the drivers’ confidence in diesel for safety concern, along with impairment of trust and disturbance of market. This leads to a social media comment that it signals a death blow to the diesel car. From technological view, battery engine which could last for longer hours reaches its turning point, making electric vehicles more durable and being produced in volumes. Another technology breakthrough is cloud service, which could provide the holistic service through intelligent accessories in after-sale market. Business Environment by SWOT Strength. The Volkswagen Group has a strong brand across the world, which could be capitalized through market campaigns and more sales. Weakness. The weaknesses are mainly from the propagation of the scandal00, and difficulty in funding is the following problem moreover. Opportunities. For rebuilding the reputation, Volkswagen has reorganized its structure and focused more on product innovation, through its strong supply chain and plentiful resources. For enhancing its internal management, the Group has set up integrity division to guide the employees’ behavior and a supervisory board to underline the integrity and compliance, and to launch a comprehensive integrity program, ambassador program and integrity index in German. For leveraging market opportunities，Volkswagen positions itself as a solution provider for reduced-carbon drive system and energy generation technologies as well as for storage technologies. Threat. The first threat is from competitors like Tesla because Volkswagen has already devoted itself into the electric competition. Secondly, traditional vehicle maker like BMW, Mercedes has developed its own electric type. The third potential threat is geographical tension due to the by-product of globalization. Volkswagen has a large variety of manufacturers and sales agencies around the world, leading it more vulnerable to globalization risk. Lastly, the Group still faces the challenge of the laboratory test used to measure fuel consumption and CO2 emissions from passenger cars, as well as their pollutant emissions (WLTP Facts, 2020).