Category: Volkswagen

Volkswagen India is one of the recent investments by Volkswagen to tap into the human resource and market available in India. The company employs more than 2500 employees. The main issue facing Volkswagen India is talent acquisition and retention. The worse hit category of human resource is engineers.

The number of engineers joining the automotive industry and remaining there is very small. Many of them go for MBA degrees or software engineering degrees after attaining their first degrees. In India, retaining engineers is becoming very difficult.

The company’s plant in Pune has the capacity to assemble 110,000 units per year. The company does not manufacture the cars in India. Rather, it imports the parts and assembles them in India to derive benefits associated with labor costs, and tax reliefs.

There is a lot of debate in different quarters regarding whether HR is a strategic function. Some of the debaters go as far as to claim that it is possible to do away with the HR function without consequence. These views raise serious questions in relation to the role of HR in the corporate environment.

The role of HR has changed in the last two decades based on advances in the behavioral sciences and in the understanding of human motivation.

During the same period, strategic management has become the basis for the management the organizations. This is the environment behind the proposal to view HR as a strategic function.

For the purposes of this report, the definition of strategic HR is the activities undertaken to secure the future of a company or to give it competitive advantage.

This report seeks to examine three aspects of HR in the modern corporate environment to determine whether HR can make a strategic contribution to Volkswagen India.

The first aspect that is of interest to this report is change. The management of change remains one of the most challenging aspects of corporate governance. Organizations develop cultures that are difficult to break. The formation of organizational culture is not always voluntary.

In many cases, culture emerges from the accepted norms and practices. The acquired habits become entrenched without deliberate direction from the management of the organization. On the question of change, the fundamental question that every HR manager needs to ponder is “do people dislike change?

The answer to this question provides the basis for planning for organization change at both strategic and operational levels. It is commonly accepted that people usually resist change. This is the basis of the numerous studies conducted in the field of change management.

Answering this question will make it possible to determine whether HR can play a strategic role in Volkswagen India, on the question of change management.

The second aspect that this report will deal with is organizational learning. Organizational learning is the ability of an organization to gain knowledge about its operations and to use that knowledge for a useful purpose.

Learning organizations that make the best use of the information generated in their ranks develop greater resilience to pressure.

At the same time, it consolidates its sources of competitive advantage. The main question that this report will deal with in this regard is whether HR can play a strategic role in organizational learning in Volkswagen India.

The third aspect of this report is employee engagement and commitment. Studies show that one of the key elements of talent management is whether high performing employees feel engaged and challenged by their work. Top performers tend to leave organizations that do not allow them to take on new responsibilities.

This is just one aspect of employee engagement and commitment. The main question that this aspect will answer is whether HR can play a strategic role in the engagement and commitment of employees in Volkswagen India.

Do People Dislike Change? Transition and Resistance

The causes of change in the corporate environment are varied. Change can result from the internal circumstances or from external environmental triggers affecting the operations of the organization. The internal causes of change include the adoption of a major plan or a new business strategy.

External triggers of change include changes in the regulatory environment, pressure from competitors or shifting consumer demands. Change can also result from a planned transition or from a forced process. When the change is planned such as the acquisition of a new facility, it is easier to prepare for it.

This is the nature if change that took place at Volkswagen when the company decided to build a facility in India. This was part of the efforts of Volkswagen to become the largest car manufacturer in the world.

One of the earliest models of change is Lewin’s three-step process that includes unfreezing, movement and freezing. Lewin went on to detail the events that take place during each of the three processes.

The second model of change is the Kulber-Ross model that is also useful in modeling how people deal with change. This model is used to describe how people deal with grief, especially after the loss of a loved one. The loss of a loved one represents one of the most significant changes that people go through.

Zell (2003) studied the process of change in the Physics Department of a major university and demonstrated that when change is not planned, then people handle it in the same manner as death. The department was at the risk of becoming irrelevant because of environmental changes affecting Physics as a discipline.

The Physics Department was receiving less funding for research, and was enrolling fewer students. Zell (2003) conducted a longitudinal study to map out the transition process from the time this trend became apparent to the time the faculty started taking proactive measures to adapt to the situation.

The study showed that the faculty members went through the five stages of grief as based on the Kulber-Ross Model.

The need for strategic planning usually stems from a recognition that change is inevitable. In fact, strategic planning is a facet of change management. When an organization realizes that change is inevitable, it sets out to influence the nature of change that it will undergo.

Volkswagen is working towards becoming the biggest carmaker in the world by 2018 through a strategic plan. The company needs a vibrant HR department to acquire and retain talent to achieve this goal. The point here is that there is a clear link between strategic planning and change management.

In the same respect, HR has a role to play in the way an organization adapts to change. For instance, succession planning is an application of change management to handle the transition of key employees.

HR is also responsible for talent management, which comes from the need to ensure that the organization does not lose top talent to competitors. Talent is one of the crucial success factors in organizations today. HR is also the best placed department in the organization to develop plans to deal with the unplanned loss of staff.

Organizational Learning

Another area that shows the importance of HR in any organization is organizational learning. Organizational learning refers to the ability of an organization to draw lessons from its operations as the basis for improvement.

Organizational learning requires the presence of a system that gathers data relating to the operations of the organization, processes the data, and produces useful information.

The information from the system then goes into programs and initiatives that help the organization to improve its operations. Organizational learning, just like change, may result from a disciplined process or from a crisis.

In a study of the nature of organizational learning in small firms in the high-tech industry, Therin (2002) uncovered several important issues relating to organizational learning.

The study was trying to find the correlation between organizational learning and innovation, and the relationship between organizational learning processes and financial performance, among other issues. Therin (2002) interviewed over one hundred CEOs of various small firms with less than 500 employees.

The results from the study showed a strong correlation between organizational learning and profitability.

The factors that determined the degree of benefits that an organization derived from specific organizational learning practices included the age of the organization, the strategic posture of the organization, and the environmental threats facing the organization.

Organizations with well-established systems for organizational learning tended to derive greater benefits from the processes. The strategic posture of the organization referred to the strategic position of the organization in relation to its wider industry.

Organizations with strong strategic postures benefitted more from organizational learning compared to the ones that did not have a strong strategic posture.

The role of HR in organizational learning is that HR is the custodian of talent development in the organization. Development of talent in an organization requires the consistent exposure of employees to information and knowledge that can help them to improve their work.

Many automakers in India retrain their newly recruited Engineers to enable them to fit in their corporate climate. In this sense, HR has the responsibility of ensuring that there are systems that enable all employees to learn about their work and how it affects the overall performance of the organization.

HR is also in charge of measuring the growth of the potential of each employee. Practices such as performance appraisals are critical points in the collection of data that can help organizations to learn about their progress.

Organizational learning is a strategic function in an organization. Organizations that learn find several opportunities to increase their effectiveness, and to strengthen their strategic position. Volkswagen India can improve its competitive advantage by making use of the lessons derived from organizational learning.

In this sense, HR plays a very important role in developing the learning mechanisms and translating the lessons into competitive advantage for the company.

Employee Engagement and Commitment

The third role that HR plays in the life of an organization is the development of structures for improving employee engagement and motivation.

Employee engagement refers to the ability of the organization to harness the potential of the employees to enable them to make a meaningful contribution to the operations of the organization. In addition to this, engagement refers to the ability of an organization to keep the employees interested in their work.

This may call for the application of employee motivation techniques. On the other hand, employee commitment refers to the ability of employees to dedicate themselves to the company. In recent times, employee turnover has become a big problem for many companies.

The problem is more pronounced in the high-tech industries because of the huge demand for very creative individuals. In some sectors, the rate of attrition is lower.

However, all the sectors of the economy in most parts of the world are dealing with a higher rate of employee turnover compared to the rates of turnover experienced before the nineties. This demonstrates the need to work towards achieving higher commitment rates from company employees.

Lewis, Donaldson-Feilder and Tharani (2012) conducted research into employee commitment by collecting data from employees and managers in different organizations, and made the following findings.

First, they found that employee commitment was high whenever an organization ensured that there was openness, fairness, and consistency in its HR policies and other business practices. Employee commitment was also high when the organization prioritized knowledge, clarity, and guidance when it came to job design.

This helped employees to feel better placed to handle their duties. Thirdly, employees showed greater commitment to organizations that supported their personal development.

The HR department in Volkswagen India already plays a critical role in the development of job descriptions and proposing changes to the critical functions of the firm. These basic elements constitute the factors influencing employee engagement and employee commitment.

The structure of a job can influence whether an employee remains in it for some time or whether the employee exits from it. For instance, an employee who reports to too many superiors soon becomes overwhelmed and is likely to plan to leave an organization.

In the same breath, the attainment of employee commitment will come from the ability of Volkswagen India to demonstrate the same commitment to the employee. This calls for the organization to ensure that the employees have the space and the time to pursue their own interests.

Google is well known for its policy of allowing engineers to spend up to thirty percent of their time on pet projects. Such engineers feel free to explore areas where they have a passion.

The role of HR in attaining employee high employee commitment is very clear. It is impossible to attain any meaningful development in an organization where there is a high rate of employee turnover. This means that reducing turnover is a strategic issue for every organization.

One of the main duties of HR is talent retention. This means then that HR has a primary interest in ensuring that the employees in the organization have high commitment to the organization.

On the issue of employee commitment, HR also has a role to play. HR is the only department that asks questions relating to the performance of an employee.

The other departments usually worry about performance when there is a problem. On the other hand, HR focuses on performance proactively giving it the unique position to generate employee commitment.

Recommendations

The main recommendations that follow from the literature review are as follows. In the issues of change, Volkswagen India needs to develop strong systems that will anticipate and direct change rather than deal with change in a reactive manner.

The proactive management of change can result in competitive advantage for the business.

Secondly, the organization can use the HR department to plan for how to handle the human side of change. While it is easy to prepare for change from a strategic level, it is more difficult to handle the people who undergo change because of the natural tendency to resist change.

On the issue of organizational learning, the two main recommendations are as follows.

First, Volkswagen India stands to benefit more from a strong culture of learning than from a weak one. In addition, deliberate learning is better that crisis driven learning. In this sense, the organization will benefit if it empowers HR to coordinate learning.

It should do this by allowing HR to provide leadership in the acquisition of new knowledge and in the collection of learning opportunities internally. Secondly, it is recommended that learning be infused in all the departments within the organization to improve the overall benefits of the process.

On the issue of employee commitment and engagement, it is clear that HR is the only department with the presence of mind to deal with organizational commitment to the employees. This makes HR the best department to handle employee engagement and commitment.

Volkswagen India should empower the HR department to make it possible for the department to develop programs and reward systems that will improve employee engagement. Similarly, the company should support the efforts of the HR department to create a working environment the employees find stimulating and challenging.

Conclusion

In conclusion, HR plays a very important role in the life of any organization. Its role in talent management is a strategic role. If the HR department in Volkswagen India is empowered, it will be able to make a strategic contribution to the organization.

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Introduction

The IT department should have its own budget to enable it recover from decades of restructuring. The budgetary allocation is controlled through a process that involves the PMO, ELT, and DBC. The ELT is composed of managers from each business unit. The DBC is composed of eBusiness representatives from each business unit. The PMO occupies the position of the budget controller. Budgets should be controlled by a budget committee. In the VWoA IT department, the projects are determined in a decentralized manner. The IT department enhances the performance of other departments. As a result, the IT department should have its own budget. In this paper, “controls” means determines budgetary allocations. In business discussions, “control” means ensuring that the projects are carried out according to the planned schedule, cost, and quality.

Who controls the budgets from which IT projects are funded at Volkswagen of America?

The budget is controlled through a process that involves a few groups. The groups include the Program Management Office (PMO), the Executive Leadership Team (ELT), GedasUSA, and the Digital Business Council (DBC). The groups determine the projects that should be financed.

The ELT is composed of managers from each business unit. They are involved in ensuring that proposed projects are aligned with the “Next Round of Growth” (NRG) goals. Arranging the goals in their critical order, Austin, Ritchie & Garrett (2005) elaborate that the NRG goals consist of “customer loyalty, new vehicle value, stable business infrastructure, pre-owned vehicle business, optimize the supply flow” (p. 453). The ELT is involved in the process of creating high-level business architecture. It is the process of relating projects to organizational strategy and ability to execute the strategy. The projects are categorized and prioritized after the mapping.

GedasUSA acts like a separate entity. It is not involved in the proposal process. However, it is involved in the high-level business architecture process. It is the process of mapping IT goals to corporate strategy. GedasUSA plays the role of a consultant. It is usually allocated contracts as a third-party entity. It does not determine budgetary allocations (Austin, Ritchie & Garrett, 2005).

The DBC plays a major role in determining budgetary allocations. It is composed of eBusiness representatives from each business unit. It categorizes proposed projects according to NRG goals. It assesses the extent of dependency of the project to one another and their impact to the entire organization. It makes trade-off decisions to rank the projects according to their impact on critical areas. It allows other interest groups to assess their judgment on categorizing and ranking projects. It determines the final list of projects after other groups have re-classified the projects based on NRG goals (Austin, Ritchie & Garrett, 2005).

The PMO occupies the position of the budget controller. Apart from budget control, it initiates and coordinates the process of making project proposals. It sets the first workshop, which brings together the corporate strategy team, Gedas strategy consultants, and the DBC members (Austin, Ritchie & Garrett, 2005). They enlist projects and provide information necessary to map them on corporate strategy. In the early stages, the main function of the PMO is to initiate the selection process from which the DBC plays a major role.

The PMO’s major function is found after budgetary allocations. It carries out the function of budget control. The control process ensures that projects are implemented as planned in terms of time, cost, and quality (Daft, 2012). The PMO carries weekly and monthly reviews on project implementation plans.

