Volkswagen Group’s Knowledge Management Practices

Executive Summary

The present report provides an overview of knowledge management practices in Volkswagen Group and proposes recommendations for improvement. The key issue considered in the paper is the 2015 emissions scandal involving Volkswagen Group, which showed current deficiencies in knowledge management. The problem caused significant legal and reputational damage to the organization that affected its financial performance. The report aims to analyze knowledge management mechanisms that contributed to the issue and allowed the scandal to take place. Furthermore, the paper provides recommendations on improving knowledge management practices based on McGregor’s X/Y motivation theory.

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The findings of the report imply that the gaps in information sharing within the company were the primary reason for the emissions scandal. These gaps, in turn, stemmed from the company’s inconsistent approach to knowledge management. As of today, the company needs to implement a structured approach to knowledge management to prevent similar events in the future and restore the customers’ trust. The application of theory X suggests the use of rigorous internal reporting, audits, and consistent codification of information. In contrast, Theory Y would provide a foundation for increased personalization of knowledge through training, disclosure, and improved internal and external communication. The report concludes that these recommendations would assist Volkswagen Group in improving the current situation.

Knowledge Management Report: Volkswagen Group

Introduction

Knowledge is the primary concept driving the development of modern society. Indeed, without knowledge, there would be no progress in technology, medicine, economics, politics, and even business. This is the primary reason why contemporary society is often called a knowledge society. As stated by Kornienko, in a knowledge society, companies can grow their profits by capitalizing on the information, experience, intellectual capacity, and ideas of their employees (382). Some scholars even noted that the creation, integration, and utilization of knowledge are the key processes that allow businesses to exist (Donate and de Pablo 361). Hence, to achieve success, it is essential for firms to use knowledge correctly, which is why the concept of knowledge management is crucial in the contemporary environment. The term “knowledge management” is used to identify practices, strategies, and tools used by organizations to apply knowledge in a way that adds value (Donate & de Pablo 361). Knowledge management can help to improve operations, facilitate innovations, reduce expenses and attract more customers.

Inadequate knowledge management, on the other hand, can threaten the company by disrupting operations and diminishing its reputation. The experience of Volkswagen, a large German car manufacturer, illustrates the consequences of poor knowledge management. In 2015, the company suffered a scandal related to carbon emissions, which has affected its reputation (McGee and Wright). The present report will seek to highlight the deficiencies in Volkswagen’s knowledge management system that led to this scandal and propose recommendations on improving the situation.

Overview of the Organization

Volkswagen AG, or Volkswagen Group, is a multinational car manufacturer based in Wolfsburg, Germany. The Group currently produces both passenger and commercial vehicles and includes many famous car brands, including Volkswagen, Skoda, Audi, and others (Nordqvist). Volkswagen is the original car brand, which was produced by the company since its foundation in 1937. Other brands were either acquired or developed later to expand the product line and appeal to more customer segments. For instance, Porsche and Bentley are considered to be luxury car brands, Lamborghini and Bugatti are high-end sports cars and Skoda and Volkswagen are middle-class passenger vehicles.

The growth of the brand portfolio prompted the development of the business in terms of the number of people employed, sales, and geographical profile. According to Nordqvist, Volkswagen Group now has 106 production plants on four continents, as well as selling points in 153 countries. As of 2014, the total number of employees in Volkswagen Group was close to 600,000 (Nordqvist). The size and scope of the company pose challenges to structured knowledge management and the company suffered the consequences of poor knowledge management in 2015.

The scandal began in 2015 when the Environmental Protection Agency found that the emissions from Volkswagen cars were much higher than reported. According to Hotten, it was discovered that diesel cars supplied by Volkswagen Group to America all had an embedded software that adjusted car performance when it was being tested. The “defeat device” was found in at least 482,000 cards in the United States, but the management of Volkswagen Group later admitted that 11 million cars fitted with the tool had been sold all over the world by the time of the scandal (Hotten). The goal of the device was to cheat the tests designed to evaluate whether or not cars comply with pollutants emission regulations in Europe and the United States. The device ensured that the vehicle performed appropriately during the tests, but when on the road, the emissions were up to 40 times higher than allowed by environmental protection regulations (Hotten). The scandal showed the organization’s failure to comply with laws, as well as its disregard for the environment.

