THE VOLKSWAGEN GROUP CRITICAL STRATEGIC ANALYSIS
Instructions:
Present a critical strategic analysis of VW group covering the following areas:
Resource Audit
Value Systems
Product/Service portfolio (BCG Matrix)
Potential future strategic growth
o Identification of options
o Evaluation of options
Solution
THE VOLKSWAGEN GROUP CRITICAL STRATEGIC ANALYSIS
Introduction
The Volkswagen group is a German multinational company that manufactures automotive. Its founders set it up in 1937. Its headquarters are in Wolfsburg, Germany. It specializes in manufacturing, distributing and designing passenger, and passenger vehicles, motorcycles, engines, and turbomachinery. It is also involved in leasing, financing, and fleet management. The company has enjoyed years of technological leadership, increased sales, and market share. It has developed many excellent automotive models including the Audi, Bugatti, Bentley, Volkswagen, Lamborghini, and Porsche (Volkswagenag.com, 2017). Currently, the company sells its products worldwide. It, however, faced a setback in 2015 during the ‘dieselgate’ scandal when it became apparent that the company used defeat devices in millions of its diesel vehicles to mislead emission tests (Hotten, 2015). The defeat devices ensured that the diesel vehicles would appear cleaner in testing than they were when driven. Consequently, these vehicles emitted forty times more the legal limit of nitrogen oxide (McGuinness, 2016). The scandal resulted in huge lawsuits against the company. The stakeholders also started questioning the integrity of the multinational company, and the quality of its products. The company is now recovering from the scandal but is still facing charges from the majority of its customers who purchased the diesel vehicles that contained the defeat devices (McCathie, 2016). This paper is a critical strategic analysis of the Volkswagen group. It covers VWs Value Systems, conducts a resource audit, looks at the company’s potential future strategic growth, and its product and service portfolio.
VWs Strategic Position
The strategic position of a firm is its position in the future while accounting for a changing environment and the systematic realization of the position. It aims at ensuring business continuity. The company contains various strengths and opportunities that ensure that its stays at the top of its industry. The strengths include the following: Firstly, the VW group is the widest brand portfolio in the automotive industry. The variety ensures that it meets the needs of diverse consumers who have different automotive needs. Secondly, there exists synergy between VWs brands. The synergy ensures that some VW brands share R&D spending among Bugatti, Porsche, and Lamborghini. Additionally, it uses similar technology to build these products. The synergy ensures that the company accesses various markets and increase customer knowledge which eventually increases sales and reduces costs. Lastly, the diversification strategy ensures that the company spreads its revenue across different brands, product types, and geographical areas as compared to its competitor revenues.
Volkswagen also has various opportunities for growth which include: the expected future rise in fuel prices; skills acquisition and competencies through acquisitions; demand for autonomous vehicles; and focus on improving sustainability policies to rectify VWs damaged brand reputation. VW can benefit from the increased fuel prices through the manufacture and profit of the electric vehicle from their growing demand. It can also acquire smaller startups which have developed the technology and skills needed for digitalization, autonomous driving, and battery technology thereby realizing its 2025 strategy. Moreover, the company will profit more if it introduces its autonomous vehicles earlier than 2025 thus meet the increasing demand for the product (CB Insights, 2016). Lastly, the emission scandal provides Volkswagen with an opportunity for environmental friendliness to repair its damaged reputation. Owning up to its mistakes and providing technology that conserves the environment will repair its reputation while gaining consumer trust.
Volkswagen also suffers various weaknesses that cripple its development and growth. Some include: the negative publicity from the emission scandal is weakening its brand. Volkswagen received negative publicity and criticism from the “dieselgate” scandal which resulted in the company losing support from environmentalists and its consumers in general. It also has the highest automotive recall rate in the American market with the values being 1805 vehicles per 1000 vehicles produced (Posky, 2016). The recall rate is making Volkswagen consumers loss faith in the durability and quality of its products. The recall rate also results in more expenses for the company. Volkswagen has a low market share in the American automotive market. The company should thrive in sales from America since America is the second largest automotive market globally. However, this is not the case. Lastly, one of VWs 2025 strategy was the invention of 30 electric vehicles. It, however, lacks the skills and expertise to make battery driven vehicles. Volkswagen should focus on these weaknesses and generate ways of improving them. Otherwise, the weaknesses will affect the product sales, the company’s reputation, and make it difficult to realize the 2025 goals.
