Volkswagen Do Brasil’s Strategy

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Introduction

Volkswagen is a global auto manufacturing company. The firm was founded in 1937. It has its headquarters in Wolfsburg, Lower Saxony, Germany. It has grown exponentially, managing to survive through tough challenges, such as World War II. The company has engaged in product line expansion to increase its market share and value. One of the initiatives is the establishment of a Volkswagen subsidiary in Brazil (Nelson 45). The factors of production proved suitable for the business as they were bound to maximize the profits. The cost of production in Brazil is lower compared to Germany. Brazil also provided a large market for the products, making it suitable for exportation in the South American region (Chambolle and Chiron 20).

The subsidiary was started on March 23^rd, 1953. It was set up in a warehouse in Rua do Manifesto, Sao Paulo. Due to increased sales, an assembly plant was built in Brazil. The aim was to make the subsidiary South America’s export base (Nelson 4). In 1986, overcapacity and the crippling Brazil economy led to a 20% drop in the domestic automotive industry. It led to a decline in domestic sales. For instance, between 1997 and 2003, there was a drop in units sold from 580,000 to 280,000. The company further faced stiff competition from other market firms. The competitors included General Motors, Ford, and Fiat. Exports were also negatively affected as the Brazilian currency strengthened against the US dollar. The company suffered losses for eight years from 1999. The development prompted the management to come up with strategies to revamp the company. Thomas Schmall was appointed as the CEO to lead the firm and reverse its financial losses and a decline in market share (Kaplan and Pinho 4).

In this paper, the author looks into a case study of how the driving strategy and the balanced scorecard put in place by Thomas Schmall affected the performance of Volkswagen in Brazil (VWB). The strategies were aimed at reviving the firm.

Challenges faced by Thomas Schmall

Thomas Schmall had vast experience in the Volkswagen Group. He had held various managerial posts prior to his VWB appointment. One of his memorable achievements was the formulation of new procedures that informed how managers interacted with production lines at Wolfsburg. However, this was a different challenge. He was taking over a company that had recorded financial and market losses in eight consecutive years. The challenges led to low corporate morale. There were also cost-cutting measures and downsizing of the workforce. The threat to close down VWB was imminent, especially among the employees (Kaplan and Pinho 5). The introduction of the driving strategy and the balanced scorecard also posed a challenge as it involved restructuring the whole organization and its key stakeholders. At the time, sales volume slowed down, leading to cuts in production and investments. It had a negative impact on new product development and market share expansion. Managers also needed to be mentored on how to efficiently run the business to improve efficiency and innovation. The strategy was a contradiction to the traditional cost-cutting mechanisms (Landmann 5).

Volkswagen Do Brasil’s Strategy: An Analysis from the Perspective of the OAS Framework

Objective

What the strategy was designed to achieve

The main objective of the strategy was to make VWB the largest producer and seller of vehicles in South America. It was mainly aimed at changing the mindset of the employees and intermediaries of the firm. The vision was to inspire a change from the traditional systems, which had proved to be irrelevant and damaging to the firm. Re-branding had to play a key role to see the company hire and retain highly motivated employees (Kaplan and Pinho 7). The change in culture would have hastened problem solving and elimination of possible defects, leading to improved and reliable performance (Landmann 9). To achieve this, the driving strategy was designed to address the key challenges, while the balanced scorecard was used to monitor the progress.

A quantitative target and a timeframe

The target of the strategy was to develop a new relationship with the key stakeholders in the firm. It was designed to focus on four challenging dimensions. The dimensions included internal processes, finance, customer, and growth and potential. With regards to employees in the internal process, there were to be changed in how the management approached its human resource. There was a shift from the conservative and authoritative culture that has existed for years. The financial objectives aimed at growing the market share of the firm, leading to stable and positive financial returns. In relation to customers, VWB was to rebrand by offering the best quality possible in the market (Kaplan and Pinho 2). The independent dealers were also to be educated on best business practices. The aim was to improve customer experience, leading to increased sales. Growth and potential was to be fuelled by the new a forward-based culture that inspired and accelerated change towards positive working conditions (Collis and Rukstad 5). It was also aimed at producing quality and innovative products with the customer in mind. The initiative was to have a long-term impact on the firm’s overall performance. The strategy was to be implemented within a period of two years (Kaplan and Pinho 4).

Advantage

Achieving the objective

For the desired results to be realized, VWB had to come up with new strategies (Collis and Rukstad 4). The management had to ensure that all the key stakeholders took part in the process. To begin with, the company had to put in place a new management team to oversee the implementation of the strategy. Senn was elected the VP of human resource. He was charged with the responsibility of leading the initiative (Charron and Stewart 5). The executive was introduced to the strategy and the roles of each of its facets. Customer satisfaction was also viewed as a key driver towards the accomplishment of the objectives. As such, VWB came up with ways to involve all stakeholders in the strategy. The dealers, for instance, were educated on how to implement best customer practices by use of efficient management systems (Kaplan and Pinho 9).

