Volkswagen Case Study Analysis Psychology

Volkswagen Case Study Assignment

Volkswagen Case Study Assignment: Volkswagen’s Ferdinand Piëch

Volkswagen Case Study Assignment discusses about , which is one of the leading German automaker companies. Volkswagen group has 4 major brands which are popular worldwide. They are (Symon, 2000):

Since 1993, Ferdinand Piëch was the CEO of the company with an authoritative perspective. As a CEO, Piëch exhibited enormous power in the organization. As soon as he came on board, he centralized the business structure and started suppressing the ideas, feedbacks and suggestions of the employees (Anand & Daft, 2010). The culture in the organization which was prevailing at that time was mechanistic and bureaucratic in nature. In these type of organizations, employees are not powered enough to take part in the decision making. The leadership of Piëch was of transactional type as he wanted to standardize the process and business model. The employees of these types of organizations have no job satisfaction and thus the attrition rate increases severely in this type of organization. Autocratic rule which was prevalent in Volkswagen at that time frightened managers of that organization to oppose the views of the CEO Piëch (Avolio, Bass and Jung, 1999). During meetings no one dared to raise voice against Piëch and suggest any new idea. Any executive who opposed Piëch was fired off the organization.

But on the other side, Piëch was the person who made Volkswagen as one of the most sought brands around the globe because of his immense passion and knowledge of automobiles. He always trifled with the designs and specifications of the cars. He always was successful in creating best fit between the requirements of the customers and the offerings made by Volkswagen (Bensman & Rosenberg, 1960). The mission of Piëch was revolving the company into the most dominant and esteemed Automobile Company in the world.

The time of retirement of Piëch has come so it is very difficult for the company to sustain the same business model when other automobile giants are adapting to the philosophy of organic and informal organization structure. No more authoritative rule can drive the success of the growth of the company. Employees need to be empowered enough to take decisions of their own. This helps in generating sense of belongingness and responsibility towards the company. Now the crisis is hovering over Volkswagen as the productivity of employees is very less at many plants and also the operation is beleaguered because of high labor costs involved (Howell, 1988).

Presently the CEO has been changed to Bernd Pischetsrieder and Piëch is now chairman of VW’s executive supervisory board. Piëch is still having the power to appoint the board of members of management according to German corporate law. Top management still believes that Piëch will control the decision making of Volkswagen group. Pischetsrieder is considered to be a man who believes in the philosophy of “walk the talk”. Thus the needed change is expected from him to sustain the leadership in automobile industry (Janis and Mann, 1992).

Presently the CEO should focus on changing the organization structure from bureaucratic to non-bureaucratic and from formal structure to casual structure. This will help the management to flow the information in less time with clear understanding of the organization goals and objectives. Flat organization structure helps in fast decision taking and also the employees feel much more empowered to take decisions. Employees start getting emotionally connected with the organization and thus increasing the productivity of individual employee increases. The decentralized decision making in the organization helps in getting the feedbacks and suggestions from the operational level of company (Mengis & Eppler, 2008). Regular staff meetings should be held in Volkswagen Company to know the suggestions. Employees should be rewarded for outstanding creative suggestion as it will act as a motivating factor for all the employees.

The organization structure change is not an easy task which gets completed in days. It takes several months or year to properly change the culture of the organization. The leadership skills of Pischetsrieder will be very crucial for the success of organizational structure change. Because culture in the organization flows from top to down. Top management of the company should be freed from the hold of ideologies which was imbibed by Piëch. This can be done by showing them that the previous business system is leading to losses and the new management system will break the old clutter and help in increasing the employee satisfaction, productivity and sustained profitability. If top management of every functions will be trained enough to handle all these situations then they will train their middle level managers to start taking decisions and inviting suggestion from their subordinates (Miles & Snow, 1992). In this way the organization will understand the importance of decentralized and casual structure of the benefits of this structure. Without business process restructuring, no organization will achieve long term success and will fade away by the competitive wind. Main factors which are acting as barriers by the Volkswagen group are labor law which leads to high labor cost and low productivity of labor. Both of these hurdles will be taken care by the structure change in the organization as increased empowerment leads to increased job satisfaction and increased job satisfaction leads to increase in the productivity of employees. Volkswagen should also stick to the core principles of them like advanced German engineering and design. This USP of the Volkswagen cars make the customers starve for them. Thus high quality complimented with the centralized organization structure will bring the leadership on the side of Volkswagen again (Starkey, Barnatt & Tempest, 2000).

