Executive Summary
Volkswagen is one of the leading companies manufacturing cars on a global scale. The organization has built a tremendous brand recognizability and a vast customer base that has helped it to retain its influence among customers on a global level.
However, for Volkswagen to keep up with the pace set by the recent technological breakthrough and the development of new transportation opportunities, specifically, electric cars, Volkswagen will need a new approach toward its OM to increase the quality of its product. For this purpose, the introduction of an innovation-based operational management framework is critical to the company’s further performance in the global market.
By integrating the OM framework driven by innovations and, therefore, making the notion thereof incremental to the firm’s OM, Volkswagen will become a leader in the industry and be capable of compensating for some of its past mistakes to reduce the negative publicity that it has gained over the years. Specifically, the environmental scandal concerning the company’s attempt at forgery should be taken into account when shaping Volkswagen’s current framework for OM. The described issue has affected the company’s PR, which implies that Volkswagen will need an update on its environmental policies and the introduction of rigid standards that will assist the company in complying with the current global standards.
Additionally, the OM strategy will have to embrace the notion of innovative management as the platform for enhancing product quality and meeting the latest demands of target audiences. Due to the unceasing increase in the level of product quality demanded in the automotive industry, Volkswagen will need an innovation-based OM framework to build the competitive advantage that will help it to retain its position and even advance in the global car market.
Introduction
Company Description
The manufacturing environment has always been a very competitive industry since innovation has been the focus of the target environment. Due to the incessant need for innovative solutions to the problems of managing quality and meeting the changing requirements of customers, the manufacturing setting has been showing the signs of rapid development (Khairani et al. 2017). As a result, the companies working in it have been facing the need to adapt and evolve, challenging the set quality principles and inventing new solutions to the emergent problems (Gopal & Thakkar 2015).
Volkswagen is one of those corporations, positioning itself as one of the leading organizations and being at the forefront of technological innovation in the designated industry (Volkswagen Group 2019). However, reports indicate that Volkswagen has been experiencing certain difficulties in navigating the contemporary economic setting, specifically, due to the issues in its data management approach (Volkswagen Group 2019). Therefore, detailing a strategy that will allow Volkswagen to shape its current operational management framework will be needed. With the recent restructuring toward a future-oriented management approach, the company will have to be supported by a stakeholder-oriented, innovation-driven operational management strategy that will empower it to evolve.
Problem Statement
Volkswagen has built quite a reputation over the years of its performance, yet the firm has been in need for an update in its operational management framework for a while. Volkswagen Group has been known as a multinational organization that has established itself quite firmly in the automotive industry since 1937 (Volkswagen Group 2019). The company has been following the principles of value engineering as the cornerstone principle that makes the foundation of the company’s philosophy (Volkswagen Group 2019). Simultaneously, the principles of manufacturability have been engraved into the set of Volkswagen’s operational management standards (Volkswagen Group 2019).
Although being quite innovative at the time and providing the organization with leeway in shaping its customer relationships, the proposed techniques require an urgent update (De Boer, 2018). The focus on introducing an innovation-driven approach toward operational management along with a people-oriented leadership technique poses a substantial problem due to the need to increase the firm’s unit sales, profit margins, and the number of customers.
The loss in the competitive advantage due to the inability to reconsider the current operational management framework is one of the key causes of the largest concern for Volkswagen. Since the company’s largest market is currently represented mostly by Europe, particularly, European organizations, the company should see retaining these buyers and, thus, its leadership in other markets, particularly, Middle East and especially UAE, as one of the primary sources of concern. In addition, the current approach toward the product mix strategy utilized by Volkswagen has proven to lack efficacy, which causes an even greater loss of interest among general audiences and potential stakeholders toward Volkswagen’s products (Mishra et al. 2019). Therefore, Volkswagen has to consider developing a sustainable approach toward operational management.
Volkswagen’s Competitiveness
At present, the company enjoys a fairly impressive position in the global automotive industry. Despite minor issues in its recent public relations and problems with environmental management, the firm has been at the top of the car manufacturing industry along with several other companies. The latter include major corporations such as Toyota, BMW, Renault, KIA, Hyundai, Ford, Mazda, Audi, and several others (Johansson et al. 2016).
