Volkswagen Innovation Strategies and Market Analysis

This assignment delves into Volkswagen's innovative strategies, market analysis, and business model. It highlights the company's focus on customer needs, eco-friendly products, and product segmentation to cater to different income segments. The report concludes that innovation is essential for businesses like Volkswagen to stay competitive in the rapidly evolving automotive industry.

Managing Innovation in Business
Managing Innovation in
Business

Managing Innovation in Business
Executive Summary
This assignment will include the short but depth discussion on the approaches that can be
used for recognising the drivers of innovations within an enterprise. Some of the drives that force
business entity to bring innovation are culture, demand of employees, changes in external
environmental factors such as technology , social , economic condition of business. Project will
also concern with analysing the innovation history of the Volkswagen company. It has been
analysed that Volkswagen from its start up time is taking high initiative in developing innovative
goods and services. This is the factor which has supported business entity in achievement of
success. Innovation is the factor which has enabled firm to increase its customer base and earn
higher revenue. Change in demand of consumer or market is the other major factor that force
company to develop innovative products or services. Report also emphasizes identifying and
developing understanding about Volkswagen existing Innovation Performance and Capabilities
Project will also include critical discussion on the way leaders in Volkswagen company can
successfully plan and prepare for innovation. It will also have focus on demonstrating the
significance of sharing of knowledge by employee at workplace. It has been identified from the
study that transfer of knowledge is essential in order to fill performance gap. This is important in
order to find suitable solution to individual as well as business problem. Report will also suggest
the some new products or services that can be introduced by the Volkswagen which will help
firm in increasing profit and sales. Study will include the use of organisational development
audit in order to identify the successfulness of management team in order to bring positive
change at workplace. It will also help in measuring the impact of innovation or change has on
business growth. The way change has supported Volkswagen in achieving success and fostering
growth. Assignment also will help manager in identifying the further scope of innovation in auto
mobile industry.

Managing Innovation in Business
TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
The Organisation & Industry Overview..........................................................................................1
The Organisation....................................................................................................................1
The Organisations existing Innovation Performance and Capabilities..................................4
The industry in 2017...............................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES:...............................................................................................................................9

Managing Innovation in Business
INTRODUCTION
Innovation is defined as the creative idea that can used by manager for solving the several
business problems. These ideas or plans can bring positive as well as drastic improvement in
system , procedures or activities at workplace. Some examples of innovation are advance in
technology which has assisted business entity in improving the quality of products or services. It
has also enabled firm to deliver quick services to customer. Innovation in context of business can
be implement in various field such as in working environment , structure of the organisation ,
culture within an enterprise etc.
The purpose of the assignment is to develop the understanding about the need as well as
importance of bringing change within a business in Context of Volkswagen company.
The Organisation & Industry Overview
The auto mobile sector is increasing day by day and is highly contributing in GDP of
nations (4% of GDP). It is expected that it will cross 100 million unit sales in 2019. Rise in
income level of people has allowed companies to manufacture cheap cars. But issue is their
ability to cope with uneven tempo of markets. The second issue is managing market transition. It
means keeping on meeting market demand and diversity. Also, increasing costs of cars and
emission levels are major concern for this sector. Toyota, Mercedes, BMW, etc. are MNC' s
that are involved in auto mobile sector. These all are Volkswagen competitors and are having
strong market share in Asian market.
1

Managing Innovation in Business
The Organisation
Volkswagen Group, also called Volkswagen AG, major German auto mobile
manufacturer, founded by the German government in 1937 to mass-produce a low-priced
“people’s car.” Headquarters are in Wolfsburg, Germany. It was originally operated by the
German Labour Front (Deutsche Arbeitsfront), a Nazi organization. Volkswagen net worth is
109.77 billion Euros in 2017. its market share in EU is about is 11.4 %.Volkswagen
produces different models such as Passat, Vento, Beetle, etc.
2
Illustration 1: Market share f auto mobile companies

Managing Innovation in Business
3
Illustration 2: Volkswagen Passat
Illustration 3: Volkswagen Beetle