The company faces the following threats in addition to Volkswagen’s weaknesses: Intense competition, fines and damages resulting from the emissions scandal, and increased government regulations. Volkswagen competitors are a mix of traditional automotive organizations, a saturation of the company’s new markets, and new players. The competitors, for instance, China manufacturers, are offering lower prices for similar quality vehicles. The competition also affects VW since new companies like Tesla threaten the company’s objective of producing and profiting from electric cars. Intense competition also means that the worldwide production of Automotives exceeds demand (Jurevicius, 2016). Moreover, the “dieselgate” scandal means that the company has to pay billions in fines and damages. Lastly, the governments of many nations are focused on ensuring that motor vehicles reduce the percentage of greenhouse gas emissions. These governments also support initiatives that promote fuel efficiency. Such environmental initiatives may increase manufacturing costs for car manufacturers. It may also be difficult to return the investment because of the intense competition in the industry.
Resource Audit
Volkswagen contains an array of resources that have ensured its continuous success in the automotive field. The resources include physical, human, and financial resources, intangibles. Volkswagen’s financial resources are crucial as they determine how the company runs its affairs. The finances are channeled in various operations some including the purchase of material necessary for manufacturing the Automotives, procuring stationery and equipment needed for running operations, research, and development, paying the employees, legal fees, taxes, and loss and liability. Volkswagen’s earnings after meeting its financial obligations in 2016 were 5,379 million Euros (Annualreport2016.volkswagenag.com, 2017).
The physical resources of Volkswagen include the inventory, equipment, and buildings that the company owns. Currently, Volkswagen sells its products in 117 countries globally. It has 120 production plants where the company manufactures its products. It, therefore, has facilities in these countries to ensure smooth business operations. In cases where it is difficult to set up offices, Volkswagen partners with firms that ensure that the company meets its financial and market obligations. The manufacture of high technology vehicles means that Volkswagen has state of the art equipment that ensures that the vehicles meet the quality and specifications of the market. VWs plants, property and equipment at the end of 2016 amounted to 54,033 million Euros (Annualreport2016.volkswagenag.com, 2017). The inventories were 38,978 million Euros that include work in progress, raw materials, and finished goods.
Volkswagen’s human resource as of the end of 2016 was 626,715 employees. The employees have contributed to making the establishment a success since its establishment in 1937. The company, therefore, aims at ensuring that its employees are well compensated and motivated through incentives, team building exercises, and promotions. In turn, the company continues to manufacture vehicles that are highly sophisticated and meet consumer needs. Lastly, the company’s intangibles include a great reputation of producing state of the art vehicles, service length, intellectual property, and niche market. Its reputation has however faced defamation and bad publicity because of the emission scandal of 2015. The company has since varied some of its operations by firing the previous CEO and employing Matthias Muller to take his place (Luckerson, 2015). Muller and his team are currently working to reclaim Volkswagen’s past glories. It has served the world for 80 years through providing high-tech vehicles and giving back to the community through corporate social responsibility. Its niche market includes the wealthy who buy Bentleys, Lamborghinis, and Porsche. The company also provides vehicles for the middle class because of its diverse portfolio.