Organizational Management
The current approach toward organizational management is worth appreciation since it demonstrates Volkswagen’s focus on its employees. The integration of the approaches that allow increasing satisfaction levels among the firm’s staff members has led the company to create a perfect human resource management approach. Consequently, the levels of engagement remain constantly high. However, arguably, the integration of changes may cause resistance among employees, which can be addressed by integrating the tools such as financial incentives and the rearrangement of the existing benefits package.
Volkswagen’s Operational Strategy
Operational Strategy Description
Volkswagen has been known for being one of the pioneers in the car manufacturing market and developing innovative ideas to promote its evolution. The integration of value engineering and the notion of manufacturability as the cornerstone of developing a unique operational management have been the key assets of the company for a while (Volkswagen Group 2019). Arguably, the company can be deemed as responsible for coining the notions in question and ushering a new era of manufacturing based on the focus on sustainability (BuHamdan et al. 2019). Indeed, by definition, the phenomenon of VE is expected to provide the foundation for incessant growth (Yunus et al. 2016).
Heralova (2016) defines VE as “the systematic process of review and analysis of a project” (p. 364). However, the recent challenges that Volkswagen has had to endure, the scandal with the environmental issues being the key one, the firm will need a new approach toward its operational management. Thus, Volkswagen will be capable of proving that it has remained the beacon of quality and efficacy in the automotive industry. (BuHamdan et al. 2019). The proposed tools will increase the extent to which potential buyers and partners will be ready to believe in Volkswagen’s ability to meet the constantly changing requirements of the global market.
Supply Change Management Framework
The choice of a supply chain management (SCM) framework determines the efficacy of the production process since its functioning defines how fast essential items are delivered for further assemblage and delivery to the retailer. Due to the vast range of items that have to be delivered to the organization and the huge number of stations that they have to pass before reaching their destination, the SCM processes at Volkswagen require high precision and velocity (Volkswagen Group 2019).
Currently, the principles of environmental compatibility are deemed as the foundation of Volkswagen’s strategy: ‘By the time a raw material has been transformed into a component installed in a Volkswagen, it will have passed through some 15,000 stations in the course of its production, treatment, finishing and transportation’ (Volkswagen Group 2019). However, in order to reach even higher efficiency in its performance, the organization will have to support its current SCM framework with a more profound and coherent information management framework.
At present, Volkswagen seems to underestimate the power of innovation. The introduction of innovative tools minimizing risks associated with SCM processes will allow Volkswagen to increase its current competitive advantage significantly. However, when integrating innovations into its operational management system, Volkswagen will have to embrace the limitations of the available approaches toward building a corporate innovation-based philosophy.
The focus on quality and the inclusion of innovations that are expected to minimize failures in the SCM process will have a slight effect on the speed of the SCM (Mishra et al. 2019). The innovations causing a rise in the speed of product or supplies’ delivery, in turn, may imply a loss of quality in the process (Mishra et al. 2019). Therefore, for Volkswagen to raise its competitive advantage with the help of an innovation-driven framework, the use of efficient innovations, which allow balancing between the two extremes, will be the most desirable outcome.
Current Operations and Effectiveness
SCM and Business Success
A properly set and maintained SCM system gives an organization a range of opportunities for pursuing its goals. Furthermore, when run with the help of a well-established framework, the processes within it are performed mostly automatically, which gives an organization a leeway into exploring multiple options in other domains, such as R&D, public relations, and expansion into new markets (Volkswagen Group 2019). At Volkswagen, the company’s success is tied directly to the efficacy of the firm’s SCM framework (Volkswagen Group 2019). Thus, the current SCM strategy allows increasing the shareholder value of the organization, yet it fails to maximize it due to the company’s refusal to accept an innovation-driven philosophy into its set of values.
SCM and Quality Management
The existing SCM approach allows addressing major quality concerns, which is especially important for Volkswagen after the recent scandal. Having been exposed for tempering with quality tests and forging their outcomes, Volkswagen has been determined to restore its reputation (Mishra et al. 2019). However, the lack of consistency in the application of innovations as the vehicle for keeping the quality levels consistently high has been the source of concern.
