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In today’s competitive business environment, it is especially important for organizations to develop and implement strategies that enhance their competitive advantage in the marketplace. Organizational sustainability through the development of core competencies and reassessment of management strategies must rank high on the agenda of management to achieve performance improvement and success in the business arena.
Through a critical analysis of the article ‘Globalizing Volkswagen: Creating Excellence on All Fronts,’ this paper purposes to demonstrate how transformation in VWs organizational structure, systems, HR policies, and corporate culture ensured successful implementation of its strategies.
From the article, it is clear that one of the reasons why Volkswagen (VW) financial performance was deteriorating prior to the arrival in 1993 of Ferdinand Piech was an organizational structure that was unresponsive to the needs of competitive business environment. For instance, although VW manufactured 30 vehicle models on 16 platforms, there was minimal integration among the brands, resulting in wastage of human and physical resources (Radler 6).
VW Group had acquired other brand names, including Skoda, Seat, Bentley, and Bugatti, and owned a minority stake in Scania (Radler 7). In total, the Group ran seven brand names, which was rather complicated than previously thought. Piech structured the Group’s operations in such a way that Board members were put in charge of particular brand names, and it worked (Radler 16) Piech saw opportunities in such an expansive organizational structure.
Despite the challenges occasioned by the economies of scale, VW emphasized on keeping the brand names distinct to have the capacity to serve all important car markets with outstanding brands (Radler 11). In essence, the ‘full product range’ approach bore fruits for VW in terms of successful implementation of its strategies.
In the 1990s, VW embraced physical differentiation of its range of products due to the twin reasons of increased price differentiation between products and increased fragmentation of markets (Radler 12).
Again, VW’s huge organizational structure allowed an enabling environment for the physical differentiation, especially in its VW and Audi dealerships, inarguably placing the Group ahead of competition. The differentiation, more than anything else, assisted in arranging and formalizing the many components that existed to provide organizational efficiency and effectiveness (Erickson, 2005). This arrangement ensured successful implementation of VW’s strategies.
In simple terms, a system can be defined as a collection of parts that are purposely integrated together to accomplish an overall objective (McNamara para. 1). To return to profitability, VW had to transform and rationalize its car production systems to cut back on costly duplication of investment (Radler 8).
The Group adapted the platform approach to car production, leading to shorter design and development times, lower production outlays, and economies of scale. The platform approach made it possible for VW to assume a global manufacturing system which enabled the motor vehicle giant to optimally utilize all of its facilities worldwide and minimize wastage of resources.
The similarity of the platforms was of particular importance to VW since, not only did it allow for shorter lead times in plants, thereby improving flexibility, but it also allowed underutilized plants to request for work from other plants (Radler 9).
All components in a system must be interrelated and work in harmony to achieve the desired outcomes. In this spirit, VW, under the leadership of Piech, undertook to align production and sales (Radler 10). The previous system of production was not viable since it required cars to be produced and stocked for months before they could enter the market in peak season, thereby constraining the much needed working capital.
Under the new system, employees were obliged to work for up to 48 hours weekly during the peak season, and appreciably less during other times. This system paid dividends in terms of increased flexibility, reduced costs, and efficiency of production. The Group also embarked on an ambitious project of enhancing its global sales, especially in North America, Asia, and Europe realizing that manufacturing excellence alone could not drive its business agenda in the competitive automobile industry (Radler 11).
The addition of the financial services arm brought increased business in car financing and diversification of services in other areas beyond car financing. Specifically, VW came up with financial packages aimed to benefit specific groups sharing unique needs such as retail customers, fleet customers, dealer services, and banking services, thereby increasing its profit margins manifold (Radler 14). This venture ensured successful implementation of VW’s strategies.
When Piech assumed the leadership of VW, the Group had an excess 30,000 employees. According to Radler, “…rather than laying them off and sending whole regions in an economic freefall, he [Piech] decided to introduce a four-day workweek…workers had their annual work-time reduced by 20% and received 16% less salary” (15).
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It could be said that VW HR policies were favorable to employees and thereby gave them the urge to give their best. When other companies were fighting against employee unions, VW, through the intervention of Piech, advocated for the formation of a global employee council. This proactive approach towards employee interests must have contributed towards the success of VW.
Personal responsibility for decisions taken was what transformed VW’s corporate culture. Before the entry of Piech as the Group’s CEO, nobody was assuming responsibility of the failures and dismal financial performance witnessed (Radler 17). To ensure successful implementation of VW’s strategies, such a protectionist approach had to be overhauled and individual brands were required to assume responsibility for their actions.
Second, all top managers were required to convene once a month in secret locations to test their products and exchange ideas, concepts, and new technology trends. It can be said that VW employed an open corporate culture, enabling brand managers to meet and exchange ideas on what worked best and how (Radler 17)1.
According to Rhodes et al (2004), such a corporate culture encourages creativity and innovativeness – much needed assets in the automobile industry. In addition, it is well known that businesses thrive on new concepts and ideas. VW’s open corporate culture ensured communication of ideas, concepts, and visions in an accurate and objective manner which is critical in ensuring successful implementation of its strategies.
Assessment of Piech’s Management Style
Although he has been called a firebrand CEO, Piech’s management style reflects of someone who is in touch with what is happening on the ground. He is responsive to the needs of employees as long as they deliver to expectations, and is always ready to question, probe and ask for clarity at the plant level. His can be called participative management style as it involves sharing critical information with employees, including involving them in important decision making processes (Buzzle.com para. 2).
At the management level, Piech’s management style can be termed open, precise, and often assertive. He introduced glass offices for managers and board members in an attempt to encourage open communication, and sacked managers who were adamant to respond to his management style (Radler 15). Such managerial authority is needed to streamline the objectives of the organization and ensure that the executives entrusted to champion the company’s growth agenda are pulling in the same direction.
Concerns for Piech’s Successor
The immediate concerns for Piech’s successor would be to consolidate the impressive growth patterns already achieved by engaging cost-cutting measures and entering into new markets. He should also be concerned about building brand teams, processes, and networks of relationships that will be resilient enough to maintain and expand growth. This can only be achieved through developing and implementing processes that the will enable the Group to reap maximum benefits from its core competencies.
Buzzle.com. Participative Management Style. 2010. Web.
Erickson, R. The Importance of Structure in an Organization. 2005. Web.
McNamara, C. Thinking about Organizations as Systems. (n.d.). Web.
Radler, G. Globalizing Volkswagen: Creating Excellence on all Fronts. International Institute for Management. 2003.
Rhodes, J.T., Pitts, S.T., & Kamery, R.H. Creativity in the Workplace: Management’s Responsibility for Positive Communications. Journal of Organizational Culture, Communications, and Conflict. 2004. Web.
1 “The way we handle our culture is unique. In other car companies, a leading brand or a group streamlines the others. Here, it is an open market. You put your ideas out, and the other brands can accept it or not.” CEO Ferdinand Piech.