Reflection:

There are many English companies which are doing very well in the global market and have outsourced almost 100 % of their work in developing countries like china and India (Conger and Kanungo, 1998). Same can be done with the products of Castlebridge & Company. This will not only increase the margin but it will also help in retaining the brand image. Also just focusing on the few high value customers will not help in sustaining constant growth. Economic fluctuations or sudden economic calamity can make these customers more averse towards spending. Thus the company should focus towards larger customer base and this makes the recommendation more powerful that company should enter the global market.

Learning from this case is that the national interest is very important for the company but it should hamper the existence of the company in long term. Thus companies should devise strategies which fulfill the objectives of the organization and at the same time it should not hurt the sentiments of the citizens of the home country. Also the awareness and communication is very powerful tool to derive the solution of any problem which comes ahead. Effective communication leads to proper understanding of core ideology of the organization by the internal and external customers (Anand & Daft, 2010). Reflection from this case can be observed as the brands which want to enter the global market without hampering the identity as well as core values and ideologies. This case also raised the issues of having American CEO in a British organization. American CEO does not completely understand the culture of Britain. American culture and British culture is very different from each other. In American culture people generally are less valued and thus consumerism is on the high in the American society. Whereas in Britain or United Kingdom people still respect their nation and the culture. They have great intensity of emotional bonding attached with their country and people. They do not want that their country image get blurred in-front of other people. Thus the difference in the culture also changes the behavior and attitude of the citizens residing in that country. Thus it can be observed that decision of CEO was influenced by the culture in which she was bought up. Top management of a company should be such that she must be aware of the requirement and need of the domestic people (Bensman & Rosenberg, 1960). She should be able to take decisions which do not hurt the sentiment of masses. Thus a successful CEO not only increases the shareholder value of the company but it also increases the emotional bonding of the people with the company. Thus the national interest holds very high position of every company but it does not holds value when the existence of the company is on stake. Thus top management should try to take care of sentiments as well as shareholders value (Starkey, Barnatt & Tempest, 2000)..

The case study- Volkswagen’s Ferdinand Piëch talks about the repercussions of the authoritative rule of Piëch in Volkswagen group of brands. This authoritative rule has changed the mindset of the middle manager as they are now incapable of taking decisions in the normal conditions. These middle managers are so much adapted to the existing business model that they are unable to change and alter their behavior. From the case it can be learned that as the time and technology changes the person or leader should change their mindset depending upon the changing market demand. If the leader does not change him then he should leave the place of strategic leadership for some other person which he thinks deserves that position (Clegg, Kornberger & Pitsis, 2005). If leader like Piëch with an attitude of Authority and mechanistic behavior does not change their mode of working then the whole organization suffers because of them. Thus for the greater benefit of the all the stakeholders involved, the company should select the top management which respects the sentiments and emotion of their employees. The suggestions and ideas given by employees sometimes change the condition of organization. This change cannot be bought by single individual. For success of organization in this cut throat competition, involvement and engagement of all the employees is very necessary. Without the emotional bonding, the employees will feel that they are not the part of the family and thus will not contribute fully towards the success of the organization (Gudykunst & Ting-Toomey, 1988). The organization all over world are now moving towards adaptation of flat structure to reduce the information flow time.

This case was focused towards the authoritative rule which was prevalent in Volkswagen group of companies because of former CEO Ferdinand Piëch. This authoritative rule brought glory in the beginning but as time passed and scenarios started changing, Volkswagen started facing the losses. Thus it can be concluded that organization culture and structure change is required as the market scenario, level of competition and technology changes (Robbins & Hunsaker, 1996). To remain ahead of the competitors, an organization needs to modify their strategies. If the organization sticks to similar approach to longer period then innovation will take back seat and the overall productivity of the firm gradually reduces. Thus need of time has to be understood and corrective action should be taken simultaneously.

