Volkswagen: Strategic Plan Analysis

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Table of Contents

Executive summary
Introduction
Past strategic choices of Volkswagen Group
Critical success factors in the industry
Resources used in the last five years
Current strategies
References

Executive summary

Strategic Plan analysis of Volkswagen headquartered in Germany, a leading global car manufacturer. The analysis clearly reveals key factors that have gone on to determine the success of the company. From a small start-up to a multinational giant of today unfolds the saga of visionary leadership that brought transformation in the company profile. The strategy has ensured profitability for the company as well as consistently satisfied investors year after year. However, the company needs to focus on a strategy against competitors that are equally getting stronger due to consolidation in the industry. They might slice away the company’s market share and reduce profitability. Several other issues have been analyzed in this strategic plan analysis and conclude that the company is poised for greater growth and expansion (Grant, R. M. 1991).

Introduction

This is the analytical evaluation of the strategies of Volkswagen. The main purpose of this study is to highlight the company’s arrears of strengths and weaknesses as well opportunities and serious threats for the company. This paper has mainly focused on the related years of the case study. At first, the past strategies of the company have been indicated with special reference to the company’s motives and objectives. Then, the new strategies in response to the change in the environment of the auto industry, have been selected for the company to aid in achieving goals and objectives. Then QSPM (Quantitative Strategic Planning Matrix) has been developed to indicate the SWOT matrix after the evaluation of EFE and IEF matrices, which has been discussed to indicate the strengths, weaknesses, opportunities, and threats in the company’s strategies. In addition to indication and selection, all of these strategies have been given specific value to attract the attention of the company to the core and sensitive issues to convince the company for modifying strategies in their areas of weakness. Similarly, the functional, corporate, and competitive strategies have also been indicated in this part of the paper in which SWOT analysis has been drawn for the company to enhance the company for further growth. The basic purpose of this part of the paper is the strategic evaluation of the company in terms of the competitive advantages of the company in the context of SWOT analysis. In part 3 of this paper, the changes in the company and the whole industry have been defined to understand the profile of both. Then, a conclusion has been drawn at the end of the paper in which the comparison of all the strategies of the company has been made based on internal and external analysis.

Past strategic choices of Volkswagen Group

The company’s past strategic choices made include; Developing new state-of-the-art products, increased innovation, enhanced the R & D department, increased partnership, and acquisitions, improved marketing efficiency, and aggressiveness, and expanded to the international market. Volkswagen Group has implemented these strategies to help the company overcome the issues that arise from Porter’s Five Forces. The European market demands smaller, more fuel-efficient vehicles. The company has risen to meet this challenge in its manufacturing facilities. The fifty-percent growth rate in sales Volkswagen Group experienced between 2003 and 2008 precipitated the need to initiate new strategies to maintain and continue growth. Volkswagen group had to face Porter’s force of rivalry among competing firms. One way Volkswagen group was able to overcome a bit of the competition was collaboration and realizing new brands to the market.

Their sales took off significantly between 2003 and 2008. An estimate for the future showed the Volkswagen group was anticipated to reach sales goals as high as 9 million units in 2008. The company’s concern during this period wasn’t so much Porter’s forces of the threat of new entrants or rivalry among competing firms (Ackoff, R. L. 1979). The company was determined to become customer-focused in its efforts to reach a point of dominating ten percent of the global portion of the market by 2010.

During the past five years, Volkswagen group made strides in the European market with its green technology in the production of cars. Much of the competition had only just begun to design hybrid models. They used the emotional impact of customers surrounding beliefs about “green issues” to sell hybrid cars. This gave them little cause to worry about substitute products or services coming in to override their launch into the hybrid market. They were one of the first to launch into the market giving them a competitive advantage. Also, Volkswagen group expanded its manufacturing facilities to ensure growth in sales. The first Volkswagen group manufacturing facility in China was completed over the same period. Within three years of opening the facility, Volkswagen group had expanded plant operations throughout Asia. They had increased production from 200,000 cars produced to 500,000 cars produced by the end of the third year. Also, Volkswagen group had expanded into producing cars in India and Africa by the end of three years. The company has struggled with its image for the large expansion. They have been trying not to appear as a “European invader” in the Asian market.