SCM and Sustainability
While Volkswagen’s current approach toward SCM processes may deserve substantial critique for the lack of effective tools for managing time and people, the firm’s approach toward environmental issues remains impeccable. The recent update in the organization’s SCM policies has been shown to be especially encouraging toward a cautious attitude to the environment (Mishra et al. 2019).
The 2019 report shows that the organization has been driven toward sustainability and environmental friendliness (Busse et al. 2016). Specifically, the current SCM used at Volkswagen is geared heavily toward the maximum use of renewable resources. According to the official release, the use of kenaf, renewable raw materials, and secondary raw materials is presently deployed to meet the company’s new goal, which is ‘reducing CO₂ emissions over the entire vehicle life cycle’ (Volkswagen Group 2019). Volkswagen definitely should be credited for making such a great effort in advancing the ideas of sustainability and careful use of resources in the context of the manufacturing industry.
Internal and External Factors
The performance of Volkswagen in the global market is currently defined by several crucial extraneous factors, as well as the changes within the context of the organization itself. To create a coherent and improved operational management strategy, one will need a profound introspect into Volkswagen’s current approach toward managing outside influences and addressing internal problems, as well as using its inherent assets to its advantage.
Internal Factors: SWOT
Table 1. Volkswagen: SWOT.
As the SWOT analysis performed above has shown, the unique and outstandingly strong presence in the global economic environment is the key advantage that Volkswagen can currently boast in the automotive industry. The firm has earned quite a name over the decades of its performance in an array of markets, which has made it a household name. Although Volkswagen admittedly has to compete with the organizations whose brands have been established just as well in the target setting, such as Toyota, Honda, and Hyundai. The operational management strategy, in general, is also an undeniably important asset of the company and its evident competitive advantage. However, the lack of innovation-driven management calls for the rearrangement of the existing approach and the introduction of opportunities for unceasing development.
Internal Factors: Five Performance Objectives
Despite the presence of certain opportunities for improvement, the efficacy of operational management at Volkswagen should not be underestimated or believed to be inferior to that one of other companies working in the automotive sector. On the contrary, the operational management levels shown by Volkswagen are worthy of appreciation as outstanding for the designated area of expertise and the required level of performance. Given the current workload at Volkswagen, specifically, the number of cars produced daily, the length of the organization’s supply chain, and the range of operations that Volkswagen has to perform in order to meet its objectives, the current operational management approach can be deemed as excellent (Mishra et al. 2019). That being said, there are opportunities to improve it by creating a setting in which the firm will always be one step ahead of its rivals.
External Factors: Porter’s Five Forces
In order to examine the issues that Volkswagen has been encountering in the global market, a thorough and all-embracive study of the forces that shape companies’ behavior and define their operational management approaches is needed. As the results of the assessment based on Porter’s Five Forces has shown, Volkswagen has been affected to a considerable extent by the ease with which new companies can enter the automotive industry and advance in the global market within a short amount of time (Mishra et al. 2019).
Table 2. Porter’s 5 Forces: Volkswagen.
On the other hand, Volkswagen’s current position in the market is defined to a large extent by the factors such as market prices for cars. Therefore, while the described element cannot be controlled by the organization, it still can boast a rather low level of customer’ bargaining power due to the nature of the produced goods (Mishra et al. 2019). Similarly, the bargaining power of Volkswagen’s suppliers is quite low, which increases the company’s profit margins and increases the efficacy of its operational management.
Since the resources required to produce cars and car parts are quite common, and the suppliers of Volkswagen are easily interchangeable with other organizations offering similar services, the bargaining power thereof is very low (Mishra et al. 2019). Thus, Volkswagen is capable of maintaining the extent of its expenses comparatively low across its entire supply chain (Volkswagen Group 2019). Consequently, the operational management processes are run at the lowest possible cost and simultaneously meet the highest quality standards set in the industry.
