Volkswagen Case Study

Posted: December 22nd, 2022

Volkswagen Case Study

Student’s Name

Institutional Affiliation

Volkswagen Case Study

            Volkswagen is among the leading car manufacturers on a global scale. The company has a workforce of more than 500,000 employees and manufacturers at least 40,000 automobiles every day. It has gained popularity due to the quality and reliability of its products, as well as its environmental considerations. However, Volkswagen came into a negative light in 2015 after the discovery of fraudulent activities in the promotion of “clean diesel.” The company manipulated its emissions tests to give results that indicated fuel efficiency. The scandal highlighted how large corporations could exploit political and ethical issues of the environment for their benefit.

Background of the Scandal

            Volkswagen promoted “clean diesel” in the USA as a strategy towards increasing its sales in the country. The management set an ambitious sales target of 10 million cars, which would have seen the company increased its sales by $4 million. This strategy addressed the need for environmentally-friendly vehicles in America. However, upon assessment, engineers found that the vehicles could not meet the stiff regulations. Therefore, they resorted to diesel-emissions cheating by developing a “cheat device” that could enable diesel cars to pass the US emissions tests. The engineers also worked within a strict budget and timeframe, making it difficult to generate more practical solutions.

            The top management was aware of the cheating and remained ignorant of possible consequences. Volkswagen has a controversial history as the company has practiced deception to achieve its objectives. These controversies are associated with its ownership, micromanagement of the US branch, and ineffective board of directors. Therefore, it would be difficult for the engineers to execute any operations without the management’s approval. However, Volkswagen issued a public statement explaining that it was difficult for the administration to know about the cheating device as they did not have the technical knowledge to understand how the device worked. Although this declaration is valid to some extent, the micromanagement approach of leadership contradicts it. This structure of management implies a thorough knowledge of each department’s operations.

Volkswagen’s Management Structure

            Volkswagen has an unusual management structure, with a board comprising of influences from labor unions, the government, and the Porsche family. The company incorporates a top-down structure, whereby the executive management is responsible for decision-making while excluding key parties. However, it presents some challenges that inhibit effective governance and employee productivity. Volkswagen’s response to change is slow, as evidenced by their delay in adding cupholders in their American models. Additionally, the organization experiences significant blind spots by failing to consider the employees’ input in the decision-making process. The staff and other shareholders have direct interaction with the consumers and the product, giving them first-hand information on how to improve the products.

            The dated organizational structure and culture likely contributed to the scandal since the employees barely impacted the final decision. The executive management was responsible for overseeing the production process and ensuring compliance with the US regulations. However, they shifted the responsibility to the engineers, outlining the significance of the end-goal. The latter were under immense pressure to meet the restricted deadline within the provided budget. They considered the development of the cheat device as an effective strategy towards achieving their goals and pleasing the management.

            Steven Kerr explained that many organizational problems result from faulty incentives and ineffective reward system.  Although these practices target to accomplish particular goals, they motivate the staff to operate in the opposite. Therefore, managers should consider the development of new reward systems to address the lack of employee morale. The management sets high goals without providing direction on how to achieve them. The CEO demanded an increase in American sales from 6 million to 10 million within a limited timeframe. This approach created a hostile work environment that eventually led to the decreased employee morale. This issue resulted in the development of the cheat device to satisfy the management and avoid negative repercussions.

Long-term Implications

            Volkswagen will undergo several regulatory investigations across the globe, and it will have to pay significant fines to compensate for the environmental damage caused by its vehicles. It would also take a long time for the company to recover from its falling stock prices. As Volkswagen had to recall millions of cars after the discovery of the issue, it incurred significant losses. Despite its efforts to repay for its failures, the company will likely lose a considerable market share. Therefore, it has to invest in developing electric vehicles and consider redirecting its resources from marketing diesel cars. In the automotive industry, the company may lose its market if it does not integrate effective measures to mitigate emissions from its cars. More companies are investing in the production of electric vehicles as they do not produce emissions. Other technological organizations could also venture into car manufacturing to fill in the demand for electric cars. For example, Tesla started developing models of such vehicles, and the company is expected to begin large scale production soon. Therefore, organizations should operate within the legal requirements and reinforce the importance of ethical conduct in the corporate culture.

Extent of the Problem in the Automobile Industry

            The case of Volkswagen is beyond some ‘bad apples’ as it extends across the entire organization. The corporate culture of the company created an environment where unethical practices could foster profitability. As the competition in the automobile industry is stiff, companies have to implement vigorous strategies to stay competitive. As evidenced by the history of the market, other companies, such as Toyota, General Motors, and Ford, have also got into scandals associated with the production of vehicles. Therefore, it is also vital to have individuals accountable for their actions through legal actions. Conversely, several other companies in the industry, such as Nissan, have succeeded in the production of its cars per the regulations. Its success proves that automobile companies can excel without implementing illegal approaches.

Solutions for Volkswagen

            The possible and practical solution for Volkswagen would be rebranding. As the company has got into one of the biggest scandals in the automobile industry, it would take some time for it to recover its previous reputation. Rebranding could involve changing the company’s name and hiring new management. This strategy could help improve its brand image and regain the public’s trust. Rebranding could also be used in the development of efficiency programs that lead to the production of more sustainable and high-quality vehicles. While this strategy is a risky and costly endeavor, it could help to dissociate the company from the negative publicity. Volkswagen should also change its management structure and introduce a more effective organizational culture. The restructuring will also require a new executive board of the organization, comprising of individuals who can provide objective perspectives and contribute to the enhancement of the decision-making process. The company should also introduce a platform that will engage employees in the organization’s activities. In such a way, it can build trust between the management and employees and boost their morale.

Conclusion

            The case of Volkswagen shows how large corporations can exploit the public’s trust for their profit. The company is now considering restructuring and rebranding its image to avoid negative publicity. It focuses on the development of more fuel-efficient cars to guarantee its longevity in the industry. Considering various scandals surrounding automobile manufacturers, it is evident that the problem is not new in the industry.  Therefore, governments should impose stricter fines and penalties for companies that violate laws.