Business Strategy Report: Analysis of Volkswagen's Strategic Plan

This report provides a comprehensive analysis of Volkswagen's business strategy, encompassing various aspects such as its introduction, strategic positioning, and environmental audit. It delves into the company's strengths, weaknesses, opportunities, and threats, alongside an examination of its strategic positioning using Bowman's Strategy Clock. The report further explores the significance of stakeholder analysis, proposes a new strategy for Volkswagen, and evaluates alternative strategies relating to growth and market entry. It also covers the roles and responsibilities of personnel, requirements for implementing new strategies, and the contribution of SMART targets. Additionally, the report includes an environmental audit, considering political, economic, social, technological, legal, and environmental factors impacting Volkswagen's operations. The report is a detailed examination of Volkswagen's strategic approach.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
1.1...........................................................................................................................................1
1.2...........................................................................................................................................6
1.3.........................................................................................................................................11
TASK 2..........................................................................................................................................19
2.1 Strategic positioning of Volkswagen..............................................................................19
2.2 Environmental audit of Volkswagen..............................................................................24
2.3 Significance of stakeholder analysis while formulating new strategy...........................26
2.4 New strategy for Volkswagen........................................................................................27
TASK 3..........................................................................................................................................28
3.1 Appropriateness of alternative strategies relating to substantive growth, market entry and
limited growth......................................................................................................................28
3.2 Justification for the selected strategy.............................................................................29
TASK 4..........................................................................................................................................31
4.1 Roles and responsibilities of personnel at Volkswagen.................................................31
4.2 Requirements for implementing new strategies.............................................................32
4.3 Contribution of SMART targets in the achievement of strategy implementation..........33
CONCLUSION..............................................................................................................................33
REFERENCES..............................................................................................................................34

INTRODUCTION
In the modern era of industrialisation, there are several activities that are done so as to
gain profit by the organisations to run their business effectually. Also, many strategies are there
that are applied by firms in order to make the business successful. It includes process like
making vision, mission, long and short term goals which are based on the strengths and
weaknesses of firm (Boies, Lvina and Martens, 2011). Volkswagen group is one of the largest
auto mobile organisations found by German labour front in the year 1937. Its products include
luxury as well as budget cars, trucks, etc. Its revenue has raised up to 105 billion pounds in the
year 2016. It has its employee strengths of approx. 626,720 around the world. This report
showcases the Volkswagen's business strategy. It also discusses the factors that affect decision
making and strategic business plan.
TASK 1
1.1
1