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The case highlighted problems in knowledge management because the investigation showed that only some people in the company were aware of the device. According to Tomé, the example illustrates issues related to reporting, fraud, and deceit, which are all connected to incompetent knowledge management (234). Moreover, the case concerns both internal and external knowledge management because it involved deceiving both employees and other stakeholders, including regulators and customers (Geuss). Hence, the scandal showed that the current knowledge management system in Volkswagen is ineffective and may result in future cases of noncompliance and fraudulent activity. Therefore, it is essential to analyze the knowledge management system used by Volkswagen and provide recommendations for improvements.

The key goal of knowledge management in Volkswagen is to provide adequate information resources for research and development while also ensuring the coordination of knowledge across its global network (Winterhagen). For years, Volkswagen’s strategy had been primarily focused on technological development, which is why most processes related to knowledge management are automated (Open Mind Technologies 2). Thus, based on Hansen et al.’s classification of knowledge management approaches, the company focuses on codification rather than personalization (109). Codification involves a heavy reliance on IT and electronic document systems instead of the use of personal interactions for knowledge dissemination (Hansen et al. 109). Codification is beneficial because it can help to optimize knowledge across the Group by ensuring that all employees have access to the information required to perform their work successfully.

This approach is somewhat relevant to the company’s competitive strategy because it has mature products with a low degree of customization and requires solutions based on explicit knowledge. Nevertheless, there is a certain degree of customization available to customers, which would point to the need for personalization (Hansen et al. 109). Moreover, companies in the automobile industry often have problems that cannot be solved by explicit knowledge only and require input from expert engineers, developers, and researchers (Calitz and Cullen 352). Based on the preliminary overview presented above, it is evident that Volkswagen Group needs a knowledge management strategy that would allow the sharing of both explicit and tacit knowledge across the organization. Moreover, it requires an active approach to reporting and knowledge protection to ensure that there are no similar scandals in the future. The focus on knowledge management would help the organization to become more efficient in solving problems without deceiving mechanisms, thus allowing it to restore its culture and reputation while promoting a positive approach to knowledge sharing.

Analysis

Internal Knowledge Management

Internal knowledge management is focused on creating, circulating, and using knowledge within the company. For example, in the automotive industry, some examples of internal knowledge are vehicle parts specifications of future models, organizational policies and procedures, and employee training. Internal knowledge is essential for Volkswagen because it enables the production and development of new innovative vehicles by supporting engineering. Internal knowledge of policies and procedures also enables to ensure compliance throughout the organization, which is particularly relevant in Volkswagen’s case.

As mentioned above, Volkswagen Group uses the codification approach to internal management, which implies the creation and circulation of extensive documentation. In codification, IT software becomes the primary hub of knowledge management and managers can use corporate portals or other forms of internal communication methods to deliver the material to employees (Hansen et al. 107). In this strategy, employees are expected to familiarise themselves with the materials about their position in the company. They can also use the corporate portal to find data to assist in solving specific issues or accomplishing tasks. The internal network used by Volkswagen contains two online portals: Group Connect used to share information across the Group and local employee portals for different countries.

Furthermore, individual plants might have their internal networks used to share information about it. The segregation of online platforms is a useful strategy because it allows limiting the flow of unnecessary information to employees by ensuring that they only have access to relevant documents. The information contained on corporate portals may include technical specifications, company policies, notifications, financial documentation, and other sources used by various employees. Since all corporate portals require a unique user ID and password and usually have limits for downloading or printing materials, they also help to protect knowledge by preventing unauthorized access and use.

Additionally, some information is delivered in person during debriefing, meetings, and corporate events. For instance, Winterhagen notes that the company often hosts events for its external stakeholders and partners, as well as for staff. These events include employees from various departments of the group and different locations, thus promoting knowledge exchange. To assist in knowledge management, the information and ideas presented during in-person exchanges are recorded and then shared with other employees. In-person knowledge exchange is a positive strategy for knowledge management because it can generate ideas, foster organizational learning, and build collaborative networks among employees, which can aid in research and developing efforts (Mertins et al. 309-310). One possible concern here is that the company often invites external stakeholders to its events, particularly start-up entrepreneurs (Winterhagen). This poses a threat to knowledge protection because the information shared during these events can be leaked or misused.

