Executive Summary and Abstract
This paper explores the current changes in the strategic management of Volkswagen (V.W.) that have been spurred by the recent emissions-cheating scandal. The current situation is analyzed and described as a three-dimensional crisis. The strengths of the company are emphasized as the tools in crisis management that are aimed, first and foremost, at the company’s weaknesses. Conclusions concerning the current company’s strategy are drawn from the official claims of the CEO. The information gained is analyzed and evaluated. Recommendations concerning the possible alternatives for strategic management for V.W. are suggested. The idea of simultaneously attending all the dimensions of the crisis is advocated.
The Rationale of the Strategic Analysis
The recent emissions scandal of Volkswagen has significantly damaged the company’s reputation. As a result, a change in its strategy has been required, as it was stated by the company’s new CEO (Reiter & Rauwald, 2015). To provide the recommendations for the strategy, the situational analysis is required in which both the internal and external factors are going to be taken into account (Coulter, 2013). Still, given the fact that internal factors are the ones that had triggered the problem, they are going to be closely studied.
Research Method and Design
The current research is qualitative. Upon gathering the information that is relevant to the problem stated, we proceed to describe and analyze the current situation and to determine the company’s problem-solving strategy that is then analyzed and evaluated. Recommendations concerning future actions of the company in the field are suggested and grounded, and a conclusion is made about the possible outcomes of both adopting and ignoring the proposed ideas.
Data Collection and Data Analysis
The information about the core values and strategies of Volkswagen is gained through the analysis of the data from the company’s official site as well as relevant press releases. The data concerning the crisis of Volkswagen is achieved through the analysis of press releases. The information concerning strategic management is obtained through literature analysis.
The results of the data analysis are presented in the next section.
Analysis of Findings
The Analysis of the Current Situation
Volkswagen: key features and values
Volkswagen Aktiengesellschaft (V.W.) and its subsidiaries are a group of car manufacturers that mostly operates in Europe, the Americas, and the Asia-Pacific Region. It develops, produces, and sells passenger cars, light commercial vehicles, motorcycles, trucks, and buses as well as their parts; apart from that, the company offers “large-bore diesel engines, turbo compressors, industrial turbines, and chemical reactor systems, gear units, propulsion components, and testing systems” (Bloomberg Business, 2015, par. 1). According to Hoover’s (2015), V.W. is Europe’s #1 carmaker with its annual production amounting to 10 million cars, trucks, and vans. V.W. owns luxury and family car brands, including AUDI, Lamborghini, Bentley, Bugatti, Seat, and Skoda; apart from that, the company’s share in Porsche is 49.9% (Hoover’s, 2015, para. 1).
According to Hoover’s (2015) and Morningstar (2015), the list of V.W.’s competitors includes Toyota Motor Corp, Fors Motor Company, and General Motors Company. The company’s board of directors believes that its products are capable of achieving success despite the challenging environment (Volkswagen Aktiengesellschaft [VW AG], 2014). VW AG (2014) management claims to be especially concerned with customers’ satisfaction and reports that the company aims at customizing its products to suit the needs of various markets.
In general, being an international car manufacturer giant, V.W. possesses some strengths that include, for example, its size and reputation that is compiled of the fame of the numerous unique brands. Still, the main advantage that the company used to pride itself on is V.W. environmentally friendly cars (VW AG, 2014). It is this particular feature that the company used to demonstrate as its competitive advantage, that is, the feature that “sets the organization apart” (Coulter, 2013, p. 46). This fact becomes apparent for anyone who reads V.W.’s strategy or the letter to the stakeholders. However, a major fraud that was uncovered recently shattered this ground that V.W. used to rely on.
The problem
According to The Guardian’s article “The Volkswagen emissions scandal explained” (2015), an NGO called the International Council on Clean Transportation (ICCT) carried out independent tests on two of V.W.’s cars and noticed that the emission results were much worse than expected. They contacted the Environmental Protection Agency (EPA) and informed it about the fact that the actual cars’ NOx emissions were much higher than declared or allowed.
In the beginning, V.W. attempted to provide EPA with incorrect information claiming that the problem was in different modes of operation. Still, as the company was threatened with the loss of EPA certification for the cars in 2016, the actual information was disclosed on September 3 (Beene, 2015a). As it turned out, V.W. “used special software to manipulate its emissions controls during U.S. emissions tests, effectively doctoring its emissions results on seven model years’ worth of diesel vehicles going back to 2009, in violation of the Clean Air Act” (Beene, 2015b, para. 2). It should also be pointed out that, according to the company’s senior managers, a withdrawal of crucial documents took place as a result of which the board of directors was misinformed (Reiter & Rauwald, 2015). This is claimed to be one of the reasons for the fraud.