2

3

4

5

1.2
6

7

8

9

10

1.3
11

12

13

14

15

16

17

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TASK 2
2.1 Strategic positioning of Volkswagen.
In an organisation there are several kind of operations that are being performed. It is
important for the company to audit its position as well as various functional areas. It helps
organisations in acting according to it. These audit can be considered as a means of evaluating
effectiveness of firm's control over their operations. It enable business to pursue and attain
various objectives.
It is crucial for companies like Volkswagen to understand the strategic positioning of
firm in the market. It can be taken out by auditing organisation. It has a flavour of ways in which
company serves its customers and competes with company (Burlton, 2015). There are several
factors using of which Volkswagen can find its strategic positioning. These are as follows:
Strengths:
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 Manufacturing and production process is one of the greatest strengths of Volkswagen.
Use of modern techniques has enhanced its processes.
 Cost reduction in the manufacturing is done by the use of modern technologies that helps
in leading price wars.
 Its brand name facilitates it while entering into new market. Its 4% market share in US
and 20% in Europe defines its market reach. It is in top 25 companies of the world as per
Forbes 2000.
 There are several Volkswagen manufacturing plants in an around 27 countries which
facilitates it in meeting local and global market demands so as to maintain demand and
supply chain (Campbell, Edgar and Stonehouse, 2011). It is the third largest producer in
its industry. Its global sales figure in 2016 was around 10.3 million.
 It has invested a lot on research and development activities.
 It has an approx. 7 million employees which helps it to meet their business needs.
Weaknesses:
 Leaders of the company have proven to be incapable in past few years and company
seems to deviate from its objectives.
 Company’s performance in some reasons has reduced in past several years like in the
countries of South America.
 Employee productivity has been on the lower side as compared to its competitors.
 Due to its financial loses cash flow has remained poor.
Opportunities
 Several acquisitions in the last few years helped company in increasing its market share
as well as profit margins. Company plans to indulge more in such strategies.
 Cited company can invest into new green technologies used for manufacturing auto
mobiles.
 Buses demands have increased in past few years throughout the globe (Chang and
Chuang, 2011).
 Demand of hybrid electric cars have increased
 Growth potential in the South Asian countries
Threats:
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 With the entry of Japanese car makers in the market, competitions have increased
immensely. Company is facing competition from local car makers which has resulted in
making cost cuts in its operating mechanism.
 Economic instability throughout the world has hampered Volkswagen overall sustainable
growth and loses in many regions. It has also made difficult for them to make their long
term goals and strategies (Chen and Jermias, 2014). European debts and slowdown in
American economy has impacted its growth opportunities.
 Regulations regarding environmental protection has forced company to move towards
green technology which is of higher cost and hence making reduction in profits.
 Fuel prices have increased which poses a threat for the company.
 Scandals of Volkswagen regarding its use of in legal software has reduced the trust in the
minds of people about the company.
In order to understand understand the strategic positioning of Volkswagen there is
another tool that is used known as Bowman's Strategy Clock. It has eight strategic position
which is used to understand the positioning of company's product with respect to its competitors.
Its eight position are as follows:
Position 1: Low price or low added value: It is not understood as a competitive position for the
firm. The product is not very much different from competitors product and perceives a very little
value for the consumers irrespective of its low price. This is also known as bargain basement
strategy. The only way to remain in competition is to be cheap and hope that no competitor can
undercut your product.
Position 2: Low price: To become leader company uses low cost pricing. For this purpose
strategy of cost minimisation is successful often associated with economy of scale. Profit
margins on each product are low, but the high volume of output can still generate high overall
profits. In this type competition is very aggressive.
Hybrid: It involves some element of low price but also some product differentiation. The aim is
to persuade customers that there is an excellent added value using the combination of a
reasonable price and acceptable product differentiation. This can be effective positioning strategy
particularly is added value involved is offered consistently.
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Position 4: Differentiation: The aim of a differentiation is to offer customers the highest level of
perceived added value. Key role is played by branding and quality of product in this regard. It is
best placed in the market.
Position 5: Focused differentiation: In this products are positioned with highest price tags, where
customers buys product because of high perceived value. It is generally adopted by the luxury
brands. Only the best product can sustain due to this strategy.
Position 6: Risky high margin: In this strategy products are positioned at high price rates without
adding anything extra value to the products. If customer buys somehow then there can be higher
profit to the organisations. It can be tough to survive in the normal market.
Position 7: Monopoly pricing: In this there is monopoly of any company that sells that product.
They do not concern about the value that consumer perceived in the product. They are being
tightly regulated so as to prevent the from setting price of their own choice.
Position 8: Loss of market share: This is a position of disaster in any market. Setting a standard
or middle price for a product with low perceived value is hard to win in the market.
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Volkswagen follows Hybrid positioning as the company has products of different ranges both
low priced as well as differentiated. It differs from product to product. Its most of the product are
placed so that they could face the competition but some it sedans and other product are having
slightly upper price tags.
Other than this Volkswagen can use other strategies that will help company in making its
positioning better in the market. Some of them are as follows:
Bench marking: It is a process used by the companies so that it can generate product that are
according to some set bench marks. It is chosen by Volkswagen to inherit one of the best
practices in the industry. It dimensions includes selection, planning and delivery of projects.
They can benchmark their processes by pre defining some of their processes. It is very important
in the production process of the company to use benchmarking.
Value chain analysis: It is a process where the company identifies its primary support and
activities that add value to its final product and the analyse these operations to lower down the
cost as well as increasing the differentiation. It represents internal activities of company that
transforms inputs into outputs. Volkswagen apply the best possible strategies to transform its
input into outputs.
Scenario planning: It is a strategic planning method that some organisations use to make long
term flexible plans Volkswagen applies it which was originally used by military intelligence. It
involves the aspect of system thinking.
2.2 Environmental audit of Volkswagen
Environmental audit refers to as the auditing of the various conditions that are prevailing
around the company's business. It is the full analysis of internal and external factors that are
effecting the business of the firms.
Environmental audit is necessary for company. There are several factors upon which its
audit depends. It is important for understanding its growth potential. Environmental audit is as
follows:
 Political: There is huge change in the political environment throughout the world. As
company is operating in around 150 Countries so it faces different political situation.
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Auto mobile companies are highly impacted by the policies made by government such as
interest rates on vehicle loans, taxes on fuel, import and export taxes, environmental laws
etc. In Europe Brexit impact is to be evaluated as important changes needs to be done in
the business procedure of the company.
 Economical: Companies like Volkswagen in the Auto mobile industry is facing
economic crisis. Auto mobile company contributes to the GDP of many developing
nations as it also assists growth of industries like glass or steel industry (Chu,
KrishnaKumar and Khosla, 2014). In past few years there was huge instability in the
economies around the world which has resulted in slowing down the development of this
industry as people do not have money to buy expensive cars. Serious decline in the South
American countries purchasing has reduced the profit of the countries. On an average,
fuel prices have increased throughout the world which has reduced sale of cars.
 Social: Volkswagen is operating in different countries and societies where management
and operational procedures are different. Company is providing employment to large
number of people which has helped in increasing their standards of living. Buying of
luxury cars have become trend but has also increased road accidents.
 Technological: One of the greatest impacts among various factors is posed by
technological change. Cars are now becoming a computer running on wheel (García‐
Rodríguez and et. al., 2013). There is an increasing demand of intelligent and hybrid cars.
In order to compete with its rivals company has to increase the rate of production which
can only be possible if there is use of latest technologies. Volkswagen also need to adopt
best of technologies in order to survive in the race.
 Legal: Every industry is bounded by the set of rule made by the government for their
operations. Consumer laws, employment legislations, taxation norms and emission laws
are different for different countries and all needs to be addressed so as to function
properly. Use of illegal software in US has proved to be highly expensive for
Volkswagen.
 Environmental: Global warming and other pollution related norms have changed
throughout the world, so companies are forced by governments to work in a manner
where there is less production of waste and polluted gases. Moving towards green
technology can fulfil this requirement.
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There are several factors that are effecting the business of the organisation. These effect
the internal environment of the company. Some of the factors are as follows:
 Machineries: The machineries that is used by Volkswagen is of high quality and best in
the market. There are several robotic technologies that are used by the firm in order to
give perfect finish to the product design.
 Employee: This company has highly skilled employees. Their productivity is one of the
highest in the market when compared to its competitors.
 Decision making process: As it is a result driven firm so the decision making process is
fast and hence helps company in moving forward in the future with an exponential
growth.
 Management: This company has a management team that is highly experienced and uses
many innovative techniques so as to operate its different functionalities.
2.3 Significance of stakeholder analysis while formulating new strategy
Stake holders analysis is a analysis that is used to understand the position of different
kind of stakeholders and their role and significance in the operation of the company and its
growth potential.
Stakeholders are the people that are involved in the operations of company directly or
indirectly. Employees, suppliers, government, investors, customers etc. are some of the
stakeholders of company (Ghezzi, 2013). Stakeholder’s analysis helps to understand that who are
supporting business activities.
Importance of stakeholders can be understood by following points:
 Volkswagen must take opinion from its stakeholders about its policies, methods,
procedures, products and working culture.
 Powerful stakeholders like Investors helps company in the times when it is facing
financial crisis.
 Stake holder's nature needs to be understood by various communication.
 Stake holder's analysis helps to estimate their reaction regarding company's business.
Steps involved in stakeholder analysis are as follows:
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1. Figuring out people who are involved and are effected by Volkswagen business
operations.
2. In order to design stakeholder's grid, it is essential to understand and identify the interest,
power and influence of stakeholders (Johnson, 2017).
3. Make excellent understanding between the important stakeholders which will assist in
taking feedbacks and support from them at the time of need.
Volkswagen stakeholders power interest mapping is as follows:
Line are denoting influences of stake holders on each other. Darker lines are illustrating heavy
influences and the arrows shows influence direction.