Volkswagen’s Value Systems
Muller’s main drive in Volkswagen currently is to regain the trust of its consumers by providing products that meet their needs while conserving the environment (McCathie, 2016). The group’s vision is to provide its customers with high-quality components and cars that are eventually viable and competitive and that it manufactures in plants that are environmentally friendly. The company’s motivation is to satisfy its customers through sophisticated technology, quality, durability, and good will. Its bases its philosophy on the continuous improvement that deals with any waste generated during the manufacturing process. Its core values include safety by ensuring that its safeguards the safety of its employees and customers. It does so by providing safety gear for its employees and ensuring that its vehicles have the safety requirements necessary to keep the clients’ safe while on the road. It also aims at improving the environment by providing vehicles that are environment-friendly. Diversity and excellence also drive the company in its operations. Volkswagen also insists on teamwork and professionalism to ensure that the employees deal with all operations in a professional way (Volkswagen-poznan.pl, 2017). The group also relies on trust from its consumers, employees, and its stakeholders. Lastly, innovation and creativity push Volkswagen employees to provide vehicles that are unique, and technology leaders so that they can act as a competitive advantage over other automotive manufacturers.
Portfolio Mix
As mentioned previously, Volkswagen benefits from its diverse portfolio. It provides 12 products to its market some which include Volkswagen, Bentley, Audi, SEAT, Bugatti, Lamborghini, Ducati, Scania, and Commercial Vehicles (Volkswagenag.com, 2017). These products are diversified such that they meet the requirements for the various social groups. As a result, various people can afford Volkswagen products depending on their budget. VWs consideration ensures that it is a cost leader in some of these products. Below is a BCG matrix that explains the position of the various products of the Volkswagen group.
(Aiyamah, 2017)
The Volkswagen group’s starts include Audi and Volkswagen. These products are quite popular in America and Europe. They provide innovative products to the consumer market annually and ensure that they release new models periodically. Volkswagen and Audi also comprise of the majority sales unit sold by the company every year. Their market share is quite high, and the market continues to grow on an annual basis. These two companies are the major brands of Volkswagen, and most individuals identify the company using the two products.
The company’s cash cows are the Lamborghini and the Bentley. They are the same in their appeal to the high-end luxury consumer markets. They do not depreciate and continue receiving the fame of appealing to the luxury consumers. The markets of these two products stagnate with minimal growth. Despite the stunted growth, these two vehicles continue to provide millions for the company due to their high prices. The question marks are the SEAT products which have the characteristics of a low market share and high market growth. It is difficult to predict the opportunities of the SEAT thus making it difficult for the management team to decide whether to increase the investment of the SEAT product. The SEAT, however, has the potential to bloom and take over market growth once they company successfully sells it in willing and able markets (Aiyamah, 2017).
Finally, the dogs of the Volkswagen group are the commercial vehicles. They have characteristics of a low market growth and low market share. They are the weakest of the Volkswagen group products and channel the least profit. They stagnate in sales due to the increasing competition in the commercial market. Volkswagen is yet to conquer the market share and increase the market growth of commercial vehicles despite producing quality vehicles. One of the reasons for the low market share and growth of the commercial vehicles is because most people think of Volkswagen as the producer of private vehicles that provide comfort and are environment sustainability. Commercial vehicle consumers thus do not consider Volkswagen as their supplier of such products. Some people also view Volkswagen as an expensive company because of associating the Lamborghini and Bentley with it. Some are therefore scared off since they think that the commercial vehicles are quite pricey.
Critical Analysis and Evaluation of Key Future Directions for Strategic Growth
Volkswagen’s main objective is to become the environmental and economic leaders of the worldwide automotive industry. It has four aims that ensure that it becomes the most interesting and successful enterprise by 2018 (Volkswagen-poznan.pl, 2017). They include: Firstly, VW gaining a position of the globe’s leading manufacture by use of intelligent technologies and innovations to mold customer quality and satisfaction. The company has succeeded in this objective as it has developed sophisticated technologies that make its products one of a kind. It is currently working on self-driving systems and e-mobility that will improve the experience of its customers (Volkswagen Group, 2017). Despite its 2015 scandal, the company has managed to produce affordable vehicles that are quite efficient as a result of the creative innovations and technologies. It continues to flourish and rebrand itself by correcting its mistakes and producing inventions that are environment-friendly. Secondly, the company expected sales to exceed 10 million vehicles annually as it relies on the development of large growth markets. The company achieved this objective in 2016 as it sold 10.3 million units (Rauwald and Ma, 2017).