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Another negative aspect of Volkswagen’s internal knowledge management strategy is that it lacks appraisal at each step of the knowledge cycle, which is the primary factor leading to the emissions scandal. According to Tomé, the knowledge cycle involves five key steps: creation, sharing, stocking, renewal, and unlearning (235). In the Volkswagen case, internal reporting failed at each of these steps, possibly leading to gaps in the top management’s awareness of the problem (Tomé 234). The company is currently in the process of unlearning after it decided to refuse to use the device in the future and faced legal and financial repercussions. Thus, in the future, it is essential to apply knowledge management tools that would improve reporting and transparency at each step of the knowledge cycle.

External Knowledge Management

External knowledge management applies to the company’s approach to knowledge exchange with stakeholders outside of the company, including customers, partners, regulators, researchers, and other teams or individuals. There are two primary components to Volkswagen’s external knowledge management: communication and collaboration. In the context of external knowledge, communication is used to define processes applies by Volkswagen to provide stakeholders with information about its products, performance, business operations, and plans. Collaboration, on the other hand, means the company’s approach to sharing and obtaining knowledge from other parties.

With regards to communication, Volkswagen Group uses the codification strategy and shares information through various documents, press releases, and reports. The absorption of knowledge, in this case, relies on the results of market research, which also supports the codification of knowledge. This means that, when exchanging information with external stakeholders, Volkswagen relies largely on explicit knowledge, whereas tacit knowledge stays hidden (Hansen et al. 115). This is a useful strategy because of the nature of information passed in communication to external stakeholders, which is usually factual and detailed.

Volkswagen’s approach to collaboration, however, is different because the company uses an open innovation model. The open innovation model relies on the premise that innovation activities occur in an open system of knowledge exchange, where both internal and external stakeholders collaborate to produce new ideas (West et al. 805). The primary difference between open and closed innovation models is that in an open system, external ideas and paths are valued to the same extent as the internal ones (West et al. 807). This prompts companies to collaborate with research groups, entrepreneurs, and even competitors to achieve development in products or services. The open systems model is beneficial because it facilitates knowledge exchange between a company and the community, thus contributing to knowledge generation in general. Moreover, due to the increase in the number of people involved, more creative ideas can b borne out of open systems of innovation.

Volkswagen supports the open systems model by engaging with startup entrepreneurs in the industry, as well as with independent research groups (Winterhagen). However, this approach fits more with the personalization strategy than with codification, and thus, it differs from the way knowledge management is applied to other processes. This is because collaboration with external parties is usually performed in person during events and conferences and because it focuses on tacit knowledge rather than explicit knowledge. Using two drastically different strategies for knowledge management in one organization could create challenges due to the need for more knowledge management tools and extensive experience in the area. In the absence of well-defined strategies for information protection during these activities, there is a high risk of leaks that could undermine future performance.

Another problem evident in Volkswagen’s case is the lack of trust between external stakeholders and the company, which was caused by the scandal. For years, Volkswagen intentionally supplied false information to its key stakeholders, both in communication and in collaboration efforts (Tomé 234). If this continues to be the case in the future, the company will likely lose customers and research partners, which would affect its financial performance. This problem also needs to be addressed as part of the knowledge management strategy to ensure that all-important knowledge is communicated to external stakeholders in full.

Application of Theory X

McGregor’s motivation theory is considered to be among the foundational tenets of contemporary management. As noted by Khorasani and Almasifard, the X/Y theory is part of the humanistic approach to motivation and categorizes management into two approaches (137). These approaches differ substantially based on the management’s view of human nature and motivation. Theory X managers found their motivational activities on three assumptions: “(a) people are naturally lazy and try to avoid work whenever possible; (b) people are inherently irresponsible and, thus, it is necessary to closely monitor work behaviour; and (c) most workers have little to contribute intellectually to the operation of an enterprise” (Lawter et al. 86). This means that to achieve higher levels of motivation, it is essential to establish adequate control, which could include monitoring, rewards, and penalties. This approach also means that there should be a clear distinction between how ideas from different employees are valued by the management. Since the majority of employees work in low-level positions, their intellectual and ideological input would be limited, whereas those who are higher in ranks could contribute to product and service development.