 Legal, financial, network & security as well as web standard related stakeholders are
having higher powers but have low interest.
 Project managers, auto mobile developers, change mangers, CIO and project managers
Of Volkswagen have higher power and higher interest in companies policies.
 Outsourced call centre staffs, testers and customers are having less power and less
interest. They are generally stakeholders that follows instructions.
 Whereas outsourced call centre managers, training managers and legal system owners
have higher interest but has less power in Volkswagen decision making.
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2.4 New strategy for Volkswagen
For the growth of company, it is essential to make strategies time to time. Every company
has to implement new strategies so as to grow in a long term. Among various strategies that are
in use in whole world, it is beneficial for company to use new product development strategy.
Due to huge competition in the market auto mobile industry has shown a slow growth. In
order to sustain in this competitive environment it is important to develop new products
(Verbeke, 2013). This development must be according to different target markets. This is an
effective strategy that helps in meeting the customer demands and helps to satisfy them as
company offers them a wide range of product to choose from. This strategy helps company in
capturing larger part of the market and hence generating more profits from its operations. It also
assists in expansion policy of Volkswagen. This is highly effective in entering into new
industries (Klatt, Schlaefke and Moeller, 2011). In order to develop this strategy, organisation
needs to identify target markets. This identification is based on the economy in which company
has planned to come into operation. Cars needs modification on regular basis and as this
company makes luxury as well as budgeted cars, so this strategy could be highly beneficial. This
industry now a days facing demand for environment friendly cars. This strategy implementation
depends on the amount of money companies are investing for Research and development
process.
TASK 3
3.1 Appropriateness of alternative strategies relating to substantive growth, market entry and
limited growth
There are several strategies that are used in the whole world for the growth of the firms.
These strategies provide solutions to posed business challenges. Some of them are as follows:
Market entry strategy: In the cited company this strategy is implemented using two
factors. They are as follows: Merger: It is a term that is used when two different firms get combined with each other
which was previously separated. In this strategy, size of the organisation is almost similar
and even after that, both have equal partnership (Klettner, Clarke and Boersma, 2014).
Volkswagen can adopt merger as a part of market entry strategy because of its market
reach. This can be used in the areas where it is facing problem in establishing.
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 Acquisition: Using this strategy company takes the ownership of other firms. This is
generally done by companies having different sizes, in this bigger organisations takes
over business of smaller ones.
Limited growth: Volkswagen implement this strategy in the form of joint ventures. In
this there are two or more owners. In joint ventures very little gap is present in competitive
advantage. Since the cited company has large market share so this strategy is not advisable for
them to use it.
Substantive growth: Implementation of this strategy is done using two schemes known
as diversification and integration. In order to reduce the costing of various operations, vertical
and horizontal integration can be considered (Li and Tan, 2013). This strategy suggests that
company should manufacture its own raw materials in place of availing it from other suppliers.
Distribution channel can be strengthened by the organisations itself. Apart from integration
diversification can also be used in this strategy.
Retrenchment: It is remedial activity that is applied by the company when it is facing
loses. These activities are taken in case of strong competition, financial failure etc. In this
strategy company sells of their assets, selective products are made, cost reduction in the
operations are done.
Market penetration: Company uses this strategy to enter into the new market. It is
applied by the company to enter into the new market. This can be done by direct investment or
by the help of partnership with other firms that is operational in that country or region.
Innovation: One of the best methods to attract the market towards company's product is
producing products that are innovative and adds value to the customers. It is a method in which
firms like Volkswagen adds some extra features to their products without altering the essential
previous features.
Product Development: It can also be used by the companies so that they can attract new
target market or section of the society that are requiring that kind of feature that is present in the
new product. It is a continuous process without which any company cannot survive.
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3.2 Justification for the selected strategy
Evaluating company's profile, it is concluded that even after being a bigger organisation
and having larger market reach, it is facing huge financial loses in few areas of its operations.
This is the reason; substantive growth strategy could be used by this company. By making use of
this strategy company will be able to reach to new markets (Murthy, 2012). Integration can help
Volkswagen in making cost cuts which will be helpful for the company in its present scenario
where it is facing huge financial loses. Rather than acquiring raw materials from other
organisations it can develop its own. This not only helps company in making cost reductions in
manufacturing process but also helps company in raising the standards of its final products.
Which may reduce the chances of product failure. Establishing distribution channels helps in
reaching to new markets and increasing the chances of achieving higher sales (Torrent-Sellens,
2015). Making use of diversification strategy Volkswagen can attract large number of new
customers from different sections of the society. Development of new product plays an important
role in expansion policy. Other than this strategy retrenchment can reduce revenue loses arisen
due to business failures.
Suitability test: This test comprises of questions which is being answered in terms of
Volkswagen.
 Yes Volkswagen address the strategy.
 Yes the strategy exploits core competencies.
 Yes this strategy is viable.
 Yes the strategy address the external environment.