As a result, “V.W. has issued a recall for its 482,000 cars in the U.S. and halted sales of its affected Audi A3, and V.W. Jetta, Beetle, Golf, and Passat diesel models” (“The Volkswagen emissions,” 2015). Still, the investigation is being carried out, and the final decision concerning the fines has not been made yet.
The evaluation of the problem
The actions of V.W. have several consequences. For the environment, this fraud means that the actual emission of the harmful NOx has been much more significant than expected (“The Volkswagen emissions,” 2015). For the industry, this means that the claims of the manufacturers concerning their self-certification tests will be verified more closely (Beene, 2015a).
As for the company itself, the scandal has cost V.W. 20 billion euros in market value; apart from that, more fines could be imposed on it shortly, and, most importantly, its reputation has been severely damaged (Reiter & Rauwald, 2015). The problem was described by the company as a crisis, which is understandable in the light of the fact that the company is losing its competitive advantage along with the trust of authorities and, most importantly, customers. Apart from that, the situation been labeled as a “political and moral catastrophe” (Reiter & Rauwald, 2015, para. 7). Indeed, the core values that the company had claimed to maintain have been betrayed by V.W.’s actions, and this is probably one of the main reasons for the damage that was dealt with its reputation. The behavior of V.W. had been both illegal and unethical, and while the former results in fines and withdrawals and its results can be rectified at the production level, the latter has a more severe impact on the brand’s popularity and is much harder to redeem.
The Company’s Strategy
According to the official website of VW AG (2014), the strategy of the company before the scandal was aimed at expansion and growth. The company planned to position VW AG as the “global economic and environmental leader among automobile manufacturers” (VW AG, 2014, para. 1). The goals of the company included a focus on the technologies and customers’ satisfaction; the aims of the company dealt with the volumes of sales and returned on purchases that were to be increased. As it was already mentioned, the company insisted on “focusing in particular on the environmentally friendly orientation and profitability of our vehicle projects” (VW AG, 2014, para. 6).
In reaction to the crisis that is being faced by the company, V.W.’s strategy is being reformed as the new CEO, Matthias Mueller, intends to revise the company’s policies while sticking to its top values and goals. In fact, the reorganization offered by him was created before the scandal (Reiter & Rauwald, 2015, para. 1-2). The main Mueller’s concern is the company’s reputation, while the key to repairing it, in his opinion, is related to V.W.’s corporate culture, which is going to be revised. The key suggestions concerning this aspect include increasing inclusiveness and participation, transparency, and honesty. The decision was prompted by the claim that valuable information concerning cheating has been withheld from the upper managers. Inconsistency with this suggestion is the decision to allow more authority to individual brands and regions. Apart from that, a number of employees have been dismissed, but the names are not disclosed (Reiter & Rauwald, 2015). Finally, by October 7, V.W. was expected to present a plan for making the production meet the requirements. The analysis and evaluation of the strategy are performed in the following section.
Critical Analysis of the Current Company’s Strategy
Since the situation that V.W. finds itself in should be described as a crisis, it is strategic crisis management that the company will have to carry out. A crisis can be defined as “a significant issue affecting a firm or its stakeholders that, if unattended, can lead to severe negative outcomes”(Penuel, Statler & Hagen, 2013, p. 196). The stages of a crisis include four steps: the pre-crisis phase, the acute crisis stage, the chronic crisis stage, and that of recovery; the guidelines for crisis management correspond to these stages (Heller & Darling, 2012). Therefore, the stages of crisis management may include the detection, preparation and (when possible) prevention, response (that typically includes damage containment and control), recovery, as well as revision (Penuel et al., 2013, p. 197; Heller and Darling, 2012; Andrews, A., Simon, J., Tian, F., & Zhao, J., 2011).
We may conclude that V.W. has failed to prevent the crisis at the pre-crisis stage, supposedly, as a result of inadequate information exchange. It would not be an overestimation to say that the crisis of reputation is in its acute phase; the production crisis that covers the creation of flawed cars for several years can be defined as a chronic one. Finally, there is also a corporate culture crisis that V.W.’s CEO is planning to resolve; its stage appears to be chronic as well. Currently, the company seems to be in the arena of response as it attempts to contain the damage and create plans for the recovery. This is the type of strategy that is going to be discussed in the paper.
In the beginning, the company almost made the mistake of adopting a “Japanese” style of crisis management. This term arose in the wake of the major crisis that Toyota company has experienced as a result of inadequate quality production and failure to admit or, in any way, correct the mistakes (Andrews et al., 2011). However, having accepted the problem to the public, V.W. has not left the room for doubt, and the situation will be attended.