It can be concluded that the ELT, the DBC and the PMO play an influential role in project selection. The DBC determines the final list to be financed after involving other groups in ranking the projects. Griffin (2011) discusses that a similar process is used in most organizations. Daft (2012) explains that such a process is known as decentralized planning. The top managers involve middle-level managers in the decision-making process. The ELT and the DBC are similar to the intelligence team made up of cross-functional managers discussed by Daft (2012). The DBC, the ELT and the PMO play overlapping roles in determining budgetary allocations.

Who should control budgets?

Budgets should be controlled by a budget committee. Griffin (2011) describes the use of different groups to determine budgetary allocations at different levels in an organization’s structure. It starts with the heads of functional units forwarding their plans to department heads. The department heads create a single budget for the entire department through consultation. The department heads forward the departmental budget to the division or top office. The top office then involves department heads to determine the monetary allocation for each department (Griffin, 2011).

Daft (2012) explains that organizations use strategic goals at the corporate level, tactical plans at the divisional level, and operational plans at the department level in determining allocation. The plans are aligned with the mission of the organization, which influences its corporate strategy.

Committees should provide oversight in the budgetary allocation process. In the VWoA IT department, the budgetary allocations have been determined in a decentralized manner. Each business unit has a representative in the DBC. Each functional unit has a representative in the ELT. The PMO plays the role of the initiator and budget controller (carries out implementation reviews). Griffin (2011) discusses that the traditional process of budget allocation involved only top managers. Middle-level managers would not be involved in the project selection process as discussed in the VWoA case. Involving middle-level managers has become the commonly used approach (Griffin, 2011). The IT department should continue involving middle-level managers.

Should the IT department have its own budget?

The IT department already has its own budget. The IT department should have its own budget. Griffin (2011) explains that every department should have its own budget. Daft (2012) discusses that every functional unit should have its own budget because it represents a responsibility center. In VWoA case, the IT department has two functional units. They are the eBusiness and IT systems coordination. The eBusiness would like to see marketing projects approved. The IT systems coordination would like to see infrastructure projects prioritized. Business managers feel that if projects with their units are not financed, their units may perform poorly in performance appraisal. The department used a well-developed procedure by involving all interest groups in determining budgetary allocations.

Separating eBusiness (marketing) and IT systems coordination will not increase allocations to the IT department because the top office also uses a similar process to determine allocations to departments. However, it would reduce complaints between the two sides. The best option is for the IT department to propose to VWAG (Group) to directly finance major IT projects that have a major impact on the entire firm. In that case, the department will retain adequate amounts to finance projects that have an impact at the department level.

The IT department is doing well by prioritizing projects that affect the entire organization. The main function of the IT department is to ensure that the other departments get information system support as required. Its function is slightly different from the goals of other departments that maximize output at their level. The IT department enhances the performance of other departments. The goals of the entire organization should be prioritized before those of the IT department. The NRG goals are a guide to aligning departmental goals with organizational goals.

The IT department should understand that separating the contesting sides will not allow any side to receive higher allocations. The main reason is that top managers will use the same system at the subsidiary and Group levels. However, the IT system coordination department may benefit from separation because it will have to be allocated some funds on its own budget.

Conclusion

The IT department needs its own budget to avoid being sidelined in the budgetary allocation process. The firm uses a well-developed process that ensures that business units align their plans with corporate strategy. The IT department should prioritize the organization goals because it plays the role of enhancing the performance of other departments. Frequent restructuring of the IT department has disrupted the accumulation of knowledge in the IT department. There is a need for higher budgetary allocations from the VWAG to enable the U.S. subsidiary to have enough funds to strengthen the IT department. Separating the contesting sides in the IT department will not result in higher allocations from the top management because they will also base their allocation on a similar process. The IT department can obtain better resource allocation results by proposing that the Group (VWAG) should directly finance larger IT projects.

References

Austin, R., Ritchie, W., & Garrett, G. (2005). Volkswagen of America: managing IT priorities. New York, NY: Harvard Business Publishing. Web.

Griffin, R. (2011). Management. Mason, OH: South-Western Cengage Learning. Web.

Daft, R. (2012). Management (10^th ed.). Mason, OH: South-Western Cengage Learning. Web.

Introduction

Competition in the current market scenario is very stiff, which means that each company must make use of good promotion and advertising strategies to ensure that it increases its sales maintain its existing customers, as well as increase its customer base. The marketing strategies used are unique to each company because using a unique and relevant advertising and promotional strategy attracts many customers as opposed to competitors.

This work will compare and contrast the promotional and advertising strategies of two firms in the automobile industry in Germany; Volkswagen and Mercedes-Benz. The essay compares and contrasts the different advertising, promotional, and pricing strategies employed by the two companies that make them able to compete favorably in the market.

Promotional Strategies Employed By Two Companies

Comparisons

There are a number of strategies that both companies use. For example, the most common method is offering a variety of new products, which Volkswagen introduced through the use of Bluetooth technology that allows one to communicate without necessarily having to use their Smartphone. On the other hand, Mercedes also provides a variety of models for its customers to choose from. Such a strategy makes sure that both companies carter for the needs of all their customers (Biebrach, 2009).

Next is the use of the company websites from where customers can find out information about new products, prices, dealers, and services. The sales representatives of both companies update the sites in case there are new products launched. Moreover, the companies post on social sites such as twitter and Facebook where the customers can share photos or write comments about given brands of cars. Additionally, the companies periodically release e-reports and magazines to update the users on new products and also upload YouTube videos to allow the customer watch and find more about any innovations and models.

There is also the use of the visual media such as television. Such media helps the companies to reach a large number of clients within a short time because it is one of the most common methods of product promotion. Both companies focus on both brand building and promotion of specific products and models that they make. The firms also use radios and newspapers to advertise while targeting increased sales. Both Volkswagen and Mercedes have strong brand reputation because they have been in the market for a relatively long period.

Contrast

While Mercedes uses celebrity advertising to improve its market prominence for luxurious cars, Volkswagen targets the middle class. Therefore, the latter company does not use celebrity advertising, which creates a notion that Mercedes Benz cars are for the affluent class.

Recommendations

One way in which Mercedes-Benz can gain advantage against competitors is to provide cheaper alternative cars with little fuel consumption and unique features (J.D. Power & Associates, 2009). The company can also rebrand the cars to eliminate the perception in the market that Mercedes-Benz belongs to the affluent class. To eliminate such a perception, the firm should provide relatively cheaper products of different varieties depending on the customers’ specifications and preferences.

Moreover, the company can also carry out market research and establish customers’ views concerning its products and use the information to improve where necessary (Biebrach, 2009). The firm could also use market skimming, which involves setting high prices to those who can buy expensive brands and setting lower price to those able to buy cheap brands. Employing the strategy will enable Mercedes-Benz Company to be relevant to different types of customers.

For Volkswagen to remain competitive in the market, it has to provide good offers to the buyers such as discount and quality services. Such a strategy helps in winning the trust of customers and could be useful in the launching of new models.

Consumer-Oriented Promotions

Both firms require to adopt consumer-oriented promotional strategies such as provision of discount that will assist them to increase their sales volumes. Using such a strategy generates a feeling that the companies care for their customers (Ferrell & Hartline, 2011). The two firms could also adopt the pricing objective, which refers to setting the cost of a product or service by ensuring that it reflects the company’s financial, product and marketing goals, as well as consumers’ expectation of a price (Lamb, Hair & McDaniel, 2012).

The companies can also adopt personality promotions such as the use of popular sports personalities who may sign autographs for customers who visit the stores. The use of such a strategy attracts a large number of customers because people will be attracted by the celebrities, which will increase the volume of sales of the two companies.

Price Objective

There are four pricing objectives; survival, profit, sales, and status quo. Mercedes utilizes pricing to maintain its status quo because it targets customers in the upper class. For instance, the company produces a variety of expensive but high quality cars for its customers and uses celebrities such as Lady Gaga for promotion. Such a strategy makes the company not to compete using prices with other companies. The strategy also ensures that the company maintains relevance to its customers through provision of high quality products (Uhlig, 2015). Other companies in the same industry can use other pricing objectives such as profit and sales.

First, if the companies have to price their products for profits, they have to survey the market for the most appropriate consumer prices and use such information to compete. Second, the companies should price their products at prices, which will ensure that they make the largest sales volumes. The rationale for the two recommendations is that pricing for status quo works only for companies that have well-established brands, which is not common for all firms in the industry.

The Most Effective Advertising Media for the Automobiles Industry

Firms within the automobiles industry should use visual media such as television to advertise their products both in the long-run and in the short-run (Biebrach, 2009). The rationale for the chosen medium is the fact that it has an ability of reaching a large number of customers across the globe. Secondly, the use of television adverts could also be used to popularize the companies’ websites because of their popularity among people across all the social classes.

In the event that television adverts market the companies’ websites, customers will have an interactive forum with sales persons, which will help to boot their sales. Another reason for the use of television is the fact that it builds product reputation within a shorter time than the rest of the advertising media because of the wide coverage it enjoys. Development of a strong brand has the effect of popularizing a brand and allows the company to utilize other pricing strategies in the long-run

References

Biebrach, C. (2009). Mercedes Benz – How A Great Campaign Can Almost Kill A Company. München: Grin Verlag.

De, K. C. A., & Business Expert Press. (2010). Fundamentals of global strategy: A business model approach. New York, N.Y: Business Expert Press.

Ferrell, O. C., & Hartline, M. D. (2011). Marketing strategy. Australia: South-Western Cengage Learning.

J.D. Power and Associates. (2009). The Power report on automotive marketing. Los Angeles, CA: Power Associates.

Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2012). Essentials of marketing. Mason, Ohio: South-Western Cengage Learning.

Uhlig, D.K. (2015). Four Types of Pricing Objectives. Web.

The Volkswagen diesel fraud scandal is one of the biggest and loudest scandals that happened in the year of 2015. It has erupted in September of last1 year when the Environmental Protection Agency (also known as EPA) detected that the cars manufactured by Volkswagen and sold in the United States of America do not match the requirements of the organization in reference to the amount of carbon dioxide emissions produced by the vehicles.

The conflict became aggravated to the fullest when it turned out that the newest series of the Volkswagen cars were equipped with a device designed to fabricate the test results when the vehicles were undergoing the emission tests. The software installed in the scandalous vehicles was quite sophisticated; its function was to identify when the cars are being tested and adjust the amount of emitted carbon dioxide making the reviewers recognize the vehicles as environmentally safer.

This massive case of cheating caused the reputation of the world-renowned car manufacturer to implode. The consequences and the public reaction to the fraud were heated up by the advertising campaign launched by Volkswagen prior to the scandal. The campaign videos emphasized that the cars were environmentally friendly and that their emissions were cleaner and safer. According to the findings of the EPA, about half a million of flawed cars were sold in the United States (including such models as Volkswagen Beetle, Jetta, Passat, Golf, and Audi A3) (Hotten par. 2).

The manufacturer’s reaction to the scandal was to admit to fault and accept the consequences. As a result, the company is in need for a new strategy in order to bring their brand image and reputation back to life, improve the consumers’ trust, gain revenues, and become a strong competitor in the industry. This paper proposes such strategy, presents sales forecast perspectives, customer management approach, sales training and mentorship, and outlines the key performance indicators.

Summary of Project

This project aims at the evaluation of the issues faced by Volkswagen Group after the massive scandal that occurred in 2015. The project is attempted as guidance and a set of recommendations for the future developments and strategy of Volkswagen on its way towards the restoration of its reputation and brand image damaged by the emission deceit.

The main principle of the proposed strategy is admitting the errors of the past, recognizing the wrongdoings, and emphasizing the ethical choices and lessons learned after the scandal. It is assumed that since the damage caused by the emissions deceit was significant at multiple levels, the company is now bound to handle the outcomes without ignoring the initial cause. In other words, regardless of how much the leaders of Volkswagen Group are willing to put the embarrassing experience behind, they are not to treat it as an insignificant issue that can be easily forgotten. Any actions related to the company’s ignorance towards its past actions will be characterized as unethical and cause further damage to the brand reputation and sales.

That way, the recognition of the mistakes is the major theme of the recovery strategy. It will be the driver of the company’s communication with the customer, one of the main predictors according to which they will evaluate their customer base perceptions of the brand, a necessary subject present in the upcoming marketing campaigns, and an indicator of the company’s performance. Moreover, the new representatives and sales managers are to be trained to operate in a way that would include the company’s admission of the fault and the measures undertaken for a purpose to address the adverse outcomes.

Moreover, the main challenge for Volkswagen Group outlined in the project is winning back the trust of the consumers. This aspect is viewed as the key force driving the improvement of the brand reputation. All the recommendations as to the opportunities to increase profitability are aligned with the major objective.

Besides, the project relies on the data from the past experiences of Volkswagen in order to compare and contrast the former and the new practices and determine which changes are to be undertaken so that the company could achieve the desired results. In the project, it is specified that the outcomes of the emission fraud scandal have social, political, financial, ethical, and environmental consequences. They tend to affect the company’s performance, public perception, reputation, and profitability at a variety of different levels. That is why the company is challenged in many ways at the same time, and it is to list its priorities in order to be able to allocate the required resources.

Volkswagen Group is going through a stage when the brand image is not a positive impact on the sales, but a negative one. The fame the company has been surrounded with lately works against it and causes the consumers, shareholders, and dealers to turn away from the company which makes its path towards recovery even more challenging.

Developing a Strategy

Bloomberg recognizes that the catastrophe that happened to Volkswagen has a moral and a political character (Reiter par. 1). In other words, the adverse outcomes produced by the scandal are quite widespread and tend to affect the performance and a business of the car manufacturing company at multiple levels. As a result, the new strategy is to take into consideration the company’s plan as to the management of the fraud effects and address all the challenges they have created.