 Yes the strategy viable and achievable given conditions within environment.
 Yes the strategy fits the current corporate culture.
 Yes the strategy maintains competitive advantage.
Acceptability
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 Share holders: This strategy provides adequate financial returns and there is less risk
involved with it.
 Management: The management will support this strategy as it is beneficial for the
Volkswagen in the longer time period.
 Staff: There would be no strike or turn over and they will support this strategy as there is
no loss to them.
 Customers: Yes they will use new services as it will satisfy there needs and answer there
previous complaints.
 Suppliers: This will support suppliers and will change there product, process and location
so as to support this strategy.
 National Government; It will not misfit with the law and will not violate any policies.
Feasibility:
 The organisation has resources and capabilities so as to deliver this strategy.
 Volkswagen has previous experience regarding this.
TASK 4
4.1 Roles and responsibilities of personnel at Volkswagen
There are various personnel that are in any organisations. All of them has different set of
roles and responsibilities and everyone needs to understand them more specifically.
 Top management: They have various responsibilities in an organisation from making
decision to implementing them. They also checks how they will be monitored, evaluated
and governed. Their core responsibility includes arranging raw materials and setting up
production units so as to fulfil the demands (Scholes, 2015). Top management decides
which materials which is to be selected for desired outputs and how these resources will
be available for different business processes. They need to indulge in conversation with
Governments so as to convince them for making policies that will make trade easier.
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 Middle management: This management has a role of setting up short term and SMART
goals, this could be achieved by implementing planed strategies. They have a role of
dividing budget to different functional unit. They also have a role in setting up
communication between different levels of organisation which helps in easy flow of
information.
 Human resource management: Any innovative plans or expansion policy needs
employees and it is the role of HRM department to recruit and select people for the new
and old vacant posts. As company uses substantive growth strategy diversification is
necessary for which skill development training needs to be conducted (Slack, 2015). For
setting companies own distribution channel new work force will be required for which
efficient employees needs to be selected.
 Employee: Any new changes in the companies structure is generally not welcomed by
employees. They are reluctant to these changes. Strategies such as retrenchment is
sometimes leading to loses for the employees. Experienced personnel should share their
experience to new employees so that they could accept these changes.
4.2 Requirements for implementing new strategies
There are various requirements for implementing new strategies at any place. They need
to be implemented carefully so as to make business a success. Some of the following strategies
are as follows:
 Finance: For any implementation of strategic decision, funds are needed by the firm.
Making cost cuts using integration strategy is not enough for the company. They have to
find new investors that can assist Volkswagen in setting new production units and buy
resources for the manufacturing purpose. In the process of setting up new channels of
distribution, money will be required.
 Land: It is one of the primary requirements for the process of setting up of new plant.
Land can be purchased from the local people or can seek help from the governments to
allocate them (Slater, Olson and Finnegan, 2011). It is required for both new plants as
well as centres for distribution.
 Technology: In the era of advanced technologies used in the business operations,
Volkswagen also needs to add new machineries in its inventory so as to produce
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diversified range of quality products at cheaper rates and as per market demand.
Especially in the auto mobile industry this factor is highly influential.
 Human resource: Any strategy involves human resource in its implementation
procedures. Strategies such as diversification as well as integration both requires skill
labours with new skill sets for that they need training seminars as well as hands on
practice. Without development of Human Resource other resources cannot be properly
utilised.
4.3 Contribution of SMART targets in the achievement of strategy implementation
SMART stands for specific, measurable,achievable,realistic and Time bounded. Target
must be specific so that and its drivers must have the idea that what specifically they have to
achieve and all efforts may not go in vain. It should be measurable as per the goal that has been
set. It the goal is not measurable then any faults cannot be identified and hence no improvement
will be ensured so as to minimize it. Volkswagen needs to set their aims and objectives that can
be achievable in a set time frame. If the targets are not achievable then earning profit from it is
not possible. Goals must be realistic because imaginary goals do not earn profits. It is not
possible to achieve these goals. Every targets needs to achieved on time and hence setting time
bound targets becomes compulsory so as to have competitive edge over others as well as
fulfilling needs of the market.
SMART target of Volkswagen:
 This company aims to increase its sales by 9% in next 10 months.
 Increasing production rate by 3-4 % in next quarter.
 Efficiency level of production unit aims to be improved by around 8% in this financial
year.
 Make new strategic alliances in new markets like China and South Asia Pacific in next
five years.
 Performance of employee to be improved by around 5% in next two years.
CONCLUSION
It can be concluded from the above report that business strategy is a set of processes that
firm implements so as to flourish in its business operations in coming years. Vision, mission,
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core competencies and goals provide a blue print for making strategies. Volkswagen needs to
plan strategies in a way so that it can be effective. Substantive growth strategy can act as a
remedy for the financial losses that occurred in past few years as it can increase firm’s market
share. Also, it has been assessed that every stakeholder needs to understand the significance of
these changes as well as their role in implementing strategies in a proper manner.
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