Edgar Anaya

March 20, 2014

James McClain


Volkswagen Case

In the last decade, Volkswagen experienced an interesting scenario with its
foreign subsidiary of Volkswagen do Brasil (VWB). Brazil was an economically
attractive country with the one of the largest economies in the world and with a hopefully
fruitful future. But like always, there are ups and downs in a competitive business, and
VWB has had their fair share. They first opened plants in Brazil in the 1950s gaining
strong market share. Less than 50 years later they became the number one in automobile
sales with over 500,000 in 1997. But of course, Brazils economy and currency collapse
several times throughout VWBs stay in Brazil. So unless Volkswagen wants to back out
of a large opportunity and leave Brazil, they are forced to continue operations while
experiencing negative profit.
Recently, around 2003, VWB began a new restructuring plan and eventually hired
a new CEO by the name of Thomas Schmall. With VWB holding some of the highest
inventory and sales levels in its recent history, Schmall knew something needed to be
done better to improve operational performance. Schmall later assembled a team of
highly qualified executives to figure out VWBs much-needed areas of improvement.
What they came up with was the Strategy Map and the Balance Scorecard. These
tools were to be incorporated throughout the whole company, from CEO to the shop
floor. And a dedicated team from the top was needed to effectively communicate it to the
lowest level. This was done methodically by having all executives take a two-day
training program to comprehend what the strategy map and balance scorecards roles are
in the company. In my opinion the balance scorecard is a very efficient and effective
way of organizing, monitoring and controlling the progress of a companys goals and
strategies. Previous strategies were too complex. The Strategy map simplified the goals
of the company into 4 distinct categories each having a number of objectives. Each
executive is assigned one objective. Each objective owner was responsible for the
performance and monitoring of that objective. This new way of doing business was
strong because it gave management a more organized and controlled role, if ever there
needed to be any managerial interference.
Another key thing that VWB did regarding management practices was to reward
and compensate their employees well. They knew well compensated employees are
happier, more motivated, and more committed. They executed this well by tying many
employee bonuses to an individuals performance, as well as of a percentage of
objectives completed. They also gave professional recognition to employees by initiating
contests and handing out awards. This leads to strong internal promotion. And lastly,
VWBs financial position was improved even more when they offered and extended
training programs and awards seminars to its best performing suppliers.
If I had to recommend, Volkswagen does Brazil anything, it would have to be
to maintain its current strategies in its management process, and also to keep operational
cost as low as possible. The Brazilian economy could be very rewarding, but its high
volatility could make VWB vulnerable if there operational performance is not up to peek.
But I am sure the executives at VWB or aware of that and will do there best to minimize
any risks and threats that come there way.