Strategic Management - Essay Example

Introduction

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Strategic management is a critical aspect of the operations of the most organization today. For an organization to be successful and remain its growth path, it is critical that it develops reliable strategic measures (Sempels & Hoffman 2013). The adoption of proper strategy is even more critical when an organization faces some fundamental issues which pose a threat to its growth (Northouse 2016). The aim of this paper is to provide a case study of an organization that faces an issue which requires interventions that are based on strategic management to resolve. The organization of choice of is Volkswagen with the primary focus being on the diesel scandal that affected the company. The paper begins by providing a definition of strategy, followed by an overview of the Volkswagen as the organization of choice.  The situation facing Volkswagen is the summarized and the strategic issues involved identified in the following section. The paper the reviews some of the common strategic tools, concepts and frameworks then narrow down to the most applicable ones in the Volkswagen’s case to develop the necessary strategy. In the final part, the paper makes recommendations for the organization in future. 

Definition of Strategy

Organization can be characterized as a set of decisions and policies that are made by the leadership of a particular organization with the aim of establishing a well-grounded competitive position while making it more sustainable in the future (Ansari, Mela & Neslin 2008). An organization’s strategy is contained in its strategic plans which constitute a set of complex activities, expectations, insightful thoughts, perceptions and expertise that help to shape the actions that guide the organization towards a path of achieving its objectives (Sempels & Hoffman 2013). Notably, also, the existing literature on the area indicates that strategy is not reducible to the sum of individual activities as the interactions of the specific parts create an interactive synergy that produces an effect that is more powerful as a whole. 

General Overview of Volkswagen

The organization of choice for this paper is Volkswagen, a German carmaker which specializes in passenger cars, light commercial vehicles, trucks, and buses. Volkswagen’s inception can be traced to the 1930s in Berlin Germany when the German Labor Front backed by Hitler opened the company under the name Gezuvor but later changed it to Volkswagen during its first year of operations. Over the years, the operations of Volkswagen grew rapidly leading the company to acquire the Auto Union Company in the 60s with the sole aim of producing the Audi models. The growth path continued in the following decades, and Volkswagen continued to purchase other car manufacturers such as Skoda, Lamborghini, and Porsche. Volkswagen has some notable brands which have an international presence such as SEAT, AUDI, Porsche, Bugatti, and the Volkswagen Marques.

The mission of the company is to establish strategic partnerships with its clients to minimize their costs of operations and still provide world class experience. The company aims at adopting more innovations to aid its manufacturing processes and remain more competitive across the globe. The primary challenge for Volkswagen is working to conform to the different regulations on the reduction in the level of emissions as specified in the global actions directed at controlling climate change.

Justification of the Choice of the Organization

The choice of Volkswagen as the organization of focus for this paper is based on several factors. First, the organization operates in an industry that has many hurdles which require strategic operations to enable the companies to continue their operations and realize the targeted growth. The company has been the subject of many studies across the globe, and as a result, there will be enough information from journals, books, and annual reports. Finally, the organization has remained innovative during the years and as a result, using it as a case study will enable me to develop an understanding of how organizations can maintain the position in the global space. 

Situation Summary

The motor industry has been subject to tighter controls as a result of the increased concern among most nations about conservation and safeguarding the environment for sustainability purposes (Lee, Veloso, Hounshell, & Rubin 2010). Given that most agencies had documented the dangers of nitrogen oxide emission on human lives about the causation of diseases such as asthma, bronchitis, and premature deaths, most governments have taken steps to tighten their regulations for emissions. These new emission regulations posed an immense challenge for the auto manufacturers across the globe especially regarding the manufacture of the diesel efficient vehicles for the United States Market.

Volkswagen in an attempt to maintain its share of the USA market for diesel vehicles continued with its operations as compared opposed to its competitors who chose to scrap their operations. In 2015, the Environmental Protection Agency (EPA) discovered that the company had been carrying out a “diesel dupe” which amounted to rigging the diesel emission tests that were performed on its product hence making them seem as they were causing less pollution than what was the actual results (Volkswagen, 2015). Volkswagen was shown to have used a device or software in its diesel engine with the aim of changing the performance of the vehicles and lead to improved results. Rather than provide the results for emission tests carried out during road tests, the company conducted lab tests that demonstrated that the vehicles had lower emission and presented these as the actual results. The program used by Volkswagen made slight changes to the engine making the cars to have a diminished record of the amount of nitrogen oxide that they emit. The program enabled the nitrogen oxide emission tests to thirty-five times lower than what would the vehicles were emitting. The emission scandal presented a major hurdle for the organization and continued to affect its operations till today. 

Summary of Strategic Issues Involved

The emission scandal for Volkswagen presented some strategic issues given that magnitude and factors involved in the process. One of the strategic issues that face Volkswagen is adopting a reliable environment management process.  Given that the organization’s main business is focused on manufacturing, it is necessary that the car giant seeks to develop products that do not cause any environmental harm. The strategy requires that the organization goes beyond the issue of emissions that was at the center of the scandal to ensure that it engages in processes that conserve the environment and guarantee the health of the population. The ability of the organization to be in a position to regain its competitive advantage it is critical that the company deals with the environmental management. 

The sales of Volkswagen were also affected by the emissions scandal. As a result, this one of the strategic issues that require being addressed. The scandal had an impact on the loyalty of Volkswagen’s customers leading to most of the clients to switch to its competitors hence causing a slump in the sales. The Volkswagen reports indicated that the drop that was realized in 2015 after the diesel scandal had not been witnessed since 2002 (Volkswagen, 2015). The plunge in sales also leads to the loss of Volkswagen shares especially once the scandal was associated with the unethical practice. Reports indicate that once the investigation of the company was revealed, the shares dropped by about a third of the value wiping out billions n Volkswagen value. 