First Actions

Volkswagen’s first steps in response to the scandal were to admit the existence of the fraud. This behavior can be seen as an ethical reaction to an unethical problem. The company’s leaders accepted the blame without trying to deny it. Of course, this action was of little help since the violation was quite serious. In fact, it caused a major loss of revenue as the acceptance of the fraud by Volkswagen cost the company over 22 billion USD in the market revenue and resulted in the retirement of the CEO (Reiter par. 3). However, this first action was correct from the strategic point of view as it has paved the way towards a recovery of the brand image. To date, the main challenges faced by Volkswagen include the severely damaged reputation on a global level, lack of trust from the side of the consumers, low profitability, and dropping sales.

Costs and Profitability Prospects

As a result, the aspects mentioned above are to become the key dimensions of the new strategy. Earlier this year, the new CEO of Volkswagen Group, Matthias Mueller specified that the new strategy 2025 will be orientated at the maximization of the company’s profitability (“VW’s Strategy 2025 will focus on profitability” par. 1). One of the ideas the company leader has in mind is the reduction of the number of models produced by Volkswagen.

Currently, the company’s products are divided into luxury and mass market models. However, when profitability is the priority the development of such extremely expensive luxury models as Bugatti Veyron seems impractical. With the present brand reputation, VW simply cannot afford to build such models. This aspect of the production should be restructured for a purpose to direct the costs towards other spheres.

Brand Image

One of the major expenditures in the new strategy is the revitalization of the brand image. In order to accomplish this goal, Volkswagen is to invest in a powerful and convincing promotion campaign. Since the cause of the company’s troubles is an ethical problem, it would make sense for Volkswagen to build their new campaign on the basis of the fraud scandal instead of ignoring it.

Besides, it is worth mentioning that the strategy developed by Volkswagen in 2008 involved such goals as the use of innovative technologies, the increase in sales up to ten million vehicles annually, the maximization of the return on sales before tax, and the promotion of the company as the top employer in the industry (Volkswagen par. 2). The first goal is highly applicable to the new strategy driven by the recovery from the scandal.

Volkswagen is to employ the newest technologies in order to manufacture better cars, achieve fair reduction of carbon dioxide emissions, prove their excellence, and compete with the rivals at the top of the industry. To sum up, the new objectives of the company are the following:

• Innovation and technological improvement of the operations.
• Focus on product excellence.
• Better customer satisfaction.
• Transparency and stronger corporate ethics.
• Brand promotion to win the trust of the consumers back.

Developing a Sales Forecast

Volkswagen’s previous sales forecast stopped being reliable and accurate as soon as a major threat in a form of the diesel fraud scandal occurred. As a result, the numbers predicted by the market researchers for this year are no longer useful. When it comes to the company’s future sales, the numbers are likely to go down even more in 2017 (Sweeney and Victory par. 5).

Supply Chain

The predicted downfall of the prices for the production of Volkswagen is explained using basic laws of economy and marketing. For example, the production of a vehicle involves multiple manufacturers and suppliers of raw materials and parts. As the final products begin to lose popularity due to the diesel scandal, and the buyers’ reluctance to purchase from an unreliable brand, the demand for the cars falls.

Consequently, the revenue losses of Volkswagen reflect on the incomes of all the participants in the supply chain since the company is forced to reduce the production costs due to the drop in income. In turn, the suppliers refuse to deal with the problems inflicted by Volkswagen. Such reaction of the partners is rather logical as the issue of the scandal does not involve them, and thus, its adverse outcomes should not affect them (Sweeney and Victory par. 10).

Drops in Revenue

Moreover, it is important to keep in mind that the loss of income caused by the distrust of the consumers is not the only reason for the revenue fallbacks of Volkswagen. According to Sweeney and Victory, the costs of all the lawsuits and recalls of the vehicles may result in losses much larger than those suffered by BP after the infamous Deepwater Horizon oil spill (par. 14). To be more precise, Smith and Parloff report that the total number of class actions the owners of the flawed vehicles filed against Volkswagen exceeded five hundred (par. 7).

Forecast Indicators

As a result, the sales forecast should be based on such indicators as the current perception of the brand by the shareholders and consumers, as well as the losses of capitals that will occur after all the payments to the affected parties are made. The former determinant (the buyers’ image of the brand) is the leading factor accountable for the future sales. The market share of Volkswagen has dropped significantly during 2016 and is anticipated to go lower in the next few years.

I will take the company quite some time to get over the consequences of the diesel fraud scandal. The latter determinant (the capitals lost by the company due to the scandal) is the driving force of the company’s attempt to recover and also the indicator of the available assets that will be used as the company’s security funds. In particular, the larger the assets – the better Volkswagen’s opportunities to gain income and begin winning the consumers’ trust back.

Dealers

Another important aspect to remember building the sales forecast for Volkswagen is the attitude of the dealers. As mentioned by Durbin, Volkswagen has some sales issues in the United States even before the scandal erupted – namely, the dealers were complaining about the vehicles of the German manufacturer not being adjusted to the American standards and the desires of the consumers; in particular, the prices of the cars were recognized as too high for the American consumers (par. 9).

The dealers, who are dependent on the sales because their salaries are comprised of commissions, are under a serious threat when the sales of a particular car are not going well due to the troubles of the manufacturer. Forced to struggle with the drop in income, the sales people are likely to engage in the immoral and unethical professional practices in order to push the vehicles and earn money. This tendency is one of the main concerns of the distributors and dealer firms who work with Volkswagen. In addition, the dealers who had sold the flawed vehicles prior to the scandal are likely to become the victims of the consumers’ dissatisfaction and be treated as a part of the diesel fraud (Durbin par. 11).

Under such circumstances, the reputation of the distributors and dealing firms is seriously damaged by the failure of the manufacturer to deliver high-quality cars. Moreover, as the partners of Volkswagen, the dealers are also forced to lie to the public about their attitude towards the company; while in the interviews they emphasize that the German manufacturer is a reliable business run by highly professional and experienced leaders who can be trusted in the present circumstances, in reality, they are dissatisfied with the effect the scandal has produced on them and worried about their incomes and future (Durbin par. 12).

Even though the models of vehicles that are powered by diesel engines were banned from being sold, one of the benefits is that many consumers are unaware of which brands are sold by Volkswagen. For instance, such vehicles as Audi, that are rather popular in the United States, may not be associated with the scandalous German manufacturer.

Sales

As it was mentioned above, the dealers are highly critical of the fraud calling it the biggest in the history of business (LeBeau par. 2). In fact, the numbers of the sales revenue estimated prior to the exposure of the deceit are rather impressive. In particular, the German car manufacturer managed to sell three hundred billion worth of cars on the territory of Europe, and the value of the vehicles sold in the United States comprised about fifteen billion dollars (LeBeau par. 2). That way, the overall benefit gained by the company from the sales of the flawed vehicles exceeds those of such loud and well-known financial frauds as the ones created by Madoff and Ponzi (LeBeau par. 2).

Due to the no-sell order, Volkswagen has to obey, the dealers are suffering a massive loss of revenue since they are unable to sell any Volkswagen vehicles that are liable to the order. Besides, the downfall of the brand reputation of the German company has made the buyers avoid purchasing their cars regardless of the model. The number of the flawed cars sold equals more than eleven million (LeBeau par. 6).

One of the primary current strategies of the sales managers at Volkswagen is the offer a significant price discount (around two thousand dollars per car) in order to attract the new buyers and to persuade the existing owners of the Volkswagen cars to return to the company (LeBeau par. 13). However, to maintain their sales levels, the company has to accomplish more than one task. Attracting the consumers is a challenge, but attracting the dealers may be an even more complicated mission.

Growth Plan

Volkswagen does not stop considering growth even after the scandal that has produced a massive damage to the company’s reputation. In order to improve the sales performance, the current leaders of Volkswagen plan to go through with something they call redefining the brand. This complex activity involves such aspects as the creation of a stronger product portfolio, the selection of the new management team, and the security of their partnerships with the car dealers (Lippert par. 3).

The ultimate desire of the Volkswagen leaders is to exceed the sales levels of the past years. The definition of the future sales and product strategy used by the top team of the company is “price-competitive German engineering’’ which is likely to reduce the prices and the cost of production of the new vehicles focusing on the engineering and quality but not on the luxury and highly pricy materials.

Another aspect of the sales improvement plan of the company involves the investment in the joint ventures in China, the state where the sales of Volkswagen dropped by about four per cent after the scandal (Spring par. 2-3). The focus models of the upcoming years will be the SUV (sports utility vehicles) and the NEV (new energy vehicles). The latter model is the innovation aimed at the consumers of the future; also, Volkswagen plans to invest more and more resources to the production of plug-in hybrid cars. This is a smart solution since the alternative sources of power are being targeted by multiple countries; the appreciation of the electrically powered vehicles is growing. That way, expanding this sector of cars is likely to become a source of sales benefits in the next five to ten years.

Customer Management

The relationship between the customers and the manufacturer was one of the key aspects that have suffered severe damage due to the diesel fraud scandal. The happening led to adverse consequences such as the loss of trust of the consumers by the company followed to the drop in sales, multiple lawsuits, and returns of the flawed vehicles. As a result, addressing the breach of trust between Volkswagen and its customers is the primary objective of the customer relationship management plan.

Prior to the scandal, Volkswagen was determined to maintain its good relationships with the customers and preserve their trust based on multiple programs and strategies orientated at the attraction of the new consumers and the satisfaction of the existent customer base (“Volkswagen: Putting the Customer in the Front Seat” 792).

The company has been known to adopt innovative approaches in order to address the needs of the consumers, ensure trusting relationships, and promote sales. In fact, quality customer service has always been one of the key points emphasized by the company as the most important aspect of their vision and operations. During the first decade of the 2000s, Volkswagen shifted its focus to the synchronization of the sales process, after-sales service, management of complaints, and the campaign management for a purpose to achieve more efficient interactions with the consumers (“Volkswagen: Putting the Customer in the Front Seat” 792).

Langley Van Der Kley characterizes the effect produced by the diesel fraud as a PR crisis (par. 4). Therefore, it is crucial for the company to address all the PR damage that it has inflicted.

Admit the Fault

First of all, is it was mentioned earlier in the paper, the initial steps made by the leaders of Volkswagen (namely, the quick reaction to the scandal and admission of the errors) were an ethically appropriate behavior and paved the way towards the image recovery. The testing software fraud was nothing but the deceit of the state policies as to the emission levels and the consumers. Acting as it is far away in the past or it was not a big deal would not be the correct behavior. Instead, the company is to show the consumers that they regret about all the damage and are willing to work hard to fix their mistakes.

From the consumers’ point of view, one of the most harmful aspects of the fraud was the false advertisement campaign that emphasized the reduced emissions of the new VW engines and promoted the vehicles as environmentally friendlier and the company – as a responsible manufacturer. This happening would not be forgotten fast. That is why it has to become a part of the new campaign. Volkswagen is recommended to launch a series of advertisements demonstrating their awareness of the past wrongdoings and sincere regrets. Also, the advertisements are to inform the consumers that all the challenges of the past are being worked on and addressed thoroughly. In other words, the scandal is not to be excluded from the public outreach of the company.

Communication with the Consumers

It is vital for Volkswagen to show that the opinions and desires of the customers are highly meaningful for the company. This is a good way towards earning their trust back. The company may employ various ways of communication online. For instance, the could engage with the consumers using social networks such as Twitter and Facebook, develop questionnaires, generate more content, and monitor the public perception of the brand, what the consumers tend to associate with it, and search for the ways to influence the negative beliefs.

The research of the customer base is the most accurate source of information concerning the further strategies and changes that would be the most pleasing for the consumers (Van Der Kley par. 8). The company’s recovery plan is to be aligned with the needs of the consumers and their perceptions of Volkswagen (Van Der Kley par. 10).

Global Implications

In addition, apart from the deception of the buyers, the diesel scandal has implications in terms of global health and environmental impacts (Lyons par. 2). These outcomes make the scandal a serious ethical concern for the company. That is why treating it lightly or ignoring it is not an option for the future customer relationship management. The behavior of Volkswagen in response to the scandal will be carefully monitored by the media and the experts of various spheres. Following the ethical approach to the issue is the only way out without causing even more damage.

To sum up, the company will be able to bounce back from the losses caused by the diesel scandal. However, the recovery will take several years; it will involve the struggle with the distrust of the consumers, a weak brand reputation, and the constant monitoring of the ethics of the company’s actions and responses. The way of winning trust of the society once again is to own up to the errors, demonstrate the process of working on the errors, inform that what lessons were learnt and what measures are taken to elevate the consequences, be prepared to invest large amounts of money in the restoration of the company reputation and handling the outcomes of the scandal.

Sales Training and Mentorship

One may say that the reputation of Volkswagen was injured so badly during the scandal that the company has to start rebuilding it from scratch. However, in reality, the reputation did not become destroyed, it became negative. That way, in order to restore it, the company has to go a long way from being perceived as an unethical and cheating organization to an image of a trustworthy manufacturer of high-quality vehicles. The sales people of the company are the key players in the process of Volkswagen’s recovery as a business. They represent the company and its products and also facilitate the direct connection of the manufacturer with the dealers and the consumers.

According to Baldwin, the first step towards strengthening the sales and turning the simple reps into the sales managers is to create a powerful and influential mentoring culture in the organization (par. 2). The author specifies that this process is can take up quite a lot of time, and that is why the leaders are to stay patient and thorough as this activity is aimed at the long-term benefits. The effort is worthy of all the time since the paybacks are high.

Selection and Hiring Practices

First of all, the company is to focus on the selection and hiring of the new sales professionals. It is important to outline and list the features of the most desired candidates. The traits, abilities, and skills are to be evaluated and measured in terms of their significance so that the selectors knew exactly how to evaluate the applicants (Baldwin par. 4).