Managing Innovation in Business
This could be innovation history of VW.
Volkswagen is a MNC that is operating its business all over the world. It is the third
largest vehicle manufacturing in the world. Its global presence is allowing them to expand its
business operations. Also, due to continuous innovations Volkswagen is able to increase its sales
and profits (Johnson,, 2016). Moreover, due to change in various factors such as environmental,
political, etc. the auto mobile industry is facing various issues. This has enforced them to make
innovations in their products. Volkswagen started making cars in around 19th century. Their
expansion started in 1950 . Their first car was Beetle. After getting successful, Volkswagen
made many changes in Beetle. The company then developed rear engines with modern design
and engineering. In 1970 Volkswagen pulled out from rear engines replacing them with front
wheel drive engines. They introduced Passat in 1973 but was not as successful as Beetle. In 1950
Volkswagen was operating its business from the plants of Mexico, Brazil, China and US. With
expansion of business Volkswagen started acquiring famous brand like Audi, Porsche, Skoda,
4
Illustration 4: Volkswagen revenue

Managing Innovation in Business
etc. In 1994 Volkswagen came up with the concept 1 car (Murthy, 2017). It was considered as
new Beetle. The designed was same but it was completely a different car based on golf model.
Coming in 20th century Volkswagen was effectively using technology to make new
engines and designs. They invested a lot in research and development and started making
innovations in process and methods. This enables them to become world largest car manufacturer
in 2015. Different versions of petrol and diesel cars were developed. This allowed Volkswagen
to grow and develop rapidly in auto mobile sector (Tidd and Bessant, 2014). Many companies
such as Toyota, Hyundai, etc. find it difficult to compete with them.
Now, they are focusing on producing hybrid or electric cars in the future. In 2011 they
produced it first hybrid car. This is because of increase in pollution level has forced this industry
to produce these cars. Also, it has created awareness among people about these cars. For this
Volkswagen have made innovation in various areas. They are developing strategies on how to
implement innovation in their operations.
The first one is the emission scandal that highly affected Volkswagen brand image in the
industry. Due to this they shifted their focus towards innovation. Besides this, the increasing
level of pollution is forcing VW to produce fuel efficient cars.
Moreover, the due to frequent change in customer taste and demands VW have to
produce cars accordingly. These are factors driving innovation in VW.
There are 4 P's of innovation space. These are process, product, position and paradigm:-
Process- It is related to way of producing or delivering a product or service. Generally, change
in process is done to reduce cost and increase profits. For this proactive strategy can be followed
. It will help in making constant change in technology and process leading to improve quality of
product.
Position- It is related to areas or markets where products or service can be provided to
customers. Usually its focus in on increasing market share. Active strategy is followed by VW
that will involve identifying existing technologies and markets.
5

Managing Innovation in Business
Product- Most of the innovations are done in products so that customers can be retained. As
customers taste and preference changes frequently, it is necessary that products are manufactured
according to it so that their needs can be fulfilled. In this passive innovation strategy is
implemented so that change in customer demands can be identified and accordingly products can
be produced.
Paradigm- This consists of strategies that have to be followed while developing product. It
provides a blueprint that shows how process will be implemented. Reactive strategy is followed
that will focus on operation. With this VW can identify weak areas and improve it.
What are the factors driving innovation in VW cars?
The first one is the emission scandal that highly affected Volkswagen brand image in the
industry. Due to this they shifted their focus towards innovation. Besides this, the increasing
level of pollution is forcing VW to produce fuel efficient cars.
Moreover, the due to frequent change in customer taste and demands VW have to
produce cars accordingly. These are factors driving innovation in VW.
PESTEL ANALYSIS VW
Political- Company is highly affected by various changes in political situations of country. This
is reason they are not able to increase presence in developing countries.
- Technological- Firm has effectively invested in research and development. They are
implementing the latest technology in business operations to improve their productivity.
This has allowed Volkswagen to become world leader in auto mobile industry.
- Social- As enterprise is established worldwide, it is contributing in CSR activities to
protect the environment. Apart from this, accidents caused by cars manufactured by
Volkswagen has created a negative image (Van Lancker, Wauters and Van
Huylenbroeck, 2016).
- Legal- Any change in government policies or laws have to be followed by company.
Thus, Volkswagen is following rules that are developed by government regarding using
technology.
6