The company systematically opened a new plant four times between 2003 and 2008. In 2005 a Volkswagen group car plant was opened in China scheduled to produce 500,000 cars per year. Also, three plants were opened before 2007. A petrol engines plant was opened as well. Mini-cars have been another strategic market Volkswagen group has expanded in through Europe, America, Asia, and Africa.

Also, in setting pricing they made efforts to gain interest for young people between 18 to 30 years old. Financing was made fairly easy since interest rates were set according to a buyer’s age. Additional money and effort were put into training sales associates to target this age group. Most sales associates had dealt with a much older crowd.

All of these strategic efforts and collaborations of Volkswagen Group proved to be successful. Since the prices were so low the bargaining power of this group was not an issue since everything had already been provided by the companies. Many incentives were offered to the buyers so they felt they were getting a good deal for their money.

The company established itself successfully as a competitor in foreign markets. The company has successfully become a trusted name throughout Europe and North America. Volkswagen Group has had the time necessary to get to know the foreign market it was branching into. Careful study was used to learn the cultures and lifestyles of customers. Collaboration with established American companies as well as Chinese gave them the competitive edge they needed to prove themselves as a leader in foreign markets. They have projected plans to keep expanding. They keep strategic goals for production and sales in place to meet their goals. Also, they continue to stay up to date by targeting new markets that were once untapped through the hybrid and mini-car markets.

Critical success factors in the industry

The critical success factors for the industry or the sector of the motor vehicle are many. Some of the critical success factors which are mentioned below include:

Reputed brand – people can rely on the name
Diversification – providing hybrid cars which have a green effect.
Targeting all age groups from the age of eighteen to a hundred years old.
Retaining customers – good customer service
Joint ventures with other manufacturers and distributors.
Value for money – the customer gets value for money. The manufacture of cars that can be used by all types of people, able or disabled.
Bringing new ideas to keep them ahead of the competition.
Technology

The critical success factors for the industry as mentioned have made some companies a success while others have decided to merge. One of the success factors is the brand name of the car. Most people try to associate themselves with a brand name making them trust a certain brand. Customers usually have a brand relationship probably because they have developed an association for example a customer who is used with the range rovers will find it difficult to use a Volkswagen. Brand reputation can also be described that customers will always have an attitude towards a certain player in the industry and this will affect its profitability. The two combined that is brand image and brand attitude creates brand loyalty and this is what can be called brand reputation.

Differentiation among the industry players has become another success factor in the industry. Most industry players have differentiated their products from their competitors. Take for example the introduction of RAV4, Range rovers, and small sports cars for the youths. Differentiation is what branding is all about. Each company in the industry has its name for its cars (Burgelman, R. A. 1992).

The other factor that has been critical in the success of the industry is the exploitation of technology. Manufacturers of cars have used technology in producing ultra-modern cars which have attracted a segment of customers who move with technology. Some customers have relationships with brands that move with technology. The introduction of automatic cars, cars with swimming pools, moving theaters are getting some specific customers. Customers always will believe that they benefit from a brand that is new, current, and up to date in technology. Innovation is a factor that cannot be forgotten to be mentioned while mentioning critical success factors in the industry. The industry spends millions of dollars on research, development, and engineering in trying to come up with products that will be acceptable in the market.

Strong leadership in most industry players’ management has made the industry a success. Companies have grown from strength to strength due to the strong leadership that is being used in management. For example, the Volkswagen management has definite ideas about what was needed and they moved very fast to realize the goals. One such move made by the Volkswagen Company was to get a strong sales force by changing the compensation structure for the salespeople. They also employed innovative engineers and they were paid good sums of money. The management set up a budget which was determined by goal settings for each department.

Resources used in the last five years

Volkswagen has used many resources that have helped them to be in the position they are occupying in society today. They have evolved from a German company into an international company by using various resources. One of such resources that the company has used in the last five years is human resources. The company has hired the best human resources in the market. Therefore the success of the company both nationally and internationally is due to the intelligence, talent, Rover qualification of middle-level staff and management teams. Their employees’ number is growing year by year. As they innovate a brand new model they attract the highest and effective new employees and retain the old staff by offering them good remunerations as well as giving promotions where necessary. The staff members are required to report their performance regularly for evaluation in terms of achievement of organizational goals. The management control style employed by the company is autocratic that is members are required to report regularly( Burgelman, R. A. 1992).