Also, it is crucial to remember that the selection practices tend to consume quite a lot of money in a form of direct investment or time of the selectors who are normally chosen from the top management of the company. Selection practices refer to the new employees, the existing workers who will be trained, as well as the mentors who will be in charge of the mentorship. The key aspects to clarify include target populations, purpose and scope of the activity, learning outcomes, and benefits (Baldwin par. 4).

Roles of the Participants

The managers in charge of the mentorship program are to create a clear range of duties and responsibilities for both the trainers and the trainees. That way, all the learners will be taught based on equal requirements and plans, and all the mentors will be aware of their tasks. Ignoring this step is exposing the program to a potential failure as unevenly trained managers would be likely to show inconsistent results, fail their assignments, and cause a disorder in the future sales operations (Baldwin par. 5).

The Leaders as Champions

The role of the leaders is to serve as examples of the mentoring behavior. Also, the leaders are responsible for the criteria of evaluation of the work of the mentors and the trainees. Providing support from the top, the leaders are to empower both parties and encourage further success. In addition, the leaders are to monitor the teaching process and provide timely feedback to both the mentors and the mentees.

Best Practices

For the improvement of the results, the best practices revealed through the monitoring of the program outcomes and processes are to be used as the further guidance for change. Moreover, the leaders are to listen to the mentors’ feedback as to the needed changes in the teaching process driven by their practical experiences.

Key Performance Indicators

Key performance indicators are a highly useful and meaningful part of the evaluation and reflection on the company’s practices and results. Key performance indicators make up guidance for the company. Each department is to have their own KPIs according to which their performance is evaluated. The comparison of the existing results and the KIPs is to be conducted on a regular basis in order to be able to detect and address all the negative results in time.

When it comes to Volkswagen, their major business KPIs involved the evaluation of sales and included such criteria as vehicle sales, sales revenue, sales to third parties, and operating results. These characteristics were measured for each brand represented by the Volkswagen Group individually. Within the divisions, each of the abovementioned aspects was divided into some other activities and indicators. That way, not only the sales performance of the company was evaluated but also the strategies through which the success was achieved (or the failures that caused the loss of revenues).

The new KPIs for sales are to involve the numbers of sold vehicles and the revenues generated in order to monitor the success of the company. At the same time, some more KPIs are to be included in order to make the company’s performance sensitive to the consequences of the diesel fraud scandal. For instance, the markers of the sales performance could indicate the number of new customers (the ones who have never owned a VW vehicle before) and a number of the customers who have bought Volkswagen cars in the past.

Such indicators would help the business to evaluate the consumers’ reaction to their new campaigns and reach-out practices targeting the revitalization of the company image and brand reputation. Based on the KPIs, the sales persons, who would convince the old customers of Volkswagen to return and cooperate again could be provided with bonuses and rewards. Separately, it would make sense to measure the number of the customers coming from the sector of the buyers who were affected by the diesel fraud scandal. The return of such consumers and their willingness to buy from Volkswagen again would signify the progress towards the restoration of the company’s image.

At the initial stages of the recovery from the diesel scandal consequences, the leadership of Volkswagen in to engage in the ongoing measurements of the performance. The strategic marketing choices and practices are to be evaluated in correlation with the response of the customer base. Deep maintains that there are two types of the performance indicators – executional and tactical (par. 3). The value of an intangible entity such as a brand can be defined in terms of financial costs (such as the sales revenue and its dependence on the brand reputation).

Executional metrics focus mainly on the way the operations are performed by the employees; at the same time, the tactical metrics involve the brand image and the trust of the customer base. While most of the successful businesses focus on their executional metrics and optimize the operations, Volkswagen is to concentrate on the tactical indicators as its brand value has been damaged and it no longer can count on the strong reputation of a world renowned car maker. In fact, Volkswagen is currently at the stage when its brand name is hurting the company’s performance.

Conclusion

To sum up, the situation in which Volkswagen Group has found itself after the emissions fraud scandal of 2015 is extremely complex and challenging. The business is facing serious problems at every dimension of its operations. However, the leaders of Volkswagen are determined to overcome the difficulties and bring back the former success and recognition. In order to create an efficient strategy and address all the challenges, the leaders are to take into consideration many different aspects some of which were outlined in this paper.

The present project targeted such issues as the forecast of sales, the management of customers, the improvement and mentorship in the sales departments, and the key performance indicators for the business. The past and present experiences of Volkswagen were compared in order to develop the strategies appropriate for the future challenges. Due to the fact that the brand image of Volkswagen was not destroyed but became negative, significant changes are to be introduced to the future marketing, advertisement, customer management, selection, hiring, training practices, and the KPIs of the company.

Works Cited

Baldwin, Heather. Use Mentoring to Turn Reps into Great Sales Managers. 2016. Web.

Deep, Mark. Could the Volkswagen Brand Scandal Have Been Avoided?. 2015. Web.

Durbin, Dee-Ann. Diesel scandal keeps Volkswagen’s US sales forecast flat. 2015. Web.

Hotten, Russell. Volkswagen: The scandal explained. 2015. Web.

LeBeau, Phil. Volkswagen dealer: Biggest fraud I have ever seen. 2015. Web.

Lippert, John. Volkswagen Reassures Dealers on Growth Plans for U.S. Market. 2016. Web.

Lyons, Saralyn. Road to recovery: How does Volkswagen bounce back from emissions scandal?. 2015. Web.

Reiter, Chris. VW’s New CEO Is Moving Forward With a Strategy Shift. 2015. Web.

Spring, Jake. VW upbeat on China, plans more investments with JVs. 2016. Web.

Sweeney, Katrin and Mark Victory. Major parts supplier cuts 2016 sales forecast on VW cost pressure. 2015. Web.

Van Der Kley, Langley. Crisis management: How to come back from a PR scandal. 2015. Web.

Volkswagen: Putting the Customer in the Front Seat. 2006. Web.

Volkswagen. Strategy. 2015. Web.

VW’s Strategy 2025 will focus on profitability. 2015. Web.

Introduction

Volkswagen (VW) Group is among the most prominent international automotive giants, which is why its emissions scandal of 2015 resulted in a massive and costly recall campaign (Plungis & Katz, 2015). This paper analyzes the way VW manages its reverse logistics (RL) processes in the form of car recalls in a situation that can be described as a crisis.

Volkswagen: The Scandal and Recalls

VW was installing software designed to provide false results during emissions tests in its diesel cars. The vehicles do not pose a direct safety hazard, and they cannot lead to accidents, but they are not environmentally friendly, do not comply with relevant regulations, and are a product of dishonesty (Volkswagen of America, 2016). 11 million vehicles (most of them in Europe) have been affected and need to be recalled and fixed (Schwartz & Cremer, 2015).

Possibly having learned from the infamous case of Toyota crisis management, which is described, for example, by Heller and Darling (2012), VW did not attempt to deny the issue. The crisis management was launched immediately in the hope of resolving the situation within the following three years (Schwartz & Cremer, 2015, para. 1). For that, VW needs to review its policy, check its management team (CEO has already been substituted), invest in the research and development of better technologies, and return the trust of its customers, especially through the car recalls. Scandalous recalls (VW’s case or Toyota’s acceleration problem) do not happen too often, but the necessity to withdraw cars is a natural part of automotive industry operation (Heller & Darling, 2012; Schwartz & Cremer, 2015). As a result, the VW campaign is worth studying.

Volkswagen and Recalls: Best Practices

Plungis and Katz (2015) describe VW’s recall campaign in detail. It includes the processes of determining the vehicle eligibility, getting it to a shop, fixing it, and ensuring that the customer can use it again.

The specifics of recalls depend on the country. According to the Volkswagen of America (2016) website, the US consumers are invited to check their eligibility with the help of an electronic tool, provide the contact information to the company, and use the Goodwill Package benefits (two VW cards with the sum of $1000 and no-charge Roadside Assistance available for three years) as they wait for the remedy (para. 10). Given the massiveness of the recall, the company deems it feasible to set up specific shops to take care of the fixing.

From the point of view of the two final steps, the research and development activities are of importance. Modern and environmentally sustainable equipment may be incompatible with earlier models. As a result, both hardware and software repairs will be necessary depending on the vehicle. The hardware parts can and are likely to be “borrowed” from the already produced ones meant for other models, which may reduce the costs of fixing in certain cases. In some cases, a car may lack space, and VW intends “to rebuild it if need be” (Plungis & Katz, 2015, para. 27). The new CEO Matthias Mueller promises that customers will not have to pay anything for these diverse and technologically tricky fixes, but it is apparent that financing is a key element of the campaign.

This recall is going to be comprehensive and massive: 6.5 billion euros have been “set aside,” but the sum is likely to be insufficient (Plungis & Katz, 2015, para. 6). However, the company’s net liquidity allows greater expenditures, and the CEO and senior management team are ready to spend the money. The company is delaying non-essential projects, cuts annual investment, and works towards increasing the liquidity since it is determined to make up for the situation and return the customers’ trust (Schwartz & Cremer, 2015; Plungis & Katz, 2015).

The Evaluation of the Practice

As stated by Mollenkopf and Closs (2005), acting “in a socially or environmentally responsible manner can produce real value” primarily in the form of customer loyalty and brand recognition (p. 36). The presented RL plan of actions demonstrates that the company is ready to be socially and environmentally responsible, which can help VW return the trust of its customers.

It can be concluded that VW admits the importance of RL and recalls and uses the campaign to produce competitive advantage (restore the reputation). Besides, the campaign has the support of top management. Therefore, at least three of the successful RL tips proposed by Mollenkopf and Closs (2005) are applicable to VW’s campaign. In general, it can be assumed that the VW car recalls campaign appears to be worthy of the title “best practice” that is suitable for the current situation.

Conclusion

The case of VW emissions scandal should be avoided by any company, but the way the RL process is being organized under the pressure of the crisis is noteworthy and may be of interest for future activities of the company or the industry. Given the fact that the company started developing the RL process almost immediately after the scandal, it can be suggested that the interventions are timely. The future practice will demonstrate if the campaign is successful, but it appears to be appropriate for the situation so far.

References

Heller, V., & Darling, J. (2012). Anatomy of crisis management: lessons from the infamous Toyota Case. European Business Review, 24(2), 151-168.

Mollenkopf, D. A., & Closs, D. J. (2005). The hidden value in reverse logistics. Supply Chain Management Review, 9(5), 34-36,38-40,42-43.

Plungis, J, & Katz, A. (2015, October 22). VW’s emissions retrofit may be among costliest recalls ever. Bloomberg Business.

Schwartz, J, & Cremer, A. (2015, October 15). VW says can bounce back as recalls 8.5 million EU cars. Thomson Reuters.

Volkswagen of America. (2016). FAQs.

One of the most scandalous incidents in 2015 was the Volkswagen emissions case. In September 2015, it was revealed that the company purposefully rigged the diesel engines software. The latter ensured that emissions were always at the necessary level for the diesel car to pass the emissions test in the United States. Eventually, the company admitted that the software was supposed to recognize when the vehicle was being tested (Hotten para. 1).

“Dieselgate“

The incident leaked into the news on the 18^th of September 2015 and was dubbed “Dieselgate”. This matter affected not only Volkswagen but also Audi, Skoda, and Seat, adding up to 11 million vehicles implicated in the scandal. According to Spence, the Volkswagen software allows for passing the laboratory tests, but while driving, the emissions controls are deactivated (Spence para. 2). This means that when on the road, Volkswagen-manufactured vehicles emit pollutant substances, such as nitrogen oxide, nearly forty times the legal limit. The software was developed explicitly for the purposes of regulating the emissions according to the situation.

The algorithms of the software determine the steering patterns, engine use, air pressure, and other key features that help identify whether a vehicle is being tested. The laboratory tests involve putting the vehicle on a stationary rig, which is detected by the software and a so-called safety mode is switched on, where the emissions are reduced to the legal limit. The software was dubbed a “defeat device”. In many countries, including European states, investigations are being carried out to determine the extent of the damage caused by the Volkswagen’s policy regarding the emissions of pollutants.

As a result, the company faces significant problems. First and foremost, Volkswagen betrayed their customers’ trust thereby losing their loyalty. The company’s reputation is significantly damaged. It will be rather difficult to regain the clients’ loyalty and reestablish the company as trustworthy. Moreover, Volkswagen incurs significant losses that amount to 2.5bn euro, as well as 12bn euro of penalties. Multiple fines and lawsuits filed by certain civil groups exacerbate the company’s position. The situation was aggravated when the public found out that the cheating software has been in use for six years. Now, many people are apprehensive of all manufacturers of diesel cars, as they fear that similar tricks could have been employed. It is a valid reason for concern, as such morally dubious practices as demonstrated by Volkswagen entail not only fines and penalties for the company but also major inconveniences for the owners of the cars in question. Spence emphasizes that the owners will eventually have to pay higher fuel bills because of this scandal (para. 6). Moreover, even though the company offered to make amends, the cars that are rewired will not run in the same way as it was promised prior to the purchase.

Ethics Parameters

The ethical decision model comprises several stages, the first of which, “Determine the Facts”, is outlined above. It was specified what the company has actually done to damage its reputation to such a great extent, as well as what repercussions will subsequently follow. In order to identify the ethical issues involved in the given context, it is necessary to specify which actions of the company should be under scrutiny. The main decision of the company’s management that is ethically questionable is the decision to invest in the development of the described software. A clear dimension of right and wrong is visible in this case, as the company knowingly made such a decision, admitting their fault when the scandal was publicized. Moreover, the ethical dimension is multifaceted, as the unethical decision to rig the laboratory tests had a negative impact on many parties, including the customers, the stakeholders, the environment, and the company itself.

The stakeholders that were affected by Volkswagen unethical policies can be divided into several groups: customers and suppliers, financial market, employees, governmental agencies, NGOs, and research institutions. In the fourth stage of the ethical decision model, it is necessary to indicate what alternative courses of action could be taken. It is reasonable to suggest that the first alternative would be for the company to abandon the unethical practices before they became a public matter. It was already mentioned that Volkswagen continued falsifying the laboratory tests for six years.