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When applied to knowledge management, theory X managers would use a structured approach based on codification, since employees’ tacit knowledge and creativity are valued less than their ability to achieve performance standards. In Volkswagen Group, knowledge management generally fits into the theory X model. However, there are clear deficiencies in control mechanisms applied to knowledge management, which allowed for the concealment of information about emissions. These deficits could lead to issues in the future unless the company addresses them by establishing adequate controls.

Application of Theory Y

Theory Y managers have views, attitudes, and behaviors that are drastically different from the ones applied in the theory X approach. According to Lawter et al., the three primary assumptions facilitating theory X managers’ approach to motivation are that “(a) people can find work enjoyable, and under suitable conditions, experience motivation and fulfilment; (b) people are not inherently irresponsible; rather they are capable of self-direction and self-control; and (c) people have the potential to make important intellectual contributions to the work they perform” (86). Whereas theory X emphasises the role of top management in company performance, theory Y posits that workers on all levels of the organisation can make positive contributions. Theory Y also relies more on employees’ self-direction capacity than on external control. Managers who apply this theory in work focus on creating suitable conditions for personal and professional growth through various practices, including job enrichment, training, and more (Lawter et al. 86). Higher performance, in this case, is achieved due to the improved capacities and skills of individual workers and teams.

Although the previous section shows that Volkswagen’s approach to knowledge management mostly fits into the theory X framework, theory Y is still applicable to the organization about research and development. As noted by Winterhagen, the R&D process in Volkswagen Group focuses on the input of internal and external stakeholders. This implies that, although the top management is involved in the R&D process, the contribution of each team member is valued and good ideas can be suggested by virtually any employee of the company. The highly integrated process of research and development enables employees to develop their skills and experience, thus contributing to organizational learning. However, because R&D is the only aspect of Volkswagen’s knowledge management operations that relies on this approach, the benefits obtained from it are inconsistent and the lack of control may influence other departments and processes.

Recommendations

To provide relevant and feasible recommendations, it is essential to summarise the issues identified during the analysis. The first issue that became obvious due to the recent scandal is the lack of effective control mechanisms, such as internal reporting and monitoring. Another much larger problem is that knowledge management processes in the company are inconsistent, which affects the efficiency of all control mechanisms and might impair knowledge management efforts. The lack of trust from key external stakeholders is also an important issue that stems from these deficiencies. To address all knowledge management issues, the company could use either theory X or theory Y to achieve positive change.

Theory X

The application of theory X should focus on strengthening the codification of knowledge and improving internal controls about knowledge exchange. First of all, it is recommended that Volkswagen Group creates a separate organizational policy on knowledge management in the organization. The policy should emphasize the necessity of providing full and transparent information to employees at all levels of the company’s hierarchy, which would help to prevent future scandals related to non-disclosure. This recommendation is based on the suggestion made by Tomé that the scandal was due to reporting failures at each step of the knowledge cycle (235). Ideally, reports should be made by employees when the information passes each stage of the cycle to prevent the loss of details or errors.

As part of the planned change, the company should also implement internal control mechanisms to check that the information is reported correctly and in full. This is based on the study by Zakaria et al., who state that internal monitoring leads to reduced chances of fraudulent behavior (1154). Conducting internal knowledge management audits could be a useful way of monitoring the disclosure of information by employees on various organizational levels, as shown by Ma’ayan and Carmeli (347).

To prevent inconsistency in knowledge management across the organization, it is also essential to apply codification and reporting mechanisms to R&D activities in the organization. The knowledge acquired from R&D activities follows the same cycle as described by Tomé, which means that it can also be recorded and reported at each stage (235). To ensure sufficient documentation of R&D knowledge, the company can use IT software to record and structure knowledge (Hansen et al. 109). These changes would provide for a more comprehensive approach to codification across the company, thus having a positive effect on knowledge management.

Theory Y

From the theory Y perspective, the approach to knowledge management should focus less on controlling employees and more on promoting positive information exchange within the company by addressing internal conditions. For example, as stated by KPMG Consulting in a research report on knowledge management, employees face issues such as the lack of sufficient communication, knowledge management integration into learning practices, time to learn how to use the system, and training (2). In the case of Volkswagen, all of these issues could lead to inefficient knowledge management and thus, the company should address them appropriately. For instance, replacing a share of internal documentation with hands-on training on policies and practices would assist in meaningful knowledge exchange while also protecting information.