The threat of new entries might seem like a big problem for Volkswagen since officially there are very few obstacles for organizations to become members of the automotive market. However, on a second inspection of the issue, one will notice that the financial constraints create the threshold that many minor companies fail to cross in order to become a part of the global car market (Niaki & Nonino, 2016). For instance, the phenomenon known as the economy of scale protects Volkswagen and other major companies from having to compete with new entrants to the automotive industry (Volkswagen Group 2019). For this reason, the principle of additive manufacturing is often incorporated into the management of operational management processes, as Baumers et al. (2016) explain.
The statement above also indicates that the urge to introduce an innovation-driven philosophy to the context of operational management is essential to the functioning of an organization such as Volkswagen. The significance of innovation-based decision-making and the application of the corresponding approach that suggests a more effective management of data is presently very high for Volkswagen since the company has already faced several situations that made its potential buyer’s question Volkswagen’s legitimacy (Siano et al. 2017).
Consequently, Volkswagen will have to invest in the further development of additive manufacturing (AM) as the vehicle for improving its operational management and increasing its profits (Baumers et al. 2016). The described model suggests that the organization should be able to reduce its expenses in the long term, making its operational management process more cost-efficient.
As far as the substitutes are concerned, there are several options that potential customers may use quite effectively instead of cars. However, these options mostly include public transportation, which reduces the flexibility of the transportation process for customers and, therefore, is unlikely to become a significant hindrance to the company’s performance. Overall, the Five Forces analysis has shown that Volkswagen’s operational management framework is defined mostly by the need to meet the ever-changing quality standards.
In order to remain relevant and deliver the products that will not be easily substituted by emergent firms, Volkswagen will need to incorporate the principles of AM and innovative operational management into its corporate philosophy. The proposed change will cause a large shift in the quality management framework within Volkswagen’s operational management, incentivizing staff members to make their best efforts to deliver the end product of excellent quality. Specifically, the threat of errors made at the production stage of the operational management process and the cases of misinformation within the supply chain framework will be minimized.
External Factors: PESTLE
Another set of issues that affects a company’s performance in the environment of the car manufacturing industry is related to the legal and economic environment in which an organization operates. For Volkswagen, the described setting is mostly represented by the global market with the corresponding standards for economic, political, and legal transactions. The presence of extraneous factors that may restrict the performance-related choices and options of the selected organization in the global economy needs to be examined in order to determine the efficacy of a firm’s operational management framework. Currently, Volkswagen seems to meet all of the standards set for the specified characteristics in the global market, yet the use of innovations as the vehicle for the promotion of the company’s development could have added a greater boost to Volkswagen’s performance.
Table 3. Volkswagen: PESTLE Analysis for UAE.
As Table 3 shows, the company has been particularly cautious about meeting the environmental standards set in the global market and especially for improving its position in the UAE economic environment lately. The described tendency is defined by the organization’s past mistakes, which involved the use of environmentally unsound practices and the following scandal (Rhodes 2016). Due to the negative publicity that the firm received, changing the approach toward the resource management in the context of its operational management framework was essential (Rhodes 2016) to retain its customers (Rhodes 2016).
However, for Volkswagen to attract new audiences, the approach that it has been taking regarding its operational management processes is not enough. Apart from focusing on avoiding the decisions that can be labeled as non-environmental, the company should also introduce the principles that will help it to select the most advanced strategies in addressing environmental concerns. Herein the significance of an operational management based on the phenomenon of innovation management lies.
The dependence on suppliers and the threat that miscommunication poses to the company’s reputation in the global market also deserves a discussion. As explained above, Volkswagen has recently faced a scandal concerning the reliability of its products, which was caused by the problems in communication with suppliers, as well as the quality of raw materials, in general (Markman & Krause 2016). Therefore, it is essential for Volkswagen not only to introduce innovative tools for quality management but also consider the idea of reinforcing its corporate values across its supply chain. Specifically, the dialogue with suppliers will have to be built, which is going to be comparatively easy given the low bargaining power thereof.
Five Objectives: Quality, Cost, Speed, Reliability, Flexibility
In order to meet the set standards, the company should also take into the consideration the model of five objectives. While Volkswagen can afford investing into the latest technology, enhance R&D, and use the most advanced materials in its operational management processes, the company still needs to find a balance between the Quality, Cost, Speed, Reliability, and Flexibility of its operational management processes. The described objectives have a direct impact on the enhancement of operational management processes and a clear impact on the efficacy thereof. However, the relationship in question is more complicated than either a direct or inverse proportion.