The immorality of their chosen policy should have been acknowledged before the scandal, and steps should have been taken to curtail the cheating mechanisms, as well as modify the software. Another alternative course of action could have entailed refraining from the discussed decision at the very beginning. The suggested alternatives would be beneficial for the stakeholders, as their losses would be reduced or eliminated and their trust would not have been lost. In the case of the first alternative scenario, a certain degree of harm would have been done nonetheless, but the damage would be minimized. Legal regulations stipulate a certain limit of emission of polluting substances in diesel cars. Thus, Volkswagen’s unethical decision-making led them to commit a crime, which is also affecting stakeholders.

Conclusion

The decisions made by Volkswagen were unethical and disrespectful to the customers and stakeholders of the company. Every person involved was negatively affected by the company’s policies regarding emission levels. Moreover, a negative influence on the environment was exerted. When considering the phrase “All solutions just create different problems”, it is evident that in the case of Volkswagen emission test, adopting a different approach would clearly minimize or eliminate the losses incurred by the company and the stakeholders, as well as save the company’s reputation.

Works Cited

Hotten, Russell. Volkswagen: The Scandal Explained. 2015. Web.

Spence, Peter. VW Emissions Scandal: What’s It All About?2015. Web.

Identification

The case focuses on Porsche, a car manufacturing company focusing on luxury and sports cars. Porsche’s 2008 takeover of Volkswagen is part of its strategy to manage competition in the automobile industry, which is highly competitive. However, the successful implementation of this strategy is threatened by its potential effect on other lines of business. As explained in the case, Porsche also provides engineering development services to car manufacturers through the Porsche Engineering Group (PEG). While Porsche was positioned as an independent, niche carmaker, it had success with its clients. Following the takeover of VW, there is a threat that the company’s image in the eyes of customers will shift, thus making them hesitate to use Porsche’s engineering development services. Given the high share of R&D investment in Porsche’s expenses, this could threaten the company’s revenue. Another potential problem associated with the takeover strategy is the possibility for conflict in operations. VW’s R&D team is substantially smaller and less funded, meaning that the two companies use different approaches to R&D. The present report will analyse the information provided in the case and the main scenarios involved to give a set of recommendations.

Analysis and Evaluation

Internal Analysis

The internal analysis focuses on decision-making, operations, and functions within the company that affect its market position and performance. From its foundation, Porsche has been a small car manufacturer targeting the sports cars niche primarily and later expanding on to the luxury cars market. This diversification strategy benefitted Porsche, allowing it to grow its annual production, sales, and revenue. The engineering development services line of business is another example of Porsche’s successful diversification strategy. It is evident from the case that Porsche excels at engineering, which offered the company an opportunity to expand its operations without damaging its primary business. On the whole, the internal situation in Porsche was stable before its takeover of VW.

The acquisition of the majority shares of VW threatened the stability that Porsche enjoyed since it is not clear whether or not the operations of the two companies should merge and to what extent. The integration of R&D functions at the two companies could threaten Porsche’s engineering development services business, although it could also help to leverage quality and operations at VW. The integration itself is also seen as problematic due to the conflicting approach of the two companies to R&D. Hence, the primary internal problem in the case is the collaboration between two companies of different size and from different market niches.

Environmental Analysis

Since there are two primary lines of Porsche’s business considered in the case, it is essential to analyse the environment with respect to both of them. On the macroeconomic level, the global economic crisis of 2008 affected the income of people all over the world, impacting the demand for luxury cars. Still, the decrease in demand provides an opportunity for Porsche to develop its engineering services since car manufacturers are willing to find new solutions to reduce production costs per unit.

With regard to competition, the situation in the automobile industry is not favourable for Porsche’s future development either. As a small manufacturer of sports and luxury cars, Porsche faces competition from a variety of companies, most of which own multiple car brands. In this regard, the takeover of VW was an excellent strategy to protect Porsche against its competitors while supporting future growth. In the engineering development business, Porsche’s competition is moderated by its competitive advantage. While other experienced and profitable car manufacturers focus on keeping their engineering functions in secret, Porsche chose the opposite option because supporting engineering development in different companies could not threaten its performance in a niche market. Still, the competition from independent engineering teams is rather significant, and Porsche’s positioning was crucial to the success of the PEG.

Scenarios and Opportunities

There are two possible scenarios for Porsche based on the information in the case. On the one hand, the company could cease its operations in engineering development services, instead combining the current forces with VW’s R&D department. This would allow the company to achieve better growth in the industry by improving engineering in VW and maintaining the same quality of engineering in Porsche. On the other hand, the company could also keep the engineering and R&D functions separate and continue the PEG operations. This could be risky due to the change in Porsche’s image following the acquisition of VW.

Recommendations and Plan of Action

On the whole, the most beneficial option is for Porsche to cease its PEG operations and focus on developing VW to achieve the same efficiency and quality of operations. At the moment, the restrictions faced by Porsche in engineering development services mean that the company is unlikely to succeed in developing both VW and the PEG. Focusing its efforts on VW by merging R&D and engineering functions would provide a foundation for continuous growth in the automobile industry, thus increasing profitability and sustaining competition in the long term. This option is preferred to continuing the PEG line of business and keeping VW and Porsche’s engineering and design talents separately since it would provide more substantial benefits.

Hence, the proposed plan of action is as follows:

1. Assess the current design and engineering capacity of VW
2. Evaluate the R&D investment needs of VW by determining areas for improvement
3. Use existing talents in the PEG to merge R&D and engineering functions of Porsche and VW
4. Establish new administrative processes needed for a large R&D department, including performance monitoring

Following these steps would assist Porsche in yielding maximum benefits from the takeover by improving the quality of VW vehicles and leveraging its global competitive position.

Introduction

Car emissions substantially contribute to global warming and the decrease in air quality. The situation is especially clamant in an urban environment where the exhaust gas from transportation is concentrated, posing a danger to human health. Oxides of nitrogen (NOx) emitted into the air from car fuel causes lung damage that can lead to lung cancer or complications in respiratory disease. That is why the amount of NOx that can be emitted by a single vehicle is regulated by the U.S. EPA for all car producers (local or imported) to comply with.

However, the pressure for time and the desire to maximize income may lead to the violation of these policies. The case study under discussion provides an example of an intentional breach of environmental regulations during the engineering process. Volkswagen scandal has become a precedent in the environmental protection practice, which made engineers reconsider their responsibility and attitude to the ecological situation. The understanding of the reason behind this case helps to see what steps should be taken to increase engineer responsibility and to avoid such incidents in the future.

The Charges against Volkswagen

The scandal around Volkswagen broke in September 2015 when the automobile construction company was accused of the attempt to circumvent the emission regulations stated in the CAA (Clean Air Act). According to Harris et al., “emission controls on certain diesel engines were programmed to operate only in a laboratory testing mode” (260). Thus the emissions of NOx were significantly lower in test conditions than in real driving. While the laboratory results demonstrated half of the legal NOx emission level, the actual amount of emitted nitrogen oxides in diesel versions of Volkswagen Jetta was from 10 to 40 times of the allowed maximum (Harris et al. 260).

Thus, the company was accused of intentional and knowing engagement in law violations. The scandal was followed by the arrests of two top executives of VW and further investigation. The corporation pleaded guilty and agreed to an extensive fine as the result of the scandal. The case has undeniably harmed the reputation of VW around the world, but it has also aroused significant concern about the responsibility of the whole car producing industry for the environmental situation.

Causes of Volkswagen Scandal

The reasons behind this corporate crime are not simple, but they still suggest that this engineering decision was not an unconscious mistake. Instead, the car developers incorporated a specific technology that showed the desired results in the laboratory test mode. Still, the question remains who is responsible for the whole crime and what factors made it happen. According to Harris et al., the top executives of the company claimed that they were not informed of the cheat (260). They still tried to delete the documentation to cover up the fraud when they found out about it. Even if these claims are true, they are guilty of imposing pressure on the engineers.

The case of Volkswagen shows how the pressure of money and deadlines affects the quality and safety of the work. As Harris et al. explain, “VW engineers realized they could not meet U.S. emissions standards, so they incorporated software that enabled the emissions control systems only when the vehicle was operating in test conditions” (261). The commercial interests of the company, in this case, took over the responsibility for safety, public health, and environmental protection. To avoid similar incidents in the future, the engineers should not be put under such circumstances and should be given more influence in the company o be able to oppose the fraud.

Ways to Increase Professional Responsibility

Such companies as Volkswagen exist for their primary purpose of making a profit, so it is only logical that they try to save costs and time for car production. Still, there are responsible for making their activity legal and safe and setting public health as their priority.

The truth is that the professional responsibility of the engineers who take vital decisions is often not strong enough to oppose the pressure they face from their employers. In order to be able to act responsibly, the engineers need to have the power to influence companies’ decisions. The best choice, in this case, is the external regulation and protection of engineering ethics by non-profit organizations.

The solution to the situation should focus on both regulating professional ethics and giving the engineers the instruments to overcome the pressure. Harris et al. suggest the idea of “pursuing engineering licensure” as the answer to the question (261). Such implementation would set several codices and regulations for the engineers to follow, as well as the means to control them. Licensure is a common practice in many professions that helps to set the standards in the industry. For example, a certified nurse has to comply with a set of rules, even if the employer does not require it. Moreover, such licensure would give the engineers the confidence in the communication with the employers as they would be able to refer to it in case of conflicting instructions.

Conclusion

The analysis of such cases as the Volkswagen scandal and their reasons is crucial in the context of the whole industry. The fraud became the precedent of engineering ethics violation that calls to the implementation of new preventing regulations. The circumstances under which the engineers worked at VW are the instructive illustration of the commercial pressure in large corporations. Strong professional responsibility is the key to oppose such pressure, but the engineers often not have enough influence. The external regulation of the occupation, such as professional licensure, would increase the sense of responsibility in the industry.

Work Cited

Harris, Charles Edwin, et al. “Volkswagen Emissions Scandal.” Engineering Ethics: Concepts and Cases. 6th ed., Cengage, 2019, pp. 260–261.

Executive Summary

Volkswagen is one of the leading companies manufacturing cars on a global scale. The organization has built a tremendous brand recognizability and a vast customer base that has helped it to retain its influence among customers on a global level. However, for Volkswagen to keep up with the pace set by the recent technological breakthrough and the development of new transportation opportunities, specifically, electric cars, Volkswagen will need a new approach toward its OM to increase the quality of its product. For this purpose, the introduction of an innovation-based operational management framework is critical to the company’s further performance in the global market.

By integrating the OM framework driven by innovations and, therefore, making the notion thereof incremental to the firm’s OM, Volkswagen will become a leader in the industry and be capable of compensating for some of its past mistakes to reduce the negative publicity that it has gained over the years. Specifically, the environmental scandal concerning the company’s attempt at forgery should be taken into account when shaping Volkswagen’s current framework for OM. The described issue has affected the company’s PR, which implies that Volkswagen will need an update on its environmental policies and the introduction of rigid standards that will assist the company in complying with the current global standards.

Additionally, the OM strategy will have to embrace the notion of innovative management as the platform for enhancing product quality and meeting the latest demands of target audiences. Due to the unceasing increase in the level of product quality demanded in the automotive industry, Volkswagen will need an innovation-based OM framework to build the competitive advantage that will help it to retain its position and even advance in the global car market.

Introduction

Company Description

The manufacturing environment has always been a very competitive industry since innovation has been the focus of the target environment. Due to the incessant need for innovative solutions to the problems of managing quality and meeting the changing requirements of customers, the manufacturing setting has been showing the signs of rapid development (Khairani et al. 2017). As a result, the companies working in it have been facing the need to adapt and evolve, challenging the set quality principles and inventing new solutions to the emergent problems (Gopal & Thakkar 2015).

Volkswagen is one of those corporations, positioning itself as one of the leading organizations and being at the forefront of technological innovation in the designated industry (Volkswagen Group 2019). However, reports indicate that Volkswagen has been experiencing certain difficulties in navigating the contemporary economic setting, specifically, due to the issues in its data management approach (Volkswagen Group 2019). Therefore, detailing a strategy that will allow Volkswagen to shape its current operational management framework will be needed. With the recent restructuring toward a future-oriented management approach, the company will have to be supported by a stakeholder-oriented, innovation-driven operational management strategy that will empower it to evolve.

Problem Statement

Volkswagen has built quite a reputation over the years of its performance, yet the firm has been in need for an update in its operational management framework for a while. Volkswagen Group has been known as a multinational organization that has established itself quite firmly in the automotive industry since 1937 (Volkswagen Group 2019). The company has been following the principles of value engineering as the cornerstone principle that makes the foundation of the company’s philosophy (Volkswagen Group 2019). Simultaneously, the principles of manufacturability have been engraved into the set of Volkswagen’s operational management standards (Volkswagen Group 2019).

Although being quite innovative at the time and providing the organization with a leeway in shaping its customer relationships, the proposed techniques require an urgent update (De Boer, 2018). The focus on introducing an innovation-driven approach toward operational management along with a people-oriented leadership technique pose a substantial problem due to the need to increase the firm’s unit sales, profit margins, and the number of customers.

The loss in the competitive advantage due to the inability to reconsider the current operational management framework is one of the key causes of the largest concern for Volkswagen. Since the company’s largest market is currently represented mostly by Europe, particularly, European organizations, the company should see retaining these buyers and, thus, its leadership in other markets, particularly, Middle East and especially UAE, as one of the primary sources of concern. In addition, the current approach toward the product mix strategy utilized by Volkswagen has proven to lack efficacy, which causes an even greater loss of interest among general audiences and potential stakeholders toward Volkswagen’s product (Mishra et al. 2019). Therefore, Volkswagen has to consider developing a sustainable approach toward operational management.

