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VW's Shift In Strategy Is Starting A New Era

Volkswagen ’s New CEO Is Moving Forward With A Strategy Shift

19Oct

Germany is synonymous with advanced automobile manufacturing, and Volkswagen - while not as luxurious as Audi, BMW or Mercedes Benz - recently overtook Toyota as the world’s leading car producer by revenue.

The company has, however, been in the midst of a worldwide controversy since September 2015. The Environmental Protection Agency (EPA) discovered that around 11 million Volkswagen engines had been fitted with a ‘defeat device’, designed to lower the car’s emissions when being tested. Although it’s difficult to link the added pollution to individual deaths, both the Associated Press and the New York Times estimate that the scandal could have caused between 16 to 106 deaths in the U.S alone.

While the nature of the controversy was always going to tarnish their reputation, it was further accentuated by a marketing campaign which heralded the company as environmentally friendly. As such, heads have rolled. The most prominent was the resignation of former CEO, Martin Winterkorn, who was replaced by Matthias Müller - previously the CEO of Porsche.

Müller will be tasked with revitalizing the company’s image, and also restructuring the company so that it moves away from the centralized system that had served it for so many years. Previously, major company decisions were only made in Wolfsburg, and only involved a very select group of senior managers. This meant that managers who controlled individual brands were often ignored, despite their specialized knowledge. Under Müller, they will be given much greater authority to make strategic changes when they see fit.

Former CEO, Martin Winkertoon, isn’t out of the picture entirely. He may not be head of Volkswagen anymore, but he remains the CEO Porsche Automobil Holding SE - the company’s main shareholder. His presence has called some to question whether Müller can carry out the necessary overhaul.

Volkswagen’s corporate culture was highlighted as a contributor to the emissions scandal. The centralized decision making structure meant that the workforce was often unaware of the company’s next move, and promoted a culture of secrecy. Müller’s plans to change this, however, could rely on the extent to which Winkertoon is given power to contribute.

If Müller has his way, the company will reorganize into twelve separate brand groups, all of which will have their only senior management teams and decision making structures. This will take power away from Wolfsburg and make the company more transparent and competitive.

The scale of Volkswagen’s problems makes Müller’s position arguably the most challenging in business. He must take heart, however, from how the company’s contemporaries have responded, and recovered, from similar incidents in the past. Volkswagen’s closest rival, Toyota, had perhaps an even tougher mountain to climb after it was forced to recall 8.8 million cars after an accelerator issue caused multiple deaths. Through extensive marketing, and an exoneration from NASA, however, they were able to reassert themselves as a market leader.

There’s hope yet.

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