Differentiation

The suppliers play a crucial role in the manufacturing of VW vehicles. As such, it was paramount for the management to come up with ways to facilitate the development of competitive and innovative products (Charron and Stewart 5). The quality of the products was also emphasized as VWB branded itself to offer its customers the best value for their money at a relatively low price (Collis and Rukstad 8). The training and assistance offered to the dealers would promote customer experience, which would, in turn, increase the firm’s market share by aggressively taking on its competitors (Kaplan and Pinho 8).

Value proposition

VWB had to look at both the direct and indirect customers to come up with strategies that would help in the attainment of the laid out objectives (Kaplan and Pinho 9). The dealers benefited from the training programs that would attract more customers, boosting its sales revenue and maintaining a good relationship with them. The change in the culture of the management increased the morale of the employees exponentially in the next two years (Collis and Rukstad 4). It led to enhanced production activities and innovations. The result was increased value addition for the customers. Reducing the price index enabled VWB to be competitive in the market (Stevens 90). The customers ended up preferring their cars as they were not only of a higher quality, but also cheaper compared to those of the competitors (Charron and Stewart 55).

Scope

The intended niche market of VWB

Before Thomas joined VWB, the company had primarily focused on exports as opposed to the primary market. The domestic automotive market had been experiencing challenges. The problems included the 20% drop in revenues in 1986 as a result of the weak macroeconomic situations in Brazil (Kaplan and Pinho 8). The company also lost its dominance in the market as it faced stiff competition from such brands as General Motors and Ford. The focus on exports was negatively affected by the economic recession and the strengthening of the Brazilian currency against the US dollar (Collis and Rukstad 8). The strategy aimed at increasing sales locally and globally. The targeted niche market was the South American automotive sector (Kaplan and Pinho 8).

Value chain, product line, customer segment, and technologies employed

To attain the objectives of the strategy, the company intended to increase its customer base. To attract and retain more customers, VWB focused on aggressive rebranding to provide high-quality and reliable vehicles at a competitive price (Collis and Rukstad 4). Customer experience was also to be factored in the form of sales and post-sales services. It was meant to give the company a good image by offering innovative and high-quality products that gave the customers value for money (Kaplan and Pinho 8). For instance, records on repairs would be analyzed to find solutions to the problems, leading to the production of high-quality components. The firm worked with independent dealers. The stakeholders were assigned an executive who was responsible for identifying any defects. The focus was to improve the quality of vehicles supplied to dealers. Consequently, the relationship between VWB and these stakeholders was built and maintained (Charron and Stewart 90).

How the Strategy Map and Balanced Scorecard Helped Schmall and Senn to Implement the New Strategy

Strategy Map

The strategy map acted as the primary management tool. It contained the four major objectives that the firm intended to pursue to attain the goals (Kaplan and Pinho 2). Senn, who was leading the project, came up with a guideline on how to approach these objectives. The goals were dependent on each other. It was comprised of four principle objectives. They included customer, internal process, finance, and potential and growth (Stevens 12). The firm intended to have a satisfied customer base. It had to look into ways of enhancing its impact on both the direct and indirect customers. For example, VWB and the dealers had to engage in best business practices with each other and with the customers to improve the firm’s image (Berger and Berger 88).

With regards to the financial objectives, the firm aimed at achieving growth in market share. It is also intended to realize positive and sustainable financial returns (Kaplan and Pinho 7). The internal processes were focused on achieving a more customer-oriented approach in business processes, leading to the production of high-quality and innovative products at a relatively cheap price. On potential and growth, sustainability was key through the enactment of a high-performance culture and an innovative approach towards product development (Charron and Stewart 34).

Balanced Scorecard

The balance scorecard was used to monitor and measure the implementation of the strategy among the leaders (Kaplan and Pinho 8). It helped VWB’s executive team to improve its relationships with all stakeholders to ensure that all of them were aware of their roles and played them diligently. An executive was to oversee the strategies to be employed in a given objective and monitor its progress dynamically (Charron and Stewart 33). The officer was taken through training to ensure that they were up to the task and fully aware of the strategies to be implemented. To this end, they were taken through a two-day training program. The roles were made clear to them to increase precision. For instance, to achieve the intended growth in market share, the VP of Sales and Market focused on price index strategies as opposed to return on investment (Kaplan and Pinho 11). The return on investment objective was under the finance and corporate VP. Schmall and Snell had an easy time evaluating the performance of the different executives based on their roles in the implementation of the business strategies.

Implementation of the Volkswagen Do Brasil’s Scorecard: Strengths and Weaknesses

Strengths

The VWB’s scorecard was to be implemented at a time when the company was going through a negative growth. The instrument was meant to impact positively on the organization. The strength of the scorecard was made apparent in the two years following its implementation (Kaplan and Pinho 9). The company experienced a positive growth in its business processes. One of its major strengths is that it led to the creation of a new team to improve transparency and efficiency in the firm. Each stakeholder was made aware of their respective roles and their relationship with the driving strategy.