Volkswagen’s Competitiveness

At present, the company enjoys a fairly impressive position in the global automotive industry. Despite minor issues in its recent public relations and problems with environmental management, the firm has been at the top of the car manufacturing industry along with several other companies. The latter include major corporations such as Toyota, BMW, Renault, KIA, Hyundai, Ford, Mazda, Audi, and several others (Johansson et al. 2016).

Organizational Management

The current approach toward organizational management is worth appreciation since it demonstrates Volkswagen’s focus on its employees. The integration of the approaches that allow increasing satisfaction levels among the firm’s staff members has led the company to create a perfect human resource management approach. Consequently, the levels of engagement remain constantly high. However, arguably, the integration of changes may cause resistance among employees, which can be addressed by integrating the tools such as financial incentives and the rearrangement of the existing benefit package.

Volkswagen’s Operational Strategy

Operational Strategy Description

Volkswagen has been known for being one of the pioneers in the car manufacturing market and developing innovative ideas to promote its evolution. The integration of value engineering and the notion of manufacturability as the cornerstone of developing a unique operational management have been the key assets of the company for a while (Volkswagen Group 2019). Arguably, the company can be deemed as responsible for coining the notions in question and ushering a new era of manufacturing based on the focus on sustainability (BuHamdan et al. 2019). Indeed, by definition, the phenomenon of VE is expected to provide the foundation for incessant growth (Yunus et al. 2016).

Heralova (2016) defines VE as “the systematic process of review and analysis of a project” (p. 364). However, the recent challenges that Volkswagen has had to endure, the scandal with the environmental issues being the key one, the firm will need a new approach toward its operational management. Thus, Volkswagen will be capable of proving that it has remained the beacon of quality and efficacy in the automotive industry. (BuHamdan et al. 2019). The proposed tools will increase the extent to which potential buyers and partners will be ready to believe in Volkswagen’s ability to meet the constantly changing requirements of the global market.

Supply Change Management Framework

The choice of a supply chain management (SCM) framework determines the efficacy of the production process since its functioning defines how fast essential items are delivered for the further assemblage and delivery to the retailer. Due to the vast range of items that have to be delivered to the organization and the huge number of stations that they have to pass before reaching their destination, the SCM processes at Volkswagen require high precision and velocity (Volkswagen Group 2019).

Currently, the principles of environmental compatibility are deemed as the foundation of Volkswagen’s strategy: ‘By the time a raw material has been transformed into a component installed in a Volkswagen, it will have passed through some 15,000 stations in the course of its production, treatment, finishing and transportation’ (Volkswagen Group 2019). However, in order to reach even higher efficiency in its performance, the organization will have to support its current SCM framework with a more profound and coherent information management framework.

At present, Volkswagen seems to underestimate the power of innovation. The introduction of innovative tools minimizing risks associated with SCM processes will allow Volkswagen to increase its current competitive advantage significantly. However, when integrating innovations into its operational management system, Volkswagen will have to embrace the limitations of the available approaches toward building a corporate innovation-based philosophy.

The focus on quality and the inclusion of innovations that are expected to minimize failures in the SCM process will have a slight effect on the speed of the SCM (Mishra et al. 2019). The innovations causing a rise in the speed of product or supplies’ delivery, in turn, may imply loss of quality in the process (Mishra et al. 2019). Therefore, for Volkswagen to rise its competitive advantage with the help of an innovation-driven framework, the use of efficient innovations, which allow balancing between the two extremes, will be the most desirable outcome.

Current Operations and Effectiveness

SCM and Business Success

A properly set and maintained SCM system gives an organization a range of opportunities for pursuing its goals. Furthermore, when run with the help of a well-established framework, the processes within it are performed mostly automatically, which gives an organization a leeway into exploring multiple options in other domains, such as R&D, public relations, and expansion into new markets (Volkswagen Group 2019). At Volkswagen, the company’s success is tied directly to the efficacy of the firm’s SCM framework (Volkswagen Group 2019). Thus, the current SCM strategy allows increasing the shareholder value of the organization, yet it fails to maximize it due to the company’s refusal to accept an innovation-driven philosophy into its set of values.

SCM and Quality Management

The existing SCM approach allows addressing major quality concerns, which is especially important for Volkswagen after the recent scandal. Having been exposed for tempering with quality tests and forging their outcomes, Volkswagen has been determined to restore its reputation (Mishra et al. 2019). However, the lack of consistency in the application of innovations as the vehicle for keeping the quality levels consistently high has been the source of concern.

SCM and Sustainability

While Volkswagen’s current approach toward SCM processes may deserve substantial critique for the lack of effective tools for managing time and people, the firm’s approach toward environmental issues remains impeccable. The recent update in the organization’s SCM policies has been shown to be especially encouraging toward a cautious attitude to the environment (Mishra et al. 2019).

The 2019 report shows that the organization has been driven toward sustainability and environmental friendliness (Busse et al. 2016). Specifically, the current SCM used at Volkswagen is geared heavily toward the maximum use of renewable resources. According to the official release, the use of kenaf, renewable raw materials, and secondary raw materials is presently deployed to meet the company’s new goal, which is ‘reducing CO₂ emissions over the entire vehicle life cycle’ (Volkswagen Group 2019). Volkswagen definitely should be credited for making such a great effort in advancing the ideas of sustainability and careful use of resources in the context of the manufacturing industry.

Internal and External Factors

The performance of Volkswagen in the global market is currently defined by several crucial extraneous factors, as well as the changes within the context of the organization itself. To create a coherent and improved operational management strategy, one will need a profound introspect into Volkswagen’s current approach toward managing outside influences and addressing internal problems, as well as using its inherent assets to its advantage.

Internal Factors: SWOT

Table 1. Volkswagen: SWOT.

As the SWOT analysis performed above has shown, the unique and outstandingly strong presence in the global economic environment is the key advantage that Volkswagen can currently boast in the automotive industry. The firm has earned quite a name over the decades of its performance in an array of markets, which has made it a household name. Although Volkswagen admittedly has to compete with the organizations whose brands have been established just as well in the target setting, such as Toyota, Honda, and Hyundai. The operational management strategy, in general, is also an undeniably important asset of the company and its evident competitive advantage. However, the lack of innovation-driven management calls for the rearrangement of the existing approach and the introduction of opportunities for unceasing development.

Internal Factors: Five Performance Objectives

Despite the presence of certain opportunities for improvement, the efficacy of operational management at Volkswagen should not be underestimated or believed to be inferior to that one of other companies working in the automotive sector. On the contrary, the operational management levels shown by Volkswagen are worthy of appreciation as outstanding for the designated area of expertise and the required level of performance. Given the current workload at Volkswagen, specifically, the number of cars produced daily, the length of the organization’s supply chain and the range of operations that Volkswagen has to perform in order to meet its objectives, the current operational management approach can be deemed as excellent (Mishra et al. 2019). That being said, there are opportunities to improve it by creating a setting in which the firm will always be one step ahead of its rivals.

External Factors: Porter’s Five Forces

In order to examine the issues that Volkswagen has been encountering in the global market, a thorough and all-embracive study of the forces that shape companies’ behavior and define their operational management approaches is needed. As the results of the assessment based on Porter’s Five Forces has shown, Volkswagen has been affected to a considerable extent by the ease with which new companies can enter the automotive industry and advance in the global market within a short amount of time (Mishra et al. 2019).

Table 2. Porter’s 5 Forces: Volkswagen.

On the other hand, Volksewagen’s current position in the market is defined to a large extent by the factors such as market prices for cars. Therefore, while the described element cannot be controlled by the organization, it still can boast a rather low level of customers’ bargaining power due to the nature of the produced goods (Mishra et al. 2019). Similarly, the bargaining power of Volkswagen’s suppliers is quite low, which increases the company’s profit margins and increases the efficacy of its operational management.

Since the resources required to produce cars and car parts are quite common, and the suppliers of Volkswagen are easily interchangeable with other organizations offering similar services, the bargaining power thereof is very low (Mishra et al. 2019). Thus, Volkswagen is capable of maintaining the extent of its expenses comparatively low across its entire supply chain (Volkswagen Group 2019). Consequently, the operational management processes are run at the lowest possible cost and simultaneously meet the highest quality standards set in the industry.

The threat of new entries might seem like a big problem for Volkswagen since officially there are very few obstacles for organizations to become members of the automotive market. However, on a second inspection of the issue, one will notice that the financial constraints create the threshold that many minor companies fail to cross in order to become a part of the global car market (Niaki & Nonino, 2016). For instance, the phenomenon known as the economy of scale protects Volkswagen and other major companies from having to compete with new entrants to the automotive industry (Volkswagen Group 2019). For this reason, the principle of additive manufacturing is often incorporated into the management of operational management processes, as Baumers et al. (2016) explain.

The statement above also indicates that the urge to introduce an innovation-driven philosophy to the context of operational management is essential to the functioning of an organization such as Volkswagen. The significance of innovation-based decision-making and the application of the corresponding approach that suggests a more effective management of data is presently very high for Volkswagen since the company has already faced several situations that made its potential buyers question Volkswagen’s legitimacy (Siano et al. 2017).

Consequently, Volkswagen will have to invest in the further development of additive manufacturing (AM) as the vehicle for improving its operational management and increasing its profits (Baumers et al. 2016). The described model suggests that the organization should be able to reduce its expenses in the long term, making its operational management process more cost-efficient.

As far as the substitutes are concerned, there are several options that potential customers may use quite effectively instead of cars. However, these options mostly include public transportation, which reduces the flexibility of the transportation process for customers and, therefore, is unlikely to become a significant hindrance to the company’s performance. Overall, the Five Forces analysis has shown that Volkswagen’s operational management framework is defined mostly by the need to meet the ever-changing quality standards.

In order to remain relevant and deliver the products that will not be easily substituted by emergent firms, Volkswagen will need to incorporate the principles of AM and innovative operational management into its corporate philosophy. The proposed change will cause a large shift in the quality management framework within Volkswagen’s operational management, incentivizing staff members to make their best efforts to deliver the end product of excellent quality. Specifically, the threat of errors made at the production stage of the operational management process and the cases of misinformation within the supply chain framework will be minimized.

External Factors: PESTLE

Another set of issues that affects a company’s performance in the environment of the car manufacturing industry is related to the legal and economic environment in which an organization operates. For Volkswagen, the described setting is mostly represented by the global market with the corresponding standards for economic, political, and legal transactions. The presence of extraneous factors that may restrict the performance-related choices and options of the selected organization in the global economy needs to be examined in order to determine the efficacy of a firm’s operational management framework. Currently, Volkswagen seems to meet all of the standards set for the specified characteristics in the global market, yet the use of innovations as the vehicle for the promotion of the company’s development could have added a greater boost to Volkswagen’s performance.

Table 3. Volkswagen: PESTLE Analysis for UAE.

As Table 3 shows, the company has been particularly cautious about meeting the environmental standards set in the global market an especially for improving its positions in the UAE economic environment lately. The described tendency is defined by the organization’s past mistakes, which involved the use of environmentally unsound practices and the following scandal (Rhodes 2016). Due to the negative publicity that the firm received, changing the approach toward the resource management in the context of its operational management framework was essential (Rhodes 2016) to retain its customers (Rhodes 2016).

However, for Volkswagen to attract new audiences, the approach that it has been taking regarding its operational management processes is not enough. Apart from focusing on avoiding the decisions that can be labeled as non-environmental, the company should also introduce the principles that will help it to select the most advanced strategies in addressing environmental concerns. Herein the significance of an operational management based on the phenomenon of innovation management lies.

The dependence on suppliers and the threat that miscommunication poses to the company’s reputation in the global market also deserves a discussion. As explained above, Volkswagen has recently faced a scandal concerning the reliability of its products, which was caused by the problems in communication with suppliers, as well as the quality of raw materials, in general (Markman & Krause 2016). Therefore, it is essential for Volkswagen not only to introduce innovative tools for quality management but also consider the idea of reinforcing its corporate values across its supply chain. Specifically, the dialogue with suppliers will have to be built, which is going to be comparatively easy given the low bargaining power thereof.

Five Objectives: Quality, Cost, Speed, Reliability, Flexibility

In order to meet the set standards, the company should also take into the consideration the model of five objectives. While Volkswagen can afford investing into the latest technology, enhance R&D, and use the most advanced materials in its operational management processes, the company still needs to find balance between the Quality, Cost, Speed, Reliability, and Flexibility of its operational management processes. The described objectives have a direct impact on the enhancement of operational management processes and a clear impact on the efficacy thereof. However, the relationship in question is more complicated than either a direct or inverse proportion.

For instance, assuming that an organization should pursue a drop in costs along with an increase in quality, speed, reliability, and flexibility of its operational management operations might seem as natural. However, for companies of Volkswagen’s caliber, reducing costs may entail obtaining less advanced materials, which, in turn, will mean a drop in the speed of operational management, the flexibility of the firm’s choices, the reliability of the tests and the quality of manufactured cars, including the levels of driver and passenger safety (Durach & Wiengarten 2017). Thus, Volkswagen will need to navigate between the described notions to select the appropriate ratio of each of the five concepts.

Presently, Folkswagen has shown an impressive skill in managing the ratio of the five components in question. However, the incorporation of incremental innovations as an element of the operational management policy that will inevitably affect its SCM processes, a rise in costs is an expend outcome. Simultaneously, a vast increase in quality, flexibility, and reliability is expected to take place. However, the speed of operational management processes may slacken due to the introduction of new components associated with innovative technology (Trapp et al. 2016). Therefore, it will be critical to incorporate the latest data management approaches and provide employees with the necessary training in order to keep the speed of operational management tasks implementation at the needed level.