For instance, assuming that an organization should pursue a drop in costs along with an increase in quality, speed, reliability, and flexibility of its operational management operations might seem as natural. However, for companies of Volkswagen’s caliber, reducing costs may entail obtaining less advanced materials, which, in turn, will mean a drop in the speed of operational management, the flexibility of the firm’s choices, the reliability of the tests and the quality of manufactured cars, including the levels of driver and passenger safety (Durach & Wiengarten 2017). Thus, Volkswagen will need to navigate between the described notions to select the appropriate ratio of each of the five concepts.
Presently, Volkswagen has shown an impressive skill in managing the ratio of the five components in question. However, the incorporation of incremental innovations as an element of the operational management policy that will inevitably affect its SCM processes, a rise in costs is an expend outcome. Simultaneously, a vast increase in quality, flexibility, and reliability is expected to take place. However, the speed of operational management processes may slacken due to the introduction of new components associated with innovative technology (Trapp et al. 2016). Therefore, it will be critical to incorporate the latest data management approaches and provide employees with the necessary training in order to keep the speed of operational management tasks implementation at the needed level.
Suggestions for Improving the Current Position
Quality Management Framework: Proposed Improvements
Presently, it is highly recommended that the organization should integrate the principles of innovation-driven quality management. Volkswagen has been known to be one of the first car manufacturers to integrate the key quality management tools such as the Six Sigma approach, TQM, and other tools into its quality management framework. However, the incorporation of multiple regression models to evaluate the end product quality and ensure that it meets the set quality standards should be seen as necessary (Neves et al. 2018). The proposed step will simplify operational management decision-making at Volkswagen.
Communication Techniques: Recommended Solutions
Currently, it is critical to prompt the use of innovative tools into the SCM processes at Volkswagen. Although the organization has already established a rather impressive supply chain on the global scale, the current problems in the miscommunication concerning materials, local standards, and especially the dialogue with suppliers. The latter poses a particularly difficult obstacle for the company to overcome since the problem of unreliable suppliers has been one of the issues affecting the organization to the greatest extent, as the analysis above has shown.
Miscommunication with suppliers is one of the key problems in the SCM established currently at Volkswagen, as the analysis above has shown. Although the company has undertaken several measures to prevent similar scandals from taking place in the future, it is critical to build a system in which the described issue will become impossible or, at the very least, highly implausible. The focus on incremental innovation as the essential component of the operational management framework within the supply chain is expected to become the basis for avoiding the instances of miscommunication in the future.
Integration of Strategic Planning as a Critical Tool
The use of strategic planning should also become an inseparable part of Volkswagen’s SCM and the operational management strategy, in general. Although the principles of strategic planning have already been established within the company’s system, their implementation seems to be hindered by a range of constraints, the pressure of time and inconsistencies within the company’s supply chain being the most common and frequently occurring ones. Within the context of Volkswagen’s SCM and specifically operational management, the described change will have to reflect the processes associated with logistics and especially procurement. As recent studies have shown, the lack of effective communication with suppliers has affected Volkswagen’s ability to produce the cars of the required quality (Kshetri 2018).
Thus, a redesign of the operational management processes within the supply chain of the company are overdue, with data management being the primary area of focus within the SCM process. The described change will imply the synchronization of Volkswagen’s supply chain and the subsequent increase in the efficacy of information and materials’ transfer (Gunasekaran et al. 2017). Consequently, the issues such as the omission of critical defects in end products, as well as delays in the delivery of the aid raw materials and the resulting pause in the production process will be avoided successfully.
The use of the strategic planning method will require Volkswagen to focus on innovative management as the method of reducing the negative impact that its operational management entails and following the principles of environmentalism closely. While the organization has shown the inclination toward following environmentally safe practices after a recent scandal mentioned above, there has been no remorse displayed by the leaders of Volkswagen, which has affected the company’s public relations negatively. Therefore, the integration of innovations that involve information management techniques and quality improvement strategies should be geared toward a better use of the available resources and innovative tools for minimizing waste.