References:

  • Allinson, C.W. (1999) Personality and bureaucracy. In Rosenfeld, R.H. & Wilson, D.C. Managing Organisations: Text, Reading and Cases. Berkshire: McGraw-Hill.
  • Anand, N. & Daft, R.L. (2010) What is the right organisation design? In Wagner, J.A. & Hollenbeck, J.R. (Eds.) Readings in Organisational Design. New York: Routledge. (pp. 455-472)
  • Avolio, B.J., Bass, B.M. and Jung ,D.I. (1999). Re examining the components of transformational and transactional leadership using the multifactor component questionnaire. Journal of Occupational and Organisational Psychology, 72, 441-462.
  • Bensman, J. & Rosenberg, B. (1960) The meaning of work in a bureaucratic society. In Stein, M., Vidich, A. & Manning White, D. (Eds.) Identity and Anxiety. New York: The Free Press.
  • Clegg, S., Kornberger, M. & Pitsis, T. (2005) Managing and Organisations: An Introduction to Theory and Practice. 3rd edition, London: Sage Publications Ltd.

by Dr Alessandro Merendino and Prof. Marylyn Carrigan, Centre for Business in Society

There seems a dreadful inevitability within business today that sooner or later the greatest colossus are destined to collapse under the weight of frauds and governance scandals. We only have to reflect on some of the major scandals of the last couple of decades: Enron, Wal-Mart and Lehman (USA), Parmalat, Cirio and Alitalia (Italy), Royal Bank of Scotland, Tesco (UK), Veolia (France) and now Volkswagen in Germany.

When scrutinized, there are threads of commonality running through all these scandals.

Firstly, much like a product ‘life cycle’ all companies go through birth, growth, maturity and decline leading to a rebirth or death of the company. We can speculate that VW is experiencing the decline phase, which is not directly connected with the product life cycle. This means that this corporate crisis may not be related to the products’ obsolescence. Indeed, while the car industry is still surviving, VW the organization has now entered in the precarious decline phase that can lead to either a rebirth or a death. The board of directors, also referred to as ‘the fire department’, has been activated to douse the blaze, i.e. the fraud scandal. In some cases, when a firm is about to be dissolved with the inevitable spillover negative impacts in the economy (customers, suppliers, employees, etc.), the government may take over it, as has already happened in previous major company scandals that have been perceived to threaten national, or at the very least, local, stability (e.g. in Italy, in the UK, etc.).

Second, after any major crisis, scandal and fraud, there is a step change in the dynamics of the firm (internally and externally) demanding and driving change. The board of directors, who are tasked with steering the company, has the power to make a difference in this respect. In other words, the top management, or what is often referred to as the ‘elite’ class, needs to be replaced; indeed there are almost immediate stakeholder demands that they are. The new CEO and eventually the new Board now face a pivotal role, i.e. to recover the company’s reputation and financial stability, and to build trust among investors and other key stakeholders. Indeed, it seems that when the scandal breaks, the often silent board members suddenly find their voice as they strive to fix ‘the gaping holes’ within the firm as quickly as possible. Time is one of the key success factors, particularly, as in the case of VW, when share prices seem to be tumbling on an hourly basis, as the scale of each new governance misdemeanour emerges.

Image: Shutterstock/Simone Mescolini

Thirdly, a renewed version of corporate governance codes or guidelines may be released by regulators and legislators, as has happened in the wake of previous international scandals, in attempts to plug those governance holes exposed by the corporate crisis. The renewed version usually strengthens the role of independent directors (for instance by suggesting an increase in number) and committees that are entitled to monitor and control the top management. Thereby, it seems that regulators are more keen on introducing monitoring tools to prevent future crisis, for instance by increasing the number of independent directors, appointing new internal committees (risk and audit ones), etc. Unfortunately, the world of business does not seem to work so easily. In fact, it is not just by increasing the number of independents that the board could perform better. Indeed, some other internal and behavioural aspects that corporate governance codes cannot encapsulate may play a paramount role. More concretely, will the board members of VW be able to critically and constructively support the new CEO? Will the board members be powerful, charismatic and sufficiently knowledgeable enough to control, advise and provide resources based on their networks to support the new CEO? Will the latter be able to listen to board members and to build a constructive discussion with them? Will the chairperson be capable enough to mediate all the contrasting interests and ‘voices’ coming from CEO and independents? Will the chairperson have the capabilities to stimulate a fair and fruitful debate within the boardroom? And perhaps most importantly, will they possess the strong moral compass that is necessary to guide the company to a more responsible and successful future?

We cannot predict the future of VW but based on past scandals experiences, it seems that VW has all the potential to become again one of the leaders in the cars industry, due to the new CEO, co-operative behaviours among directors and the support of the chairman.

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