Suggestions for Improving the Current Position

Quality Management Framework: Proposed Improvements

Presently, it is highly recommended that the organization should integrate the principles of innovation-driven quality management. Volkswagen has been known to be one of the first car manufacturers to integrate the key quality management tools such as the Six Sigma approach, TQM, and other tools into its quality management framework. However, the incorporation of multiple regression models to evaluate the end product quality and ensure that it meets the set quality standards should be seen as necessary (Neves et al. 2018). The proposed step will simplify operational management decision-making at Volkswagen.

Communication Techniques: Recommended Solutions

Currently, it is critical to prompt the use of innovative tools into the SCM processes at Volkswagen. Although the organization has already established a rather impressive supply chain on the global scale, the current problems in the miscommunication concerning materials, local standards, and especially the dialogue with suppliers. The latter poses a particularly difficult obstacle for the company to overcome since the problem of unreliable suppliers has been one of the issues affecting the organization to the greatest extent, as the analysis above has shown.

Miscommunication with suppliers is one of the key problems in the SCM established currently at Volkswagen, as the analysis above has shown. Although the company has undertaken several measures to prevent similar scandals from taking place in the future, it is critical to build a system in which the described issue will become impossible or, at the very least, highly implausible. The focus on incremental innovation as the essential component of the operational management framework within the supply chain is expected to become the basis for avoiding the instances of miscommunication in the future.

Integration of Strategic Planning as a Critical Tool

The use of strategic planning should also become an inseparable part of Volkswagen’s SCM and the operational management strategy, in general. Although the principles of strategic planning have already been established within the company’s system, their implementation seems to be hindered by a range of constraints, the pressure of time and inconsistencies within the company’s supply chain being the most common and frequently occurring ones. Within the context of Volkswagen’s SCM and specifically operational management, the described change will have to reflect the processes associated with logistics and especially procurement. As recent studies have shown, the lack of effective communication with suppliers has affected Volkswagen’s ability to produce the cars of the required quality (Kshetri 2018).

Thus, a redesign of the operational management processes within the supply chain of the company are overdue, with data management being the primary area of focus within the SCM process. The described change will imply the synchronization of Volkswagen’s supply chain and the subsequent increase in the efficacy of information and materials’ transfer (Gunasekaran et al. 2017). Consequently, the issues such as the omission of critical defects in end products, as well as delays in the delivery of the aid raw materials and the resulting pause in the production process will be avoided successfully.

The use of the strategic planning method will require Volkswagen to focus on innovative management as the method of reducing the negative impact that its operational management entails and following the principles of environmentalism closely. While the organization has shown the inclination toward following environmentally safe practices after a recent scandal mentioned above, there has been no remorse displayed by the leaders of Volkswagen, which has affected the company’s public relations negatively. Therefore, the integration of innovations that involve information management techniques and quality improvement strategies should be geared toward a better use of the available resources and innovative tools for minimizing waste.

Changes in Performance Measurement Approaches

The organization will also have to experience substantial changes in its approach toward measuring its overall performance in the target market. In order to avoid the embarrassment that the organization faced when trying to game the standards for CO2 emissions and make its products pass the test under the conditions without which it would have never shown the necessary results otherwise, Volkswagen will have to develop new performance measurement standards. The evaluation of the company’s operations and the location of hindrances in the operational management system, as well as its SC, in general, will be the first step toward the evaluation of changes.

The next step will need the approach that will lead to minimizing waste, which can also be achieved by considering some of the innovative tools for reducing the amount of produced waste in the car manufacturing context. However, of all the steps to be made by Volkswagen in the framework for performance measurement, the firm should deem the inclusion of the assessment of sustainable manufacturing process as the crucial one. The identified measure will imply a twofold analysis, specifically, the estimation of the actual levels of waste and the perceptions of the subject matter by staff members. It is critical that employees’ perception of waste should embrace the extent to which waste affects the environment and the company’s reputation.

For instance, the KPIs that allow to reflect the current situation concerning the efficiency of the manufacturing process, to monitor Volkswagen’s operational efficiency, to focus on introducing incremental innovations, and to gauge the usefulness of choices made in the operational management and SCM contexts will have to be utilized in the process (Kshetri 2018). The resulting shift in the evaluation of a company’s performance will encourage an improvement across the supply chain on a global level.

Financial Projections and the Related Issues: Budgeting

Presently, Volkswagen will have to focus excessively on the management of its R&D processes and the boost provided for its supply chain in order to maintain its dominant position in the global market. With the introduction of the standards for innovation-driven management into its operational management, the company will need to reconsider its current approach toward managing costs and reshape its budgeting approach, in general.

Specifically, a substantial number of resources will be spent on the promotion of an innovation-focused management system in the operational management setting and the training of staff members to ensure that the quality of the end product stays at the set mark. With the application of the described strategy, the financial assets of the organization are expected to grow despite the continuous investment into the development of innovative management strategies and the creation of the platform for it. As Appendix A shows, Volkswagen’s new, innovation-driven approach to operational management is expected to justify itself financially within the next five years, at most.

It is believed that the focus on investing in the promotion of innovative management and the emphasis on the enhancement of R&D within the operational management system will boost the operational management processes and allows systematizing them. In addition, a change in the general quality of products is anticipated. With the emphasis on innovation as the cornerstone of the firm’s philosophy, Volkswagen will implement the operational management and HR approaches that will encourage employees to acquire new skills and gain new competencies for managing the key tasks more efficiently. Consequently, the company may experience a significant increase in produced units, as well as be capable of raising the price per unit without reducing the pool of potential customers.

It is highly likely that, without a strong competitive advantage apart from the one that the organization already has, buyers are going to resort to purchasing cars from other manufacturers for a more reasonable price. However, combined with an easily recognizable brand identity, the focus on innovation and the introduction of new features into the range of characteristics that Volkswagen’s cars possess, the chance of not only retaining loyal customers but also gaining a new clientele will increase exponentially. The constant increase in the price per unit is justified by the investment in developing innovative features of the established products with memorable and easily recognizable brand image and identity.

While the described projections might seem somewhat unrealistic, they are based on the current revenue of Volkswagen. Therefore, the company will be able to eliminate the problems associated with the management of time and prevention of defects in car manufacturing. Consequently, together with the quality of produced vehicles, a rise in the levels of users’ safety will be observed. The described change will occur simultaneously with the increase in the extent of staff members’ proficiency and professionalism due to the focus on innovative thinking and innovation-driven operational management.

Conclusion

Due to stiff competition in the global automotive industry and the problems in environmental awareness and communication with its customers that Volkswagen has recently experienced, the firm will require an approach rooted in innovation management and the incorporation of incremental innovations into its design. Thus, the quality of products will rise exponentially, whereas the dialogue between key stakeholders within Volkswagen’s supply chain will allow reducing the incidents of miscommunication.

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Appendix A Volkswagen’s Financial Projections (2020-2023)

Introduction

Negotiation, as Churchman (1993) puts it, is the process of trying to get concessions and agreement from the opponent. Negotiations do happen in a variety of areas, ranging from businesses to making peace deals within a nation or between nations.

The business world has been increasingly getting competitive day by day, with many large corporations and government agencies having a cut throat approach to acquiring big business deals and contracts all over the world. It has consequently left many multinational companies and government agencies to think more about their long term strategies of communication and business negotiations that can give them an upper hand over their competitors in acquiring these business deals.

It therefore means that for any large multinational company or a business entity to prosper in the global economic system, it’s quite clear that people in charge must be willing to communicate, negotiate, and most importantly accept what is offered by the other party in a strategic manner. This leads us to an insightful knowledge that for a successful negotiation process, the negotiating team must have some aspects of basic bargaining or negotiation power and behavior for the deal to be successful.

For example, it is agreed by many international business scholars that for any international business negotiation, there must be a certain influential outcome of interaction that occurs between negotiators from different cultural background or countries due to the assumption that they are generally more complex and time consuming than if such negotiations involved people from same cultural backgrounds or country (Harris and Moran, 1981). It is therefore prudent to adopt a good knowledge of specific cultural characteristics, traditions in business structure and conditions of the negotiating parties (Nierenberg, 1992).

Case study: Volkswagen and China

The Volkswagen, Germany-based automaker, made an agreement with the Chinese government to establish a manufacturing plant in Shanghai, after a long negotiation that took six years to complete.

The deal that involved several government authorities of the Republic of China, that is, Ministry of Foreign Trade and Cooperation, State planning Commission, the State Economic Commission, the Ministry of Finance, the Bank of China (BOC), The Municipal Government of Shanghai, and the National Automobile Industry Corporation (CNAIC), began in 1977 when the China National Technical Import Corporation approached Volkswagen, followed by a visit at the Volkswagen Headquarters in Wolfsburg, Germany by the Chinese delegation in 1978n (March, 200), The Volkswagen delegation visited China the following year, 1979, where venture contract, technological transfer agreement, articles of association, supply agreement, and planning agreement were negotiated.

The China’s first major venture agreement was completed in 1984 when the two negotiating parties signed the agreement in 1984, giving way to what would become the most successful automaker in history to venture into the Chinese market with a big competitive edge (March, 200).

The objective of this negotiation

Such a big business deal cannot go unnoticed without some analysis on the basis in which it prospered. It is therefore possible to assume that there were some principles of negotiations that took center stage at the beginning and process of the deal-making or negotiation, which eventually led to its successful completion and execution. Secondly, there must have been some basic elements of common understanding between the negotiating parties, with special vested interests as the driving force that leading to the objective setting for this negotiation. In principle, the Chinese government involvement of their corporation (China National Technical Import Corporation) was a sign that they wanted to get the economic uplift in terms of technology and trade.

This was the essence of the government’s ownership of a half of the shares through its local companies Shanghai Tractor and Automobile Corporation (STAC), Shanghai Trust and Consultant Company, and the China National Automobile Industry Corporation. The Volkswagen Company on the other hand had found the opportunity to be the foreign market leader by expanding their manufacturing base to China, thereby increasing their capital base in the markets outside Europe to capitalize on the then less explored market hence increasing competitiveness (March, 200).

Results of negotiation

The deal was sealed and it eventually led to the establishment of the first manufacturing facility in Shanghai in 1986 with a capacity of manufacturing 30, 000 vehicles with sales less than 30, 000 (March, 200). By the year 2003, there were two plants manufacturing about 400,000 vehicles annually. The company has therefore achieved their goal of market leadership through the quality of their product, good reputation, and pricing that has set them apart from other automakers. This success has also led to Volkswagen’s plan to import a relatively cheap Skoda make for low market segment (March, 200).

Negotiation Approaches

There are different approaches to negotiation as manifested in this particular deal between Volkswagen and the Chinese government. As observed by Requejo &Graham (2008), bargaining is a daily occurrence in human behavioral approach to striking a deal that does not belong to one particular discipline hence the multidisciplinary nature approach that has been applied over the period globalization. It therefore follows that when negotiating for any particular agreement, it is advisable not to stick to a certain type of art, but to be flexible enough and offer alternative solutions to the way issues emanate (Fisher & Patton, 1991).

Therefore negotiation can be subdivided or segmented in different ways in order to get simple and basic principles to understanding each other as seen in this particular case. As stated by Requejo &Graham (2008) some of the basic elements that have been applied over long period of time are: process, behavior and substance of negotiation.

The process involved how parties lay down their negotiation, that involve the context, the team to be involved on negotiation, the tactics that the parties use in approaching the negotiation, and finally the process, stages and sequence of negotiation that the parties come up with (Fisher & Patton, 1991). The behavior implies how the parties relate, how they communicate and the styles of approach day by day, while substance on the other hand indicates the actual issue to be negotiated on that comprised the agenda, positions and interest of each party, the options and the actual agreement at the end of negotiation (Hall, 1981).

In other a different concept, one may view negotiations in terms of strategy that entails main goals and the expected outcome, process and tools that involve the steps taken as well as role of each party in the negotiation process (Hall, 1981). Finally, the tactics of each party that they apply to their advantage, involving actions and response to the actions of the opposite party (Butt, Choi & Jaeger, 2005)

Volkswagen team member in the negotiation Heinz Bendlin observes in his own words the experience he got when negotiating with Chinese that, “ I learnt in China that Foreigners tend to have a typical mode of behavior. They want to achieve result quickly, get answers to all their queries, and immediately come up with solutions to problems. But in China one has to be patient and be prepared to spend considerable time solving problems step by step.

Setting deadlines or showing impatience leads to disadvantages in negotiations” (March, 200)). This statement exposes one element of negotiation, time, that is a very important aspect during negotiation. If well planned and used effectively, can generate positive result in any negotiation process. Aspect of time is viewed differently across culture as manifested in negotiating with the Chinese government negotiators (Forgas, 1998).

Another example is the Americans approach. As Hall (1981) puts it, the American are ever impatient in making business deals, that “they keep on looking at their wrist watches” when things slow down unexpectedly, hence the “just make them wait” strategy used by many nations and large corporations in the past to win business deals against Americans. So the point is to make the deal delay in order to get more concessions from other negotiating partner as applied by the Chinese, since research has also found that Germans too express impatience just like American, and thus once they (Chinese) know that the other partner is impatient, they would surely pull that to their favor (Maiese, 2005).

Another of Bendlin’s statement that concerns the negotiation team when he says, “The Chinese like to negotiate in large groups. Fairly frequently, three or four VW people negotiated with ten to twenty Chinese. However, typically only one would speak while the others took notes. They were all disciplined.” In this aspect, it is clear to note that Chinese like diversity in terms of idea generation, a feat that is achieved by bringing all types of expertise on board during negotiations (March, 200).

Butt, Choi & Jaeger (2005) advises that diverse groups that comprise different gender groups, extroverts and introverts, different specialists and experts, and many more is the source of goldmine creativity in any negotiation process. Chinese used this effectively and to avoid mixed-up, they approached through delegating duty to one of them to do the talk while others listened and took note (March, 200).