Changes in Performance Measurement Approaches
The organization will also have to experience substantial changes in its approach toward measuring its overall performance in the target market. In order to avoid the embarrassment that the organization faced when trying to game the standards for CO2 emissions and make its products pass the test under the conditions without which it would have never shown the necessary results otherwise, Volkswagen will have to develop new performance measurement standards. The evaluation of the company’s operations and the location of hindrances in the operational management system, as well as its SC, in general, will be the first step toward the evaluation of changes.
The next step will need the approach that will lead to minimizing waste, which can also be achieved by considering some of the innovative tools for reducing the amount of produced waste in the car manufacturing context. However, of all the steps to be made by Volkswagen in the framework for performance measurement, the firm should deem the inclusion of the assessment of sustainable manufacturing process as the crucial one. The identified measure will imply a twofold analysis, specifically, the estimation of the actual levels of waste and the perceptions of the subject matter by staff members. It is critical that employees’ perception of waste should embrace the extent to which waste affects the environment and the company’s reputation.
For instance, the KPIs that allow to reflect the current situation concerning the efficiency of the manufacturing process, to monitor Volkswagen’s operational efficiency, to focus on introducing incremental innovations, and to gauge the usefulness of choices made in the operational management and SCM contexts will have to be utilized in the process (Kshetri 2018). The resulting shift in the evaluation of a company’s performance will encourage an improvement across the supply chain on a global level.
Financial Projections and the Related Issues: Budgeting
Presently, Volkswagen will have to focus excessively on the management of its R&D processes and the boost provided for its supply chain in order to maintain its dominant position in the global market. With the introduction of the standards for innovation-driven management into its operational management, the company will need to reconsider its current approach toward managing costs and reshape its budgeting approach, in general.
Specifically, a substantial number of resources will be spent on the promotion of an innovation-focused management system in the operational management setting and the training of staff members to ensure that the quality of the end product stays at the set mark. With the application of the described strategy, the financial assets of the organization are expected to grow despite the continuous investment into the development of innovative management strategies and the creation of the platform for it. Volkswagen’s new, innovation-driven approach to operational management is expected to justify itself financially within the next five years, at most.
It is believed that the focus on investing in the promotion of innovative management and the emphasis on the enhancement of R&D within the operational management system will boost the operational management processes and allows systematizing them. In addition, a change in the general quality of products is anticipated. With the emphasis on innovation as the cornerstone of the firm’s philosophy, Volkswagen will implement the operational management and HR approaches that will encourage employees to acquire new skills and gain new competencies for managing the key tasks more efficiently. Consequently, the company may experience a significant increase in produced units, as well as be capable of raising the price per unit without reducing the pool of potential customers.
It is highly likely that, without a strong competitive advantage apart from the one that the organization already has, buyers are going to resort to purchasing cars from other manufacturers for a more reasonable price. However, combined with an easily recognizable brand identity, the focus on innovation and the introduction of new features into the range of characteristics that Volkswagen’s cars possess, the chance of not only retaining loyal customers but also gaining a new clientele will increase exponentially. The constant increase in the price per unit is justified by the investment in developing innovative features of the established products with memorable and easily recognizable brand image and identity.
While the described projections might seem somewhat unrealistic, they are based on the current revenue of Volkswagen. Therefore, the company will be able to eliminate the problems associated with the management of time and prevention of defects in car manufacturing. Consequently, together with the quality of produced vehicles, a rise in the levels of users’ safety will be observed. The described change will occur simultaneously with the increase in the extent of staff members’ proficiency and professionalism due to the focus on innovative thinking and innovation-driven operational management.
Conclusion
Due to stiff competition in the global automotive industry and the problems in environmental awareness and communication with its customers that Volkswagen has recently experienced, the firm will require an approach rooted in innovation management and the incorporation of incremental innovations into its design. Thus, the quality of products will rise exponentially, whereas the dialogue between key stakeholders within Volkswagen’s supply chain will allow reducing the incidents of miscommunication.
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