Managing Innovation in Business
- Environmental- It is the major issue of auto mobile sector. Government has imposed
strict rules and regulations to protect the environment. Therefore, Volkswagen has to
innovate their process for developing fuel efficient cars.
- Economic- It is related to GDP, national income of nation. Volkswagen is affected by
this as change in these situations will force them to reduce price of product leading to
decrease in profits.
PORTER FIVE FORCES ANALYSIS
It is a marketing tool that analyses industry environment that can affect firm's profitability.
Suppliers power- It means how easy it is for supplier to increase their prices. Volkswagen is
having their own retail outlet so they do not have to depend on suppliers.
Buyers power- It means how price of product can be affected by buyers. As Volkswagen is
having a large customer base, they can easily affect price of product.
Threat of substitution- It refers to using substitute in order to fulfil the needs. Customers can
find new products for this. In auto mobile sector, people can use two vehicles as substitute.
Threat of new entrants- It means how market can be affected by entry of new companies.
Volkswagen is having a strong market share so they do not have to concern about new entrants.
Competitive rivalry- This means the strength of competitors to attract customers. Volkswagen
should develop effective strategies to attract and retain customers. It is because there is very
intense competition in this sector.
The Organisations existing Innovation Performance and Capabilities
Volkswagen is easily able to grow at stable rate in auto mobile sector. They are using
technology to develop new products to attract customers and increase sales. Their performance is
improved due to high investment in research and development department. They are highly
focused on technology as it is helping them to build new products. Also, their production process
is changed leading to decrease in cost (Trevino and Nelson, 2016). In recent times Volkswagen
has reduced the price of product. It is because of innovation in business operations. Besides this,
macro and micro environment has affected firm performance and capabilities for using
innovation. For this SWOT :-
7

Managing Innovation in Business
SWOT analysis- It is done to find out impact of micro factors on Volkswagen performance
Strengths- It is having sufficient presence of its brand globally. Due to this, customers can easily
identify the brand. Besides this, it is having a variety of products available for different
customers (Winterhalter, Zeschky and Gassmann, 2016). For example- passenger cars, sports
cars, buses, etc. moreover, its operations are very well managed. Volkswagen cars are known for
high technology and performance inbuilt cars. They are having enough resource to produce new
cars. Profits were 4.13 billion Euros in 2017.
Weakness- One of its weakness is scandal that highly affected its brand image. In this more than
5 million cars was called by them due to some defects. Another weakness is it is having very
weak position in markets like India and China. This is affecting its sales. Also, most of there cars
are not made for middle class people. So they are not able to gain market share.
Threats- the major threat to Volkswagen is competition in auto mobile sector is increasing day
by day. It is because of implementing innovation in all areas. Besides this, increase in pollution
level is a major concern for this sector (Trevino and Nelson, 2016). Due to this government is
imposing various taxes and regulations. They want to protect the environment and increase in
corporate social responsibility.
Toyota, Ford, etc. are its competitors.
VW admitted that approximately 11 million cars worldwide, including 1.2 million in the UK.
Due to the emission scandal of Volkswagen, US department of justice announced $4.3 billion in
criminal and civil penalties. Their profit went down to The resale value of VW cars has taken a
hit since the scandal emerged. In April, VW recorded its first annual loss in more than 20 years
for 2015, after more than doubling the amount set aside to pay for costs related to the scandal to
€16.2bn. VW shares initially dropped as much as 3%, and were later trading 1.5% lower at
€135.90.
Opportunities- People purchasing power is increasing with rise in their income level. Also, rise
in hybrid and fuel efficient cars has provided platform for Volkswagen to grow. Apart from this,
companies are using renewable resources in production process. It has resulted in reduction of
price.
8