Another resource that has been employed by the company is the financial ability where the company has used their financial resources generated for expansion. The revenues of the company have been growing at a reasonable rate as compared to other car manufacturers in Germany. The growth in revenue at the moment is at also a pace due to an increase in international competition but the return on capital employed has been maintained. The growth of revenue has been also a result of new investment in form of international diversification which requires little investment as compared to the gains that will be realized (Armstrong G. & Kotler P. 2007).

The other resource that has been used by the company has been the use of technology to generate and sustain profitability. These resources mentioned above have made a company a household name not only in Germany but in many countries. The good financial position of the company has ensured that the company is a success in the international market and remained competitive. Without a strong financial position, the company will lose the market and customers will lose confidence in the products of the company. Intelligent, efficient, and highly qualified employees have helped in branding, marketing, and innovation thereby giving the company a competitive advantage over the competitors.

Current strategies

The key reason for the success of Volkswagen is that they have focused on their weaknesses and threats and trying to minimize them however threats related to the economy and competition remain a major factor in Volkswagen. Therefore it is continuing to offers products and services to consumers at competitive prices and also recruiting new customers to gain market share. Horizontal integration between departments and managers such as moving experts to its underperforming operations to turn it into a profitable business unit (Weitzel, W. & Johnson, E. 1989).

The current strategies that are used by the Volkswagen company in their success include diversification of its products to meet the needs of customers in all the countries they operate. another factor or strategy is the expansion of its product base in the countries they operate in as well as reducing cost by outsourcing their business activities to make them remain competitive. In selecting these strategies the company has the following suitability, feasibility, and acceptability (Johnson G, Scholes K, and Whittington R, 2008).

Strategy	Suitability	Acceptability	Feasibility
Diversification	Entering different markets to reduce its weaknesses such as china, Africa, and the Americas.	Existing capabilities to enter different market	Value creation
Expansion Into America, China, and India	Full control of resources and capabilities	Competitive environment	Barriers to entry, high cost, and risk of failure
Outsourcing	Increase profitability	Could lead to industrial action	Chances of failure
Joint Venture or Acquisition	Reducing competition, high profitability	Investors will be happy as no additional investment is required	Increases market share as well as making Volkswagen a well known global brand
Technological investments	Operates in car industry so innovation and developments required	Shareholders may not be happy due to high costs	Competitive advantage
Motor vehicle manufactured	Attract customers with disposable income and build consumer confidence	Increases customer base and creates a well-known image	May increase market as sales will increase
sales	Meets companies objective relating to increasing in market share	No additional investments are required	Increases revenue and market share
Differentiation strategy	Competitive advantage	Widely valued by buyers	People may pay the higher price – increases revenue

There is the number of suitable strategies mentioned above which will increase Volkswagen group markets share as well as revenues to maintain return on capital employed. The winning strategies should be Joint Venture, acquisition, and expansion as well as technological investment. This will minimize the risk and meets the criteria of suitability, acceptability, and feasibility (Johnson G, Scholes K,a and Whittington R, 2008).

Volkswagen group have been growing at a faster rate therefore they need to grab the opportunities that will provide them additional benefits. Joint-venture or acquisitions in countries such as India, China, South Africa, and Brazil where the economy is booming will provide long-term benefits.

Although Volkswagen cars have been increasing its customers due to the research and development carried out by the company, their rivals are performing even better therefore they should merge with other manufacturers to increase their profitability and market share. And by implementing this strategy they will not just gain market share but also gain experience in the Indian, Chinese, and African markets which will provide the first step towards a successful future of becoming a successful company in those countries thereby increasing profitability.

These strategies will help Volkswagen group to build an international image by diversifying its range of products and could also help them reduce the costs of their products and keeping them ahead of the competitors and successfully meeting their objective of ability to grow (Rana B. and Mowla M.,2005).

References

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