To address misreporting and the concealment of knowledge, the company should also implement a more personalized approach by promoting disclosure instead of reporting (Dumay 178). This means that instead of requiring employees to document all knowledge in a codified form, the company should trust its workers to disclose important and relevant information (Dumay 178). Using disclosure instead of reporting would also help to regain the trust of external stakeholders. For example, the company could make its new approach to knowledge management public to allow for more transparency (Janus 6). This could mean holding a press conference detailing the results of changes following the scandal or a documented knowledge management framework published on the official website of the Group. These changes would help to create a more favorable environment for knowledge management, thus encouraging compliance among employees and regaining customers’ trust. Using a theory Y approach to knowledge management would also help to address the inconsistency of practices across the organization.

Conclusion

All in all, the purpose of the report was to examine the approach to knowledge management used by Volkswagen Group and provide recommendations for change. The report paid particular attention to the 2015 emissions scandal involving the company, as it highlights knowledge management deficiencies well. The primary finding was that the scandal was caused primarily by the gaps in internal reporting, which were tied to inconsistent knowledge management across the company. The findings also suggested that the company’s problems affected both internal and external knowledge management and thus, a systematic change is required. The recommendations were given based on theory X and theory Y perspectives on employee management. According to theory X, the company should seek to apply codification more evenly, establish policies for knowledge reporting and implement controls in the form of audits. The application of theory Y, on the contrary, would involve reducing the amount of codified information and replacing it with training. Additionally, the company should emphasize knowledge disclosure over-reporting both in internal and external communication.

Even though the goals of the report were fulfilled, there were some limitations to it. Firstly, Volkswagen Group lacks documentation on knowledge management and thus, it was not possible to evaluate all aspects of knowledge management in the company. Secondly, the report was based on the assumption that knowledge management practices in Volkswagen Group remained unchanged from 2015. This is because there was no information on whether or not any changes in strategy, policies, and practices were implemented. Despite these limitations, the report generated analysis and recommendations that could be used by large companies in various business settings to improve knowledge management. Hence, the information is significant to knowledge management practice and can be beneficial to many managers.

Works Cited

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Dumay, John. “A Critical Reflection on the Future of Intellectual Capital: From Reporting to Disclosure.” Journal of Intellectual Capital, vol. 17, no. 1, 2016, pp. 168-184.

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Hansen, Morten T., et al. “What’s Your Strategy for Managing Knowledge?” Harvard Business Review. 1999, Web.

Hotten, Russell. “Volkswagen: The Scandal Explained.” BBC News. 2015, Web.

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Kornienko, Anna A. “The Concept of Knowledge Society in the Ontology of Modern Society.” Procedia-Social and Behavioral Sciences, vol. 166, no. 1, 2015, pp. 378-386.

KPMG Consulting. Knowledge Management Research Report 2000. 1999, Web.

Lawter, Leanna, et al. “McGregor’s Theory X/Y and Job Performance: A Multilevel, Multi-Source Analysis.” Journal of Managerial Issues, vol. 27, no. 1-4, 2015, pp. 84-101.

Ma’ayan, Yahel, and Abraham Carmeli. “Internal Audits as a Source of Ethical Behavior, Efficiency, and Effectiveness in Work Units.” Journal of Business Ethics, vol. 137, no. 2, 2016, pp. 347-363.

McGee, Patrick, and Robert Wright. “VW Management back in Scandal Spotlight.” Financial Times. 2016, Web.

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Nordqvist, Joseph. “Volkswagen Group – Company Information.” Market Business News. 2014, Web.

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Tomé, Eduardo. “Knowledge Management and Leadership: The Carbon Emissions Scandal in the Automobile Industry.” International Entrepreneurship| Przedsiębiorczość Międzynarodowa, vol. 3, no. 1, 2017, pp. 229-240.

West, Joel, et al. “Open Innovation: The Next Decade.” Research Policy, vol. 43, no. 5, 2014, pp. 805-811.

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Zakaria, Khairul Mizan, et al. “Internal Controls and Fraud–Empirical Evidence from Oil and Gas Company.” Journal of Financial Crime, vol. 23, no. 4, 2016, pp. 1154-1168.

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