Managing Innovation in Business
Thus, Volkswagen is able to use technology in their operations. This has allowed them to
produce new products according to needs of people. On the other hand, macro factors has
affected their growth.
The KPI of Volkswagen is that it is having very high and experienced employees in their
organisation. This enables them to develop new products and increasing efficiency. Besides this,
they are having a strong competitive advantage. This makes their brand popular and second
largest producer of auto mobiles in the world.
Volkswagen produce cars on the basis of design, quality and technology. They do not
focus on reducing price of product rather on attributes that provides a unique feature to
customers. The purpose is to gain profit margin. Moreover, their value chain activities are based
on firm location.
- Key Performance Indicators of VW
- Deliveries to customers- VW delivers its products to consumer in very short time. It is
due to their supply chain management. It makes their customer loyal.
- Sales revenue- VW is having a huge sales in Europe. This enables them to become
second largest auto mobile company in the world
- Research and development- They invest a huge amount in research and development.
With this they produce different models. Also, it helps in maintaining their quality.
The KPI of Volkswagen is that it is having very high and experienced employees in their
organisation. This enables them to develop new products and increasing efficiency. Besides this,
they are having a strong competitive advantage. This makes their brand popular and second
largest producer of auto mobiles in the world.
- Value Chain Analysis
Supplier management- VW is having a unique supply management. It is based on supplier
relationship. They have categorised it in three models:
9

Managing Innovation in Business
 Central control- It enhances transparency and process control. It controls the selection
and coordination of active and potential suppliers.
 Modularisation- In this VW is more responsible towards its suppliers. With this they
product is delivered in short time and operations of collaborated synergies inside existing
modules.
 Strategic partnerships- VW creates value by dictating their suppliers. With this they
target a particular area by collaborating with external partner. VW uses this model very
selectively.
Volkswagen resources : For innovation of products VW requires different resources. These
resources must be enough so that it innovation can be implemented successfully. Various types
of resources required are :-
Human resources :-VW requires effective and highly experienced people in order to make
changes in their process and procedures. Human resource must be hired in right time. They
should be trained enough so that they can perform task easily. This will help VW to develop
products and improve efficiency of business.
Financial resources : VW requires huge funds for innovation. Also, funds should be allocated to
each department according to their requirement. Having appropriate fund will enable company to
implement innovation easily.
Research and development- VW must have proper R&D department so that research can be
conducted. Along with this, proper funds must be allocated to them so that continuous innovation
goes on in Volkswagen.
The industry in 2017.
United Kingdom is one of the largest exporter of the cars in the world, and it have very
sound relationship with the automobile industry. The automobile brands of the United Kingdom
is considered as a most prestige one in the world. In 2017, 2 million care were produces in
United Kingdom, worldwide sales has reached the record of 88 million in 2017, approximately
4.7 percent up from the previous year. In 2017, the brand Volkswagen has performed very
10

Managing Innovation in Business
strongly in United Kingdom, as it sold more than 15.4 thousands cars in the United Kingdom.
(Schulze, 2015)
In 2017, Volkswagen has gained the position under top ten car manufactures, the
automotive industry is a sector that develop at a very fast rate, the year 2017 has brought so
many innovations in automotive industries not only the technological variations so many
different kinds of enhancements have been introduced (Rudzinski, 2014). New innovations like
autonomous driving, electrification and connectivity took place I the industry. As per the
industrial reports of 2017, it has been suggested that the traditional and dominant players of the
automobile industry should acquire the growing changes and innovation in order to bring
creativity into their working. The year 2017 has seen the gradual change in the automotive
industry, as there are number of variants has been introduced the market by various brands.
While on the other hand there are various events that dominated the UK automobile industry in
2017. As of 2017, some of the major innovations in automobile industry are:
 Google driver-less Cars
 Automated Manual Transmission
 Vehicle to Vehicle Communication
 Technology for Pre-Collision
 Smart Cars
The automotive industry is the most crucial part of the economy of the United Kingdom
for approximately 77.6 billion turnover and 18.8 billion value added. As on the end of 2017,
Volkswagen has reached towards the market share of approximately 8.79 percent (Rodríguez-
Ferradas,2016). As the connectivity and the transportation demand of the individuals re
increasing the growth of automobile industry is also increasing at a rapid speed. The automotive
industries are working very efficiently in order to bring various kinds of innovations for making
the driving experiences more efficient. As United Kingdom are one of the largest exporter of
cars across the world their relationship with the industry is also very sound. The sales of
passenger cars manufactured in United Kingdom in 2017 is, 1,7227,697 units (Tootling, 2017).
SWOT analysis is the tool which is used to measure the Strength, Weakness,
Opportunities and Threats of the organisations. Analysing the current market position of the
11