The instrument also motivated the stakeholders through enhanced compensation and remuneration. The end result was improved performance of VWB (Berger and Berger 91). The scorecard was easy to interpret and implement. For example, with a single report, one was able to compare the target value of both the financial and non-financial measures in the organization (Kaplan and Pinho 21). It also provided the organization with predefined expectations, leading to improved sustainability and reliability (Nelson 67).

Weaknesses

In spite of the fact that the VWB’s scorecard was a powerful tool used to change the culture and strategy of the business, it had its shortcomings. For instance, the introduction and implementation of the strategy were time-consuming (Kaplan and Pinho 17). It was a new tool that was introduced to a dying company. There was also the need to change the traditional mentality of the stakeholders. Given that the scorecard was affecting all stakeholders, the company had to engage in a massive educational program. To this end, 200 facilitators were employed to educate 20,000 people. It was a huge financial cost, especially considering that VWB was cutting down on production due to a slump in sales revenue (Chambolle and Chiron 29). The top management was also strained in efforts to pursue and convince all stakeholders to accept and implement the strategy. It posed a financial and physical strain on the firm (Nelson 34).

Actions Taken to Implement the Strategy

Actions Taken on Suppliers

At the time, VWB had 550 suppliers (Kaplan and Pinho 19). The stakeholders played a vital role in the manufacture of the typical VW vehicle. The suppliers provided the company with around 15,800 variable components to make the vehicles (Kaplan and Pinho 10). The coordination of these components was a complex undertaking. As such, VWB had to find reliable systems to improve the quality of the products within the scheduled time. The management also required the suppliers to develop innovative technologies in the shortest time possible. To achieve this, the company embarked on the training and recognition of the suppliers (Kaplan and Pinho 4). The management held consultations with these stakeholders in an effort to improve their components (Charron and Stewart 88). To boost their confidence and competitiveness, a “Supplier Day” was held in 2008. The aim of VWB was to look into ways through which low-performing suppliers could be assisted. The “Supply Award” was started to recognize suppliers based on how well they performed their roles (Berger and Berger 45).

Actions Taken on Dealers

Dealers played a vital role in the company. They ensured that VWB had the largest car dealer network in Brazil. The firm engaged 600 dealers (Kaplan and Pinho 8). Their primary role entailed the provision of sales and after-sales services. It was important to bring these stakeholders on board given that the sales revenues were dropping. The morale of the dealers was also plummeting, especially since they feared possible ‘stock outs’ given that production levels had been downsized.

The strategy incorporated management training through a “Dealer Academy”. The objective was to improve their skills. It was aimed at raising the sales, after-sales, and franchise value of the firm. The overarching goal was a growing and stable market share for VWB (Charron and Stewart 88). To counter defects, The Top 400 Program, which was later named the TOP 500, was introduced. It was used to enhance the relationship between VWB and the dealers and reduce the defects of the products. The program trained the suppliers on best business practices. The company was also able to monitor the levels of customer satisfaction. It monitored the quality of various components based on incidences of repeated repairs (Kaplan and Pinho 16). The data was used to make adjustments to the relevant items, leading to improved customer satisfaction and quality production practices.

Conclusion

The driving strategy and balanced scorecard introduced by Thomas Schmall in VWB was a great success. The company had experienced losses for 8 consecutive years. The strategy was able to revamp its performance within two years. As a result, VWB increased its market share and boosted the morale of the stakeholders. For example, the number of accidents among workers and absenteeism was reduced. The participation of these stakeholders increased exponentially. To this end, the engagement index doubled in the two years of review. However, during the last fourth quarter, the business experienced a slowdown in production. The Brazilian economy was suffering from the global financial crisis. The management had to devise ways to deal with these two challenges at the same time. A correlation was established with previous successful approaches.

Works Cited

Berger, Lance, and Dorothy Berger. The Compensation Handbook: A State-of-the-Art Guide to Compensation Strategy and Design. 5th ed. 2008. New York: McGraw-Hill. Print.

Chambolle, Eric, and Patrick Chiron. Volkswagen, Paris: Eurostaf, 2000. Print.

Charron, Elsie, and Paul Stewart. Work and Employment Relations in the Automobile Industry, New York: Palgrave Macmillan, 2003. Print.

Collis, David, and Michael Rukstad. Strategic Planning: Can You Say What Your Strategy Is?. 2008. Web.

Kaplan, Robert, and Ricardo Pinho. Volkswagen Do Brasil: Driving Strategy with the Balanced Scorecard, Harvard: Harvard Business School, 2010. Print.

Landmann, Ralf. The Future of the Automotive Industry: Challenges and Concepts for the 21^st Century, Warrendale, PA: Society of Automotive Engineers, 2001. Print.

Nelson, Henry. Small Wonder: The Amazing Story of the Volkswagen, Boston: Little & Brown, 1998. Print.

Stevens, David. The Brazilian Motor Industry: Change and Opportunity, London: Economist Publications, 1987. Print.

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