A Review of Tools, Concepts and Frameworks for Strategic Analysis

From a strategic management point of view, there are some tools, concepts, and frameworks that Volkswagen can adopt to ensure that it can cope with the emerging issues after the diesel emissions scandal. The tools are effective in the identification of strengths of the business, evaluation of the effectiveness of the current strategies and also strategic analysis is critical to enable Volkswagen to be in a position to overcome the issues that have emerged following the diesel emission scandal (Kraus, Kuranen & Reschke 2010). The following section highlights the common strategic tools that the company can use in resolving the issues: 

i. SWOT Analysis

The concept enables the organizations to identify the strengths, weaknesses, opportunities and also the threats that exist within its operational environment (Sempels & Hoffman 2013). The following table provides a SWOT analysis for Volkswagen:

Table 1: Volkswagen SWOT Analysis

Strengths

Weaknesses

  1. Wide brand portfolio
  2. Higher synergy between brands
  3. Global presence
  1. Negative publicity
  2. Higher recall rate in the U.S. market
  3. Low competence of batter driven cars

Opportunities

Threats

  1. Increased fuel prices
  2. Increased skills through acquisition
  3. Focus on building sustainability policies
  4. Increased demand for autonomous cars
  1. Increased competition
  2. Further fines on emission levels
  3. Increased government regulation

ii. PEST Analysis

The concept of PEST represents the political, economic, socio-cultural and technological factors that make the external environment of an organization. The PEST analysis concept provides insightful information that can be used to facilitate the strategic management processes in an organization. The following table provides a PEST Analysis for Volkswagen: 

Table 2: Volkswagen PEST Analysis 

Political Factors

Economic Factors

  1. Increased regulations for the automobile industry
  2. Favorable tax laws
  3. Environmental policies
  4. Foreign investment policies
  1. Purchasing power parity
  2. Increased unemployment rates
  3. Varying interest and inflation rates
  4. Emerging economies e.g. China

Technological Factors

Socio-Cultural Factors

  1. Innovation
  2. Research and development
  3. Acceptance of new technologies
  4. Higher skilled labor
  1. Human development index
  2. Social safety benefits
  3. Population growth
  4. Higher education populace

iii. Porters Five Forces Analysis

The framework is critical in enabling the organization to determine their position and competitive strength. The analysis focuses on the power of suppliers, customers, the threat of entry, the threat of substitutes and competitive rivalry (Mainardes, Ferreira & Raposo 2014). The following table summarizes the application of this analysis on Volkswagen and the automobile industry where the company operates: 

Force

Impact

Comments

Power of Suppliers

Low

  1. The company has access to many suppliers
  2. Low cost of switching suppliers

Power of Buyers

Medium to high

  1. Low switching costs
  2. Several substitutes

Threat of Entry

Low Medium

  1. Automobile industry requires high capital
  2. Low access to distribution for new organizations

Threat of Substitutes

Medium

Higher gas prices and environmental concerns lead consumers to seek alternative transport

Industry Rivalry

High

  1. Many competitors in US market
  2. No differentiation

iv. Value Chain Analysis

The framework provides a reliable analysis on how the organizational activities provide value for the customers (Johnson, Whittington, Scholes, Angwin, & Regner 2013). For example, the Volkswagen brand produces most of the units required to manufacture its automobiles which allow it to lower its operating expenses and hence reduce the cost of its cars.  The company also has several houses across the globe and single dealer orders that ensure that it can transport its products across the globe much faster. The company has adapted its assembly line to use robots hence reducing manufacturing wastes (Lee et al. 2010). The company also ensures that its products its cars on order to reduce the costs of storing goods. The company’s brand has gained global recognition and has remained unchanged for years. The company’s logo has also remained the same over the decades and hence has enabled it to gain more attention. The company also provides after sales training and handles all the emerging complaints. 

v. Resource-Based View

The resource-based view offers insight on the internal strengths of an organization and also the industry-specific factors which inform its strategies and determine its competitive position (Voss 2010). Volkswagen, as an organization has access to multiple tangible assets such as buildings which can be used to position it strategically to compete with the other players in the automobile industry. The intangible assets are also useful for in the development of strategies that enable the company to compete. Intangible assets include trademarks, intellectual properties and also brand reputation (Johnson et al. 2013). The use of heterogeneous resources such as the ability of an organization to design products that are different from what the market is offering is also another element that can be adopted by Volkswagen.

vi. Porters Generic Strategies

The framework specifies some strategies that an organization can adopt in pursuit of competitive advantage such as reducing the manufacturing costs, diversify the products, and also focusing on the industry. Volkswagen has continually diversified its products by purchasing more companies that enable it to meet the needs of the customers in the different automobile market segments (Alagöz, Ekici & Islek 2011). In order to lower its manufacturing costs, the company has adopted the MQB platform which allows within its groups to use pre-developed components in the manufacture of their products. The company ensures that most of the brands can share engine parts and the interior components which are a common trend in the automobile industry as seen in other players such as BMW and Rolls-Royce (Marcotte, Grabot & Affonso 2009). 

vii. Ansoff Matrix

The Ansoff matrix constitutes a tool that enables an organization to determine their growth strategy despite their markets being new or existing and also when dealing with both new and existing products.  The matrix provides an output of strategies that can be used to spur strategic growth in an organization. The following table illustrates the Ansoff matrix for Volkswagen.

Table: Volkswagen Ansoff Matrix

 

Existing Products

New Products

Existing Markets

Product Development:

  1. Improving fuel efficiency
  2. Improving car design

Start manufacturing electronic cars

New Markets

Market development:

  1. Find and enter new markets

Diversification:

  1. Car insurance
  2. New models