It appears plausible that the company has already carried out sufficient research, and the conclusions seem to have led the CEO to suggest that the core of the problem lies in the corporate culture difficulties. As a result, he has targeted this problem officially and publically; an attempt at dealing with the reputation crisis in such a way is made visible. The official information concerning the current V.W. crisis management strategy is mostly concerned with the values crisis; the production crisis appears to be vastly underrepresented.
The endeavor of demanding transparency and honesty as the company’s ethical conduct guidelines appears to be a rational decision. Even though the question of information withdrawal is hard to check, it is obvious that such a problem must be solved and avoided in the future. It is a requirement for a successful business strategy (Neilson, G.L., Martin, K.L., & Powers, E., 2008). Still, by emphasizing the withdrawals, values revision, and corporate culture changes, V.W.’s CEO appears to avoid describing the strategies of production crisis management.
Recommended Scenarios
Given the fact that the crisis is still a recent occurrence, it should be pointed out that the strategy of V.W. can (and probably will) even be revised. However, this paper is devoted to the initial plan that appears to be focused on corporate culture problems.
As has been pointed out, the crisis of V.W. appears to be three-fold. The acute reputation crisis is the one that attracts the most attention at the moment; the solution of the rest of the crises seems to be the first step to changing the situation. Given the fact that reputation restoration is a long-term goal, the two other crises that can be rectified in shorter periods of time are going to be targeted as the primary steps of crisis management.
We draw our conclusions from the fact that V.W. appears to be concentrating on the corporate culture crisis. The mission and vision, human capital, and organizational culture are indeed among the critical dimensions of strategic leadership (Coulter, 2013). Apart from that it is evident that all the aspects of the crisis are interconnected and interrelated, and the production crisis appears to be caused by the cultural one. In this light, the strategy of V.W. seems to be rational, as the core problem is given primary consideration and attended before the rest of the difficulties. In this case, the alternative would be to refrain from changing the current course of action, even though it is still rather vaguely defined. The strategy would involve developing a consistent plan of action concerning culture revision. The main advantage of this alternative consists of focusing the resources and efforts on one goal; the disadvantage is in a rather one-sided view of the problem, which could result in mismanagement of other crisis aspects.
Alternatively, the company could pay equal attention to the two crises (of production and culture) without shifting the emphasis on one of them. The possible disadvantage of this alternative lies in the fact that the crisis-management resources are going to be dispersed. However, given the fact that a giant car manufacturer like V.W. possesses resources in generous amounts, this problem appears to be manageable. In this case, an active production crisis management should be carried out and officially demonstrated to facilitate the process of reputation restoration. At the same time, the demonstration of corporate culture revision would be carried out but neither of the problems would be regarded as the most important one as both of them depend on each other. The official demonstration, on the other hand, is bound to contribute to the solution of the reputation crisis; therefore, all the dimensions of the crisis are going to be attended in this case. The second alternative is the one that appears to be most advisable and, at the same time, manageable for a company like V.W.
Discussion
One of the main advantages of the suggested alternative is the fact that while V.W. has managed to successfully “cheat” on EPA for years, the second scandal of this kind might be too much for the company. V.W. pointedly demonstrates active management of the crisis, which is undeniably crucial for public relations. Still, instead of focusing on the fraud itself, the CEO makes an impression of searching for the guilty party. It would appear most logical for the company to provide the proofs of fixing the production crisis as soon as possible, even though this would not mean an immediate solution for the reputation crisis. Given the fact that the corporate culture revision has already been announced, this line of action should also be developed.
Even though it is obvious that a crisis endangers business, it is also often regarded as an opportunity for change (Penuel et al., 2013, p. 187). Since the legal and ethical obligation of providing ecologically-friendly cars was not enough of a stimulus for V.W. to spur research and develop technologies, possibly, this crisis will allow it an opportunity of revising and improving several aspects of its operation, and, consequently, a new competitive advantage might be found by the company.
Conclusion
The current situation of V.W. can be described as a full-fledged three-dimensional crisis. The company appears to have analyzed the case, but its current strategy is likely to be revised. The main drawback of the current strategy is its focus on searching for the guilty party. The suggested crisis management alternative consists in attending to all the aspects of the multidimensional crisis and publically demonstrating this to improve the damaged reputation. In either case, the company has admitted having the problem both to the public and itself and appears to be willing to change the situation. It is not unlikely that the company will seize the opportunity of improving several aspects of its organization; still, it should be pointed out that the competitive advantage that V.W. had prided itself on has been lost along with the customers’ trust. The problem of searching for a new competitive advantage would be necessary to attend as soon as the damage caused by the crisis is contained and minimized.
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