Managing Innovation in Business
industry will help in determining the current position of the organisation, and the main
significance of SWOT analysis to identify the position where company stand. Industrial analysis
will help in conducting SWOT analysis in a more effective manner by providing more efficient
and important information regarding the strengths, weakness, opportunities and threats of the
organisations. TOWS analysis is the interrelated concept of the SWOT analysis, the difference is
that in TOWS analysis threats and opportunities of the organisation are examined first and other
aspects are examined after that.
TOWS, lays more emphasis on the threats and opportunities to the organisation so it will
help Volkswagen to analyse the areas where it need to focus upon to create more effective
working of the organisation. Volkswagen can analyse and identifies the area where it need to be
innovated by conducting an effective SWOT and TOWS analysis, as these are the tools which
are used to identify the current position of the market by applying its various approaches. As the
competition is increasing it is becoming very essential for the brands to identify there threats and
opportunities in order to maintain the sustainable position in the market, for ensuring the growth
of the company, the brand need to keep on evolving its products and so that it can maintain the
competitive edge in the market. The main problem with the Volkswagen is the rise in
competition, it is very important for the organisation to maintain there unique identity in order to
maintain the sustainable position in the market.
Recommendations :
 For improving competitive edge Volkswagen can improve its product quality. For this,
they can install advance machinery that will help in making effective cars.
 In order to grow in the market VW can target specific customer segment. This can be
done by identifying their needs and providing products to fulfil them. Also, they can
manufacture eco friendly cars that will help in saving environment.
 VW can provide the latest design and models to people. Also, they segment the market
on the basis of income. It will help in producing products for each segment and fulfilling
their needs.
12

Managing Innovation in Business
CONCLUSION
From the above report it can be concluded that, innovations are an essential tool to
function business operations in a more effective manner. It is important for all the organizations
to bring regular changes and creativity into their working patterns in order to gain the attention of
the customers. Volkswagen is the top leading brand of HIGH END cars, since last one decade, it
sales are keep on increasing due of the innovations and variations offered by them to their
targeted customers. It has also been seen that automotive industries are high innovative and it
keep on developing at a rapid pace.
13

Managing Innovation in Business
REFERENCES:
Books and Journals:
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Murthy, J.J., 2017. Managing Innovation and Developing Intellectual Property Strategies for
Firms. SIES Journal of Management.13(1).
Rodríguez-Ferradas, M. I., 2016. Open innovation in automotive SMEs suppliers: an opportunity
for new product development. Universia Business Review. (50).
Rudzinski, C. V., 2014. Volkswagen: Open Foresight at the Front End of Research Innovation.
In Management of the Fuzzy Front End of Innovation. (pp. 295-299). Springer, Cham.
Schulze, A., 2015. Introduction: knowledge generation and innovation diffusion in the global
automotive industry—change and stability during turbulent times. Industrial and
corporate change. 24(3). pp.603-611.
Tidd, J. and Bessant, J., 2014. Strategic innovation management. John Wiley & Sons.
Tootling, F., 2017. Networking and project organization in the Styrian automotive
industry. Proximity, Distance and Diversity: Issues on Economic Interaction and Local
Development. p.89.
Trevino, L.K. and Nelson, K.A., 2016. Managing business ethics: Straight talk about how to do
it right. John Wiley & Sons.
Van Lancker, J., Wauters, E. and Van Huylenbroeck, G., 2016. Managing innovation in the
bioeconomy: An open innovation perspective. Biomass and Bioenergy.90.pp.60-69.
Winterhalter, S., Zeschky, M.B. and Gassmann, O., 2016. Managing dual business models in
emerging markets: an ambidexterity perspective. R&D Management.46(3). pp.464-479.
Online:
History of Volkswagen, 2018. [Online] Available Through:
<https://www.britannica.com/topic/Volkswagen-Group>
14