The approach of bringing different people from different diverse background of specialization is a clear way of avoiding resentment after the deal has been made as observed by many experts. The issue of consistency also appears in the negotiating team. According to Graham, Alma, Wimsatt & Rodgers (1994), a team that keep on changing the personalities can hardly reach any consensus as each new member would strive seek recognition and thus bring the team back to more repetitive explanations. It is therefore logical to maintain the same term that began the process throughout as Volkswagen advises.

The other way of manipulating situations in the negotiation is to asking questions more frequently or repeatedly by the Chinese people. It was found out that 70% of all statements Chinese make during negotiation are repetitive in nature and in a more confusing and friendly manner (Barry, Fulmer & Kleef, 2004), thus justifying Bendlin’s statement that, “there were times when they would cultivate friendship, seemingly to manipulate situations. Our Chinese partners also frequently ask us to explain matters several times. This was not a sign of insufficient professional knowledge on their part, but just a tactic…” ( March, 200).

In this approach, the Chinese cultivated the culture of questioning repeatedly to confirm weather the other party (Volkswagen) was consistent with their proposals and ideas. This is in line with the principle of polite coercion as explained by Hall (1981), that if the other party who answers the questions are never consistent with their answers, then they are likely to be pinned down and concede further, to the advantage of the frequently questioning party.

The process of negotiation can comprise the elements of influence as seen with Chinese. Volkswagen implies that Chinese, like many other countries, normally use mass media to influence the process of negotiation to their advantage and that “it’s not all about winning at all cost in the negotiation but t recognize that whether one is the buyer or the seller, both parties must align their reachable goals in a more practical way” (Requejo &. Graham, 2008)

As seen in this deal, it is also important to understand that the idea of emotions is very important in the analysis of negotiation process. The advise by Volkswagen not “become nervous” when dealing with Chinese even when they use mass media to influence their position is a clear indicator on how emotions can play important role in negotiation process (March, 200). Even though discovered recently, emotions have proved to be a very important aspect in negotiation process.

Butt, Choi &Jaeger (2005) observed that emotions are able to either generate positive or negative outcome of the negotiation as and that the decision to settle and rest is partly due to emotions of the negotiating parties. He states that when people are on the negotiation table, it is possible to generate negative emotional behavior or irrational conducts can scuttle your chances of getting a better deal or even breaking the process in general, while positive or rational emotions can easily facilitate positive and more acceptable deal and even fasten the relationship (Butt, Choi &Jaeger 2005).

In their study, Butt, Choi &Jaeger (2005), found out that people with positive emotions or moods have more confidence and even a higher tendency to collaborate with the other party. During the negotiation, best results are achieved through more enjoyable interactions between the positive people who will tend to use less aggressive tactics and behaviors and instead stress on more cooperative behavior (Maiese, 2007).

This will consequently increase the probability of the parties reaching their ultimate goal and drive the accruing benefits of the sealed deal due to the fact that they tend to honor the agreed deal to the latter without fail as compared to negative thinking people (Butt, Choi &Jaeger 2005). It is explained that this is because they are likely to follow the right decision making process because of their flexible nature, creativity in solving problems, more respect for the new and opposing ideas, and readiness to in risk taking (Barry et al. 2004).

On the other hand, negative emotions have been proved to have detrimental impact on the negotiation process. As Forges (1998) puts it, indifferent or angry team of negotiators affect the negotiation process negatively because they tend to use more competitive tactics and show less commitment even before the negotiation starts, that is, they are less cooperative in their arguments, hence reducing the chance of analyzing the joint outcome of the negotiation process. In the process, if any team appears angry, they evoke anger in the other team hence the elements of mistrust evolves which consequently leads to shifting of goal post every now and again in an attempt to retaliate (Maiese, 2005).

However, Maiese (2005) further acknowledges that legitimate expression of anger can mean the party’s commitment and sincerity to the process. This fact is supported by Forgas (1998) whose research findings found out that negative emotions tend to cause “the arousal mechanism” effect through the devaluation of the other team especially if they are from different ethnic background thus making the opposing party move to submission.

Butt, Choi & Jaeger (2005) even goes further to explain how most people react to another partner’s emotions in a reciprocal manner in his study of “multiple-phase negotiations and emotions” by highlighting some of the specific emotions and their effect on the opponent’s feelings and the strategies to counteract the feelings.

He states that anger led to the opposite side conceding more, less favorable evaluation of the whole process, and more importantly provoked the opponent’s dominating and the yielding behavior, while pride yielded to opposing partner’s integration and compromising strategies application, while on the other hand, guilt on one party led to the opposing party demanding more and expression of satisfaction, and a show of disappointment created bad impression of the opponent (Butt, Choi & Jaeger, 2005)

There is also the aspect of group emotions in negotiation. Scholars have studied group emotions and concluded that what one party feel as a group is very important in the negotiation process as it determines whether the process will proceed or not. One party’s positive emotion will determine and signal the response from another party since this will give the opposite party no chance to engage in negative approaches and irrational behaviors, thus influencing progress (Maiese, 2005).

These two emotional effects (positive and negative) were well expressed in the negotiation between Volkswagen and Chinese. It was clear the Chinese were invoking the Volkswagen team into submission through the use of media. On the negotiation table they stayed clam and disciplined all through according to accounts by Heinz Bendlin, asking numerous questions repeatedly, not as a sign of ignorance but a strategy to get the Volkswagen team to their own submission especially if they (Volkswagen) fumbled in their explanations (March, 200).

Heinz further explains that as a negotiating team, you should all strive to talk in one voice and avoid confrontational arguments amongst yourselves as this would show disharmony and lack of clarity in the negotiating team. Instead, you should strive to solve your problems during breaks or even ask for a break to consult as a way of showing coherency and unity in the whole process (March, 200). According to Butt, Choi & Jaeger’s (2005) analysis, it is good to maintain calmness and regret less even in periods when the opponent seems to not yielding to any conclusion, as the show of otherwise would give them (opponents) an undue advantage and place more demands.

Values of Management

There are values of management or managerial values that have been identified to place international negotiating parties in dilemma depending of the culture placed on them by each country or region. Graham, Alma, Wimsatt, & Rodgers (1994) identifies these values as; competitiveness, objectivity, and equality. In the objectivity perspective, Chinese, just like Americans, make decisions based on pretty hard facts as manifested in this negotiation case study.

For example, Volkswagen advises that when negotiating with Chinese people, “explain facts and figures and your ideas as often as you are asked to do so” (March, 200). According to Fisher, Roger & Patton (1991), Americans too make decisions based on hard facts and they know how “separating the people from the problem” is important in the negotiation process. That is to say, they know the value of substance and personal relationship but at the same time they do not mix the two when it comes to business negotiation, a trait shared by the Germans (Churchman, 1993).

Perhaps this is what the Chinese understood from the Germans during the negotiation and played it safely to the success of the deal. Similarly, experts advise that when dealing with high cultured communities like the Chinese, it is very important not to separate the two aspects, personalities and substance, since this would adversely affect the whole perception due to the fact that these communities hold personality’s impact on businesses dearly (Graham, Alma, Wimsatt, & Rodgers, 1994).

It would therefore be prudent to assume that the Volkswagen team had this in mind when dealing with Chinese, considering the fact that Volkswagen’s team tried to display patience and calmness, even with persistent explanations of facts to them.

The other aspect of negotiation that came into play is the competitiveness and equality in the negotiation table. Graham (1994) displays competitiveness in a simpler manner in his study, Exploration of Negotiation behaviors in Ten Foreign Countries, saying that in the study, Chinese demonstrated both competitive and cooperative behaviors in commercial negotiations, while Germans behaved more competitively. This study may explain the Volkswagens success in taking slightly bigger pie in the deal, ending up with 53% of the total shares of all the sales (March, 200)

The Culture variance and negotiations

In more complex scenarios in negotiations, Chinese, unlike Americans and other western countries, prefer giving a holistic approach to negotiation where all issues are discussed and concluded at once with no order or sequence, and concessions occur on all issues at the end of the discussion (Graham, Alma, Wimsatt, & Rodgers, 1994). On the other hand, while the western countries like giving the whole discussion a procedural approach by discussing issues one at a time, and finally coming to a conclusive summary at the end of all smaller agreements (Graham, Alma, Wimsatt, & Rodgers, 1994).

Who knows whether the Volkswagen team knew this negotiation style of the Chinese? Or the Chinese had known the German’s (Volkswagen’s) approach? May be it would be in order to assume that the two teams had known each other as they approached the negotiation process. As Maiese, (2007) states, “to a Chinese negotiator, the process of negotiating a business deal is a prime time to develop long tern business relationship with a sole and major purpose, economic prosperity, and not the process or the content of the talk, while a westerner will look at it in a problem solving opportunity, where the eventual outcome is the solution that benefits both parties in a way.”

Churchman (1993) thus states that the fundamental difference in self image and expression of culture will in total influence the behavioral predispositions in the international business negotiation setting. It would therefore be right to assume the Germans used the objective approach as a guiding principle in the whole negotiation process to fill the gap of cultural divergence that existed between the two teams and to help them focus in the common principles of the particular negotiation.

Responses to negotiation

In general, Shell (2006) identifies different types of responses as manifested in the negotiation process. The responses will come to play depending on the cultural believes of the parties, the context on which the negotiation is based, and most importantly the interests of each party at display. Shell (2006) therefore sums the traits as; accommodating, avoiding, collaborating, competing, and compromising. He states that accommodating aspect in an individual will make the individual have fun in solving the problems of the other party and strive in the preservation of their relationship as partners.

Shell (2006) states that accommodative people are sensitive to the other party’s emotional reactions as reflected in the body language, and both in verbal and non-verbal signal as expressed by the other party. The avoiding characters do not enjoy negotiation and mostly do it under pressure, when every situation is at stake and they usually defer issues to avoid confrontations, and ironically, the other party may perceive that this is just a tactic or diplomatic style to get the deal on track (Shell, 2006).

He states that the collaborating group as those who find negotiation entertaining and enjoy the process especially if a tough and complex issue is to be solved and that they would use negotiation process to listen to the concerns of the other party, but unfortunately can make the whole process complex through their critical analysis (Shell, 2006). The competing lot on the other hand enjoy negotiation simply because it present an opportunity to win a particular deal thus the strong instinct in their strategic approach to negotiation. This however, makes them cross swords with the other parties because they tend to neglect the long time relationship implication in any deal making process (Shell, 2006)

Lessons learnt

In the Volkswagen and Chinese deal, it is clear to understand why there is interesting aspects in the process of negotiation. There are common principles of negotiations that emerged out to be outstanding. That in any form of negotiation, there is the need to collaborate in order to strike a workable deal with long term goals of closer partnership for mutual benefits. This was seen in the way Chinese handled the whole situation, probing the Volkswagen team in order to get a workable solution to puzzle of mixing their different cultural aspect for a successful business deal (VW…..).

Creativity in setting the engagement rules; for both parties to go a head and get the ultimate benefits of any negotiation, the engagement rules must be set in a more coherent way, that would help in reaching the goals for both parties. This would involve integrating the ideas from different cultural background to enable both team get a more superior result than it would have been in a single cultural approach, as research has proved that ideas from different culture integrated in business always generate better results (Churchman, 1993).

There is also the idea of trust from the beginning to the end of the negotiation. Even though different cultures have different approach to cultivating the idea of trust, it is an integral part of any negotiation process. There are certain techniques to ensure the other party develops the needed trust in any negotiation process. The Chinese appeared cautious in the whole process that meant that the Volkswagen team had to behave in a manner that would ensure their partners trusted them in the whole process and after. This was seen in the way they had a large team in the negotiation and their inquisitive nature in the deal making process, that is, they looked at the whole process in terms of what they would gain in the long term and their partner’s ability to deliver on this on their part.

Diversity appreciation; in any negation, the parties must be willing to accept diversified approach of the other party if the process is to continue harmoniously. The Chinese brought many groups from virtually all sectors that would be affected either directly or indirectly by the deal. Such groups are bound to have diversity in culture, gender, expertise, and many more aspects. The Volkswagen team in this case had a smaller team of negotiators to speed up the deal. They did not bring more people on board to counter the Chinese as some people would have done. This would have been because they (Germans) or Volkswagen in that matter are not used to having such big teams to negotiate out their deals, thus the advice of maintaining a smaller team given by their team after the completion of the negotiation.

Conclusion

Cultivation of friendship and being easy with everything; this would develop a more harmonious way of dealing with issues (Churchman, 1993). As per Heinz’s account, Chinese would develop the friendship approach to manipulate issues or influence the decision process. This would call for creativity in identifying crazy ideas that should not offend anyone (Barry, Fulmer & Kleef, 2004).

It is therefore that process that creates the togetherness rather than dwelling on the whole proposal that would do wonders in the process of negotiation. It is therefore logical to conclude that cross cultural negotiations are complex and thus requires careful, creative and tactful approach that would take into considerations all aspects of relationship and issue or information factors to make a successful and conclusive deal.

It is also logical to conclude that process of business negotiations are diverse in approach and mostly determined by cultural background of the negotiators who would exhibit different cultural behaviors in putting their demand across the negotiation table as seen in the Volkswagen and Chinese deal. It is therefore necessary for researchers to continue with the work of unraveling more into cultural behaviors and business approach of people from different areas.

References

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Requejo, William H. &. Graham, John L. (2008). Global negotiation: The new rules, New York: Palgrave Macmillan.

Shell, R.G. (2006). Bargaining for advantage. New York, NY: Penguin Books.

Graham, John L., Alma, Mintu-Wimsatt, & Wayne Rodgers (1994). “Explorations of Negotiation Behaviors in Ten Foreign Cultures Using a Model Developed in the United States,” Management Science, p.72-95.

Fisher, Roger W., & Patton, B., (1991). Getting to Yes: Negotiating Agreement without Giving In, New York: Penguin.

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