Thirdly, sales profitability before taxation is expected to reach at least 8% thus guaranteeing financial ability and safety of the group to function in economic downturn periods. Its past success has ensured that the group realizes this strategy since it has continued production and sales even after its scandal. Despite being sued billions, Volkswagen continues its operations and is now manufacturing better devices in an attempt to salvage its reputation. The group’s finances are still strong even though it has paid fines to some of the people affected by the defeat devices, and rectified the mistake in over four million diesel vehicles. Fourthly, the company wish was to be an excellent employer in all markets, in different communities in all regions so as to create great employee teams. VWs employees were 626,715 by the end of 2016 (Annualreport2016.volkswagenag.com, 2017). The high number clearly shows that the company values its employees and provides good terms for it. It also enjoys a low employee turnover rate. Its continuous advancement and technological leadership in the automotive industry is proof of a dedicated and content team. Lastly, the New “Together-2025” strategy ensures that Volkswagen introduces 30 new electric vehicles by 2025; develop new competence in digitalization, autonomous driving, and battery technology; and increase research and development (Volkswagen Group, 2017). The strategy will not only improve the technological advancement of VWs vehicles but will also ensure its growth in the industry. The innovations will ensure that the company diversifies its products thus reducing risks of closure.
Recommendations
The above analysis provides proof that Volkswagen is a superior participant in the automotive industry. It has enjoyed years of leadership in sales, technological advancement, goodwill, and increased market share in the industry. However, the 2015 emission scandal curtailed its continuous growth since people became cynical of the company’s products. Moreover, the company’s cheat device made the world question the Volkswagen group’s products and whether the company lied about the special features that popularize its products. Consequently, the scandal tainted the company’s image and the company lost some of its clients who trusted it and thought it as a company that focused on conserving and reducing the pollution that motor vehicles cause. Despite the progress that the company has made since 2015 and the improved sales, the company has to focus its energy on rebranding its products and services to the public. It can do this by increasing its corporate social responsibility. By giving back to the community, the company will show the public that it cares about the needs of the people, and about the future state of the environment. Also, the company should rectify all the vehicles that had defects from the cheat device. So far half of the vehicles were rectified by the company. It should, therefore, mobilize its resources and ensure that all the other vehicles receive modification in an attempt to prove to the people that the company is working towards rectifying the effects of the scandal. Also, Volkswagen should ensure that the quality of its vehicles is high to reduce the recall rate of its vehicles. A reduced number will increase the trust of the people and show that Volkswagen focuses on quality. It should also ensure that necessary resources are present for realizing the 2018 and 2025 strategy. Consumers worldwide are focusing on the Volkswagen group and its efforts to reclaim its past glories. The company should, therefore, take this chance to meet all the promises made to the people and reduce cases of mistakes and the manufactures of poor quality products. This way, people will gain trust in Volkswagen products and increase sales, market share thus resulting in market growth.
Conclusion
In conclusion, Volkswagen is one of the most successful companies in the automotive industry with sales of up to 10 million. It continues to thrive because of its intent in producing products that are comfortable, and technologically advanced. The 2015 scandal, however, curtailed its progress since its team produced vehicles that were not environment-friendly. The scandal resulted in lost sales, customers, bad reputation, and losses for the company. However, the company can repair its reputation by realizing the 2018 and 2025 strategies, producing environmentally friendly vehicles, and meeting its responsibility of compensating the victims of the scandal. It has the potential for growth into new markets and increases sales if it focuses on improving its products and reducing the number of products returned. It, however, faces intense competition in its field which has affected its success in some products like the commercial vehicles. It also faces competition in the electric vehicles category where it plans on producing 30 vehicles by 2025. The company has a chance to succeed if it brings these vehicles in the market before 2025, and if it acquires companies that major in autonomous vehicles, digitalization, and battery technology. It is, therefore, evident that the Volkswagen group will continue to thrive in its field despite the